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Deals of the Year 2014 – Middle East

The Deals of the Year winners from the Middle East.
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Deals of the Year 2014 – Middle East

Bonds: corporate 

WINNER: Almarai SR1.7bn perpetual sukuk

Bookrunners: BNP Paribas, Saudi Fransi Capital, HSBC, Standard Chartered

HIGHLY COMMENDED: Saudi Electricity’s $2bn sukuk

In a sign of the developing landscape for corporate hybrid securities in the Gulf Co-operation Council region, Saudi Arabian integrated consumer food producer Almarai issued a SR1.7bn ($453m) perpetual sukuk in September 2013. Notably, this was the first hybrid sukuk offered by a non-bank corporate in the Gulf, as well as the first Saudi riyal-denominated perpetual sukuk issuance for a corporate entity.  

Demand for the securities was high and driven by the domestic market, including various government entities, bank treasuries and asset managers within the country, enabling Almarai to issue at the upper tier of its target SR1.7bn size.  

Joint lead managers BNP Paribas, Saudi Fransi Capital (a 100%-owned subsidiary of Banque Saudi Fransi), HSBC and Standard Chartered executed the issuance in eight weeks. For Almarai, the hybrid offer was regarded as an opportunity to diversify its financing options as it executes long-term expansion plans. 

Additionally, the hybrid issuance was classified as equity, allowing Almarai’s balance sheet to remain protected. Under the terms of the offer, the price was set at six month Saudi Interbank Offered Rate plus 200 basis points, with a non-call period of five years. Following the expiration of this term, the coupon step up was set at 750 basis points.  

The offering constitutes part of Almarai’s 2013 to 2017 capital spending programme, totalling SR15.7bn. Much of this spending will cover growth requirements across the company’s key operations, including farming, logistics and distribution. 

The Almarai offering comes off the back of the world’s first sharia-compliant Tier 1 hybrid sukuk, by Abu Dhabi Islamic Bank in 2012, followed by a similar issuance from Dubai Islamic Bank in March 2013. 

In the highly commended category, the judges recognised Saudi Electricity’s $2bn sukuk, the largest and longest international Saudi issuance, which also constituted the world’s first 30-year senior unsecured US dollar sukuk. 

Bonds: SSA

WINNER: Jordan $1.25bn seven-year bond

Bookrunners: HSBC, Citi, JPMorgan

Regional political turmoil coupled with a growing fiscal deficit has stunted Jordan’s economic growth in recent years. In response, the authorities are trying to shore up confidence in the country’s growth prospects by embarking on an ambitious round of economic reforms designed to rejuvenate its flagging economy. 

In a boost to this agenda, Jordan executed only its second international public debt issuance in October 2013. The $1.25bn seven-year bond with a coupon rate of 2.503%, was guaranteed by the US Agency for International Development (USAID) in an effort to promote the country’s ongoing access to capital markets, with HSBC, Citi and JPMorgan acting as joint lead managers and bookrunners. 

This was the first bond issue by the Jordanian government to be guaranteed by the US. The limited number of USAID-backed bonds issued in recent history helped position this offer as the standout deal for the category. 

It is also among the largest outstanding USAID bonds in the market, matching an existing bond issued by Egypt for $1.25bn and maturing in 2015. The deal followed US president Barack Obama’s visit to the country in March 2013 where he pledged to assist with the country’s economic reforms. 

The offer represented a solid option for investors seeking greater yield pick-up than on typical US sovereign, supranational and agency issues, while also being one of the few issues exempt from US registration. Once opened, the order book achieved more than $2bn in orders in a matter of hours, reflecting both the scarcity of the bond type and corresponding investor interest in the offer. 

The demand eventually pushed the final price to the tighter end of guidance, settling at 60 basis points above US treasuries. This latest bond issuance will be used as a benchmark by other potential USAID issuers in the future. 

Equities 

WINNER: Damac Real Estate Development’s $400m offering 

Joint global coordinators: Citi, