TDIC takes $1bn haul as foreign investors flock to Gulf issuers

26/06/2009 | Sid Verma

Gulf debt issuance takes off

Abu Dhabi’s Tourism Development & Investment Corp (TDIC) launched a $1bn five year bond on Thursday, sustaining the strong momentum for Gulf issuers with a fairly priced and globally distributed deal.

The strong demand and stable aftermarket performance — in line with recent transactions from the Gulf — confirmed investor demand for high-quality credits in the region despite the large amount of supply in recent months, said analysts.
On Thursday, TDIC (Aa2/AA/AA) via bookrunners HSBC, BNP Paribas, Citigroup and Standard Chartered released official pricing guidance of 400bp area over US Treasuries for a $1bn five year deal.

Around 300 accounts generated a total $6n of demand, which allowed the leads to lower the re-offer yield for the Reg S 144a deal to 6.579%, or 390bp over US Treasuries.

The recent supply of the sovereign and state-backed peer Mubadala over the past three months provided the pricing guidance. TDIC’s 2014s represent a 150bp pick-up to Abu Dhabi’s April $3bn 2018s.

This represents a 75bp to 80bp premium to Mubadala that issued a $1.75bn dual tranche five and 10 year deal at the end of April, the first non-sovereign issuer from the Middle East to price a dollar benchmark since Taqa last July. In April, Mubadala paid a 100bp to 125bp premium over the sovereign to launch its debut issue. TDIC’s pricing was right for investors, though, with the deal six times oversubscribed and 250 accounts participating.

On Wednesday, the borrower finished its week-long roadshow, which in the Gulf-leg of the tour featured the chairman of the state-owned company, Sheikh Sultan Bin Tahnoon Al Nahyan. A banker on the deal said the high-profile delegation reassured investors of the company’s state-backed status and addressed fears over its core exposure to cyclical industries tourism and property.

This contrasts with Mubadala’s more diversified business streams, which — along with the softer market tone this week — accounts for TDIC’s premium over Mubadala. The bonds feature a change of control put in the event that the Abu Dhabi government’s stake in the borrower falls below 100%. The US took 30%, Europe 33.5%, the GCC 25%, and Asia 11.5%.

"This is the first deal from Abu Dhabi with Asian participation in double digits and benefits from a beautifully balanced and diversified order book, both geographically and by type," said Andrew Dell, head of debt capital markets for the CEEMEA region at HSBC in Dubai. Asset managers bought 47% of the bonds, banks 35%, hedge funds 11% and others 7%.

However, like similar cross-border deals from issuers in the region, it is unclear to what extent traditional emerging market investors participated in the deal as London and US-based MENA accounts may skew the distribution statistics, said analysts.

In addition, dedicated emerging market corporate bond investors have strong concerns over the risk management and governance structures of the new issuers coming out of the Gulf. "I did not participate in the deal because there is very little transparency, disclosure or guidance as to the company’s investment plans," said Polina Kurdyavko, portfolio manager at BlueBay Asset Management.

A five year tenor was chosen as the sweet spot for global investors while the single-tranche format was the most efficient structure to ensure liquidity in the transaction given the $1bn ceiling. "Investors wanted a large, liquid benchmark in a single tranche and the issuer wanted to establish a well performing debut issue with a diversified global distribution," said Samad Sirohey, managing director at Citigroup in Dubai.

The deal tightened from its 99.668 reoffer price to 100.375. "The good aftermarket performance of the Abu Dhabi and Mubadala deals and investor appreciation and understanding of the Abu Dhabi credit helped ease concerns about technical pressure caused by potential supply of paper from the region," said Sirohey.

Bankers away from deal said TDIC’s debut ticked all the right boxes. "This was a completely fair and sensible transaction since the strong demand, pricing, and geographic distribution of the deal was not surprising as the Abu Dhabi, Qatar and Mubadala transactions displayed exactly the same features," said one.

- Shuua Capital agreed to hand state-owned investor, Dubai Banking Group (DBG), a 48.4% equity stake in the investment bank on Thursday, to settle a long-standing row that threatened to tarnish the image of the emirate. DBG will receive 515 million shares in return for convertible bonds with a face value of $408m.

When the convertible matured in December 2008 and Shuaa’s shares were trading well below the Dh6 strike at Dh2.7, Dubai Group refused to convert the bond into shares. It said that conversion was not mandatory, and therefore demanded full cash redemption of principal and interest. The dispute resolution has boosted Shuua’s share price and its creditworthiness, said analysts.

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