Deals of the Year 2013 – Middle East

Bonds: Corporates

Winner: Saudi Electric Company $1.75bn dual-tranche sukuk
Joint bookrunners: Deutsche Bank, HSBC

Highly commended: Ajil SR500m sukuk al istithmar; Altice $1.1bn high-yield bonds
Saudi Electricity Company’s (SEC’s) $1.75bn dual-tranche sukuk in March 2012 broke several records – most notably as the largest and longest-dated international bond ever issued by a Saudi Arabian borrower.

Comprising a $500m five-year tranche due in 2017 and a $1.25bn 10-year tranche due in 2022, the sukuk marked the first international bond issue for the majority government-owned SEC – thereby offering a rare opportunity to buy debt that serves as a proxy for the Saudi sovereign.

The deal is significant in setting a benchmark for other Saudi issuers looking to access the international debt capital markets and its oversubscription is a positive reflection of the market’s confidence in both Saudi Arabia and SEC.

Indeed, the sukuk was well received globally – a comprehensive roadshow covering key centres in Asia, the Middle East and Europe resulted in final order books of $9bn (18 times oversubscribed) for the five-year tranche, and $8.7bn (seven times oversubscribed) for the 10-year tranche. Some 345 accounts placed orders for the five-year tranche, while the 10-year paper attracted orders from 370 accounts.

The tightly priced five-year tranche created pricing tension for the 10-year, limiting SEC’s five-year to 10-year credit spread to 45 basis points, one of the lowest among emerging-market quasi-sovereign credits.
Two other ambitious issues are highly commended in this category. Aji Cayman (Ajil’s) SR500m ($133.3m) three-year sukuk al istithmar comprised an innovative off-balance-sheet sukuk, based on the sale of receivables. In addition, the transaction was structured to incorporate a credit enhancement in the form of a purchase undertaking – the first time such a credit-wrapped structure has been employed in the Saudi domestic capital markets.


Meanwhile, Altice Group’s $1.1bn bond represents the first Israeli take-private (buy-out of a listed company) to be financed in the international high-yield capital markets.
Bonds: SSA
Winner: Dubai Department of Finance $1.25bn Reg S sukuk and bond issue
Lead managers and bookrunners for the sukuk and conventional bond: Emirates NBD, HSBC, National Bank of Abu Dhabi, Standard Chartered
Co-lead managers for the sukuk: Al Hilal, Barwa Bank, Commercial Bank International, Islamic Development Bank, Sharjah Islamic Bank

Highly commended: Qatar $4bn dual-tranche sukuk
In January 2013, the Dubai Department of Finance, acting on behalf of the Dubai government, made a big splash in the Middle East and north Africa capital markets by opening the first issue of the year with a dual-tranche landmark transaction worth $1.25bn.

Split across a dual offering of a $500m 30-year bond and a $750m 10-year sukuk, the swift intra-day execution achieved a combined order book that was 12 times oversubscribed – standing at $15bn.

Both issuances have set new benchmarks for Dubai. The new sukuk ranks as Dubai’s only 2023-dated Islamic bond, while the 30-year bond is the lowest coupon achieved by a Gulf Co-operation Council issuer and the first unrated 30-year public US dollar Reg S trade globally.

The swift intra-day execution of the sukuk took advantage of the positive market environment, with the strong demand resulting in order books estimated at more than $9bn. The appetite for the sukuk and investor interest in the longer end of the curve led the Dubai government to add the conventional tranche to the deal – its first ever 30-year issue.

Indeed, the deal is important in helping the Dubai government to lengthen the average maturity of its debt profile and setting the stage for other Dubai entities to raise longer term financing. In this way, it helps to mark a break from the past and the emirate’s well-publicised problems over the past few years of long-term projects and investments funded by short-term debt.

Meanwhile, the Qatari government’s $4bn sukuk in July 2012 is our highly commended deal. Split among a $2bn five-year and $2bn 10-year tranche, this set a new record as the largest US dollar-denominated sukuk ever.

Equities
Winner: Zain KSA SR6bn rights issue, Saudi Arabia
Sole lead manager, joint financial advisor and lead underwriter: Saudi Fransi Capital (a 100%-owned subsidiary
of Banque Saudi Fransi)
Joint financial advisor and lead underwriter: Al-Rajhi Capital
Underwriters: Alinma Bank, Al Bilad Bank, National Commercial Bank, Saudi Hollandi Bank, Arab National Bank, Bank Al Jazira, Riyad Bank, Saudi British Bank, Saudi Investment Bank
Highly commended: Gulf Keystone Petroleum $275m convertible bond
The SR6bn ($1.6bn) rights issue for mobile telecommunication company Zain KSA in July 2012 was the standout winner in the Middle East’s equities category. With the company accumulating losses approaching 75% of its share capital, which could potentially have forced it to delist from the Saudi stock exchange, this transaction was both extremely time-sensitive and complicated.

The deal needed to address key challenges such as reducing Zain’s debt burden to eliminate high debt servicing costs, injecting equity for capital expenditure on its network and restructuring a large loan that was payable.

Doing a plain vanilla rights issue was not an option since the company’s shares were trading below its par value of SR10 and, by law, new shares could only be issued at par.

Saudi Fransi Capital (SFC) restructured Zain’s balance sheet by proposing a capital reduction, followed by a rights issue and conversion of shareholder loans into equity. The capital reduction helped to write off a large part of Zain’s accumulated losses and in the process of cancelling shares, to increase the trading value of the remaining shares above its par value.
SFC developed a mechanism whereby some of the major shareholders of the company, who had provided shareholder loans to Zain, would subscribe to the rights issue by converting their shareholder loans to equity.
Our highly commended deal is Gulf Keystone Petroleum’s (GKP’s) five-year $275m convertible bond issued in October 2012. GKP, an oil explorer focused on Kurdistan in northern Iraq, made a major discovery of 13 billion barrels of oil-in-place at the Shaikan field.

FIG capital raising
Winner: Abu Dhabi Islamic Bank $1bn Tier 1 perpetual Reg S sukuk, UAE
Lead managers and bookrunners: Abu Dhabi Islamic Bank, National Bank of Abu Dhabi, HSBC, Morgan Stanley, Standard Chartered
Highly commended: Saudi British Bank SR1.5bn subordinated sukuk; National Bank of Abu Dhabi’s RM500m subordinated sukuk
The issuance of Abu Dhabi Islamic Bank’s sukuk in November 2012 grabbed attention for all the right reasons. As the world’s first sharia-compliant hybrid perpetual Tier 1 sukuk, it is the first such instrument to be publicly issued by a bank to meet the new Tier 1 capital requirements. The structure, in line with Basel III requirements, raised its Tier 1 capital ratio to 19% from its previous 13.7%.

Its success can be measured by the fact that the final order book exceeded $15bn – making it 30 times oversubscribed from the initial benchmark size of $500m.

As a perpetual sukuk, it has no maturity date: rather ADIB can choose to repay the bond at selected dates from 2018 if it wishes. Another interesting aspect is that the sukuk helped to open up a new investor base for Islamic bonds; private banks were allocated 60% of ADIB’s issue, in contrast to most regional bond issues which are snapped up by other bank investors.

“With the creation of this instrument, I believe we have set a real example of innovation in the field of Islamic finance,” says Tirad Mahmoud, chief executive of ADIB. “We believe that ADIB has paved the way for other entities and institutions to raise capital through similar simple and investor-friendly instruments.” Fulfilling this expectation, Dubai Islamic Bank, the United Arab Emirates’ largest Islamic bank by assets, launched a $1bn hybrid perpetual sukuk in March 2013, which was also a success, attracted $14bn in orders.

Meanwhile, two deals were worthy of the highly commended category. Saudi British Bank’s $400m five-year subordinated sukuk issued in March 2012 ranks as the first commercial exchange from senior to subordinated security in the region. National Bank of Abu Dhabi’s successful issuance of a Malaysian ringgit sukuk worth RM500m ($163.4m) was equally impressive as the first ever issue of a subordinated sukuk by a foreign bank in Malaysia.

Infrastructure and project finance
Winner: $1.9bn Jubail Industrial City acrylates complex project, Saudi Arabia
Financial advisor: HSBC
Mandated lead arrangers: HSBC, Samba Capital, Alinma Bank, Al-Rajhi Capital, Bank Al Jazira, Banque Saudi Fransi,
Riyad Bank, Saudi Hollandi Bank, National Commercial Bank, Saudi British Bank
Highly commended: Kuwait Energy $165m reserve-based lending; $900m Tamar gas field financing
The financing of the $1.9bn integrated acrylates complex located in Jubail Industrial City in Saudi Arabia was both a complex and innovative deal to pull off.

The transaction involved nine of the 11 Saudi commercial banks financing three separate project companies that comprise an integrated petrochemical complex focused on the production of acrylic acid.

It marked the first time in the Middle East and north Africa region that three greenfield project companies with different shareholders were financed on a non-recourse basis under a single financing package.     

This makes it all the more impressive that the transaction was so oversubscribed. The fact that all the Saudi banks that are active in project financing participated was central to helping the sponsors close the financing at optimal terms within a short period.

The financing for the project was arranged through a debt-to-equity ratio of 70:30 with a 16-year tenor. The senior debt comprises an aggregate of about $1.35bn Islamic facilities – divided into two Islamic tranches of debt for each of the three project companies.

Two market-changing deals were highly commended. The first was the stand-out $165m five-year reserve-based lending facility secured by Kuwait Energy to finance energy production in Egypt and Ukraine in December 2012. Not only was the deal closed in extremely turbulent times, it was extremely challenging to structure and required new methods of assessing and distributing risk.

Meanwhile, the $900m financing of Israel’s Tamar gas field in August 2012 will help fund the sponsors’ share of development costs for the field which ranked as the largest global gas find of 2009. It will enable Israel to become self-sufficient in gas supply for approximately 20 years.

Islamic finance
Winner: Jebel Ali Free Zone $2bn sukuk refinancing, UAE
Financial advisor: Rothschild
Bank facility arrangers and bookrunners for sukuk: Abu Dhabi Commercial Bank, Dubai Islamic Bank, Emirates NBD
Bank facility coordinators and bookrunners for sukuk: Citigroup, Standard Chartered
Bookrunners for the sukuk: Abu Dhabi Islamic Bank, National Bank of Abu Dhabi
Joint lead manager: Samba Capital
The refinancing of Jebel Ali Free Zone’s (JAFZ’s) $2bn five-year sukuk impressed the judges on many fronts as it represented the largest refinancing in 2012 by a government-related entity in Dubai and was a complex deal.  

Due in November 2012 but completed in June 2012, the refinancing was executed within a challenging market environment, with debt capital market issuances mainly limited to stronger government-affiliated credits and with a high yield being demanded by investors. In addition, JAFZ was regarded by the market as highly leveraged and the size of the deal required the participation of up to 10 banks for the syndicated facility.

In spite of these factors, JAFZ achieved an attractive pricing in both debt facilities and the deal saw strong demand from regional and international investors, with the order book 3.1 times covered.

Comprising a $1.2bn eight-year syndicated amortising bank loan priced at 425 basis points (bps) over Libor, with an agreed 50bps step-down in margin based on the company’s leverage profile, it also included a $650m dollar-denominated seven-year sukuk priced at a 7% fixed rate (circa 560bps spread over mid-swaps), and the use of existing cash reserves to repay the outstanding $2bn sukuk ahead of maturity.

Due to its high leverage levels (6.3 times net debt/2011 earnings before interest, tax, depreciation and amortisation), and being one of two remaining major Dubai government-related entity debt maturities in 2012, the refinancing process was closely monitored by the markets and seen as a test of Dubai’s ability to access banking and debt capital markets following the $24.9bn Dubai World restructuring in 2011. Therefore, its successful closure, undertaken with no government support, had a positive impact on the overall Dubai credit story.

Loans
Winner: Taqa’s $2.5bn dual-tranche syndicated loan, UAE
Bookrunners: Bank of America-Merrill Lynch, BNP Paribas, Bank of Tokyo Mitsubishi UFJ, Citi, HSBC, National Bank of Abu
Dhabi, RBS, Société Générale Corporate & Investment Bank, SMBC, Standard Chartered

Mandated lead arrangers: Bank of China, Doha Bank, First Gulf Bank, Lloyds TSB, Mizuho, Morgan Stanley, DNB

Highly commended: Ma’aden’s SR9bn redrawable Islamic finance facility
Abu Dhabi National Energy Company’s (Taqa’s) $2.5bn syndicated loan won the judges over on several counts. Used to refinance the three-year tranche of Taqa’s $3bn revolving credit facility maturing in December 2013, it was a big and complex deal involving 10 different banks which ranks as the largest syndicated loan in the Gulf Co-operation Council in 2012.

With 16 banks committing $3.22bn – leading to a 1.6 times oversubscription – the syndication was such an overwhelming success that it enabled Taqa to upsize the transaction to $2.5bn from the initial size of $2bn. Another impressive score was that seven banks committed at the highest ticket offered ($125m), out of which six were new lenders.  

Also impressive is the fact that while there were a lot of banks involved, it was a swiftly executed deal, with the bookrunners closing the books within a month. Furthermore, thanks to the broad lender base, which included regional and international banks, the facilities were able to be structured with multi-currency availability, drawing in US dollars, euros, sterling and Canadian dollars.

Taqa is a government-controlled entity that provides 98% of the water and electricity requirements in Abu Dhabi. Consequently, its government ownership, strong credit profile and long-standing relationships with its core international banks made the financing an attractive loan opportunity for banks from across the world. This is reflected in the geographical split of lenders by volume, with Europe accounting for 37%, Asia 26%, North America 19% and the GCC 18%.

The highly commended deal was Saudi Arabian mining company Ma’aden’s signing of a $2.4bn five-year redrawable Islamic loan facility.

M&A
Winner: Mannai Corporation/EFG Hermes Capital Partners acquisition of Damas from the Abdullah Brothers, UAE
Financial advisor to Damas: Nomura
Financial advisor to Mannai Corporation: EFG Hermes
Highly commended: QInvest merger with EFG Hermes
One of the most exciting Middle Eastern deals in 2012 was the $445m acquisition of a 78% stake in the Middle East’s largest jewellery and watch retailer, Damas, by Qatar’s Mannai Corporation and Egyptian investment bank EFG Hermes.

The deal saw Mannai acquire a 66% stake while EFG Hermes acquired a 19% stake. The founding shareholders – the three Abdullah brothers – will retain the remaining 15% of the company.

It was both a complicated and strategically important deal for the market. Damas is a household name in the Middle East – operating 296 jewellery stores with a turnover of $800m.

The acquisition also involved the banks delisting the jeweller from Nasdaq Dubai and spearheading the refinancing of $650m of Damas’s term loans and working capital facilities. It also helped restore the health of the company by accelerating the repayment of amounts owed to Damas, thereby enabling it to pay down bank debt.

As the first financial sponsor backed take-private transaction in the Gulf Co-operation Council region and the largest cross-border acquisition of a company from the United Arab Emirates since 2007, it is believed that this deal will serve as a catalyst to otherwise infrequent cross-border merger and acquisition activity within the Gulf.

Our highly commended deal in this category is the merger between Egypt’s EFG Hermes and Qatari investment bank QInvest. The merger will see QInvest inject $250m in capital into EFG Hermes for a 60% stake in the new entity – retaining the name EFG Hermes – which will rank as the biggest investment bank across the Middle East and north Africa region.

Headquartered in Cairo, with offices around the region, EFG Hermes is targeting an increase in assets under management from the current $3.4bn to $5bn within the next few years.

Restructuring
Winner: Global Investment House $1.7bn restructuring, Kuwait
Chair of creditor coordinating committee: Abu Dhabi Commercial Bank
Financial advisor to Global Investment House: Evercore
The $1.7bn debt restructuring of Kuwait’s Global Investment House (GIH) broke new ground as it was the first Middle Eastern company to use the UK legal system to bind dissenting creditors and consequently implement its restructuring plan.

It was a complex deal, as 53 banks were owed $1.7bn by the company, with about $1.5bn in loans, which fall under UK law, and $200m in bonds, which are largely held by Kuwaiti investors.

Under the restructuring, GIH created two special purpose vehicles, one of which will hold company assets, along with debt, worth $1.3bn. The second vehicle will take part in a capital increase for the parent company, in which GIH will offer Kd122.2m ($433m) of new shares to creditors, leaving them owning 70% of the investment company. As a result, the company is expected to become debt free.

The aim of the restructuring is to separate GIH’s core fee business from its non-core principal investments and a related transfer of debt obligations, which will result in it becoming a substantially deleveraged company.

Upon completion, GIH’s core business will comprise the existing asset management (about $3.5bn of assets under management), investment banking and brokerage.

The deal has drawn a line under a debt saga that has dragged on since the onset of the global financial crisis in 2008.

It was an exceptionally complex deal to close, and represented the second round of restructuring after an earlier agreement failed, as assets devalued and the amounts needed could not be raised.

It is believed that this deal could set a new precedent for debt restructuring in the Gulf, with regional companies looking to foreign jurisdictions so as to bypass the lack of sound bankruptcy laws and tried and tested regulations on their home turf.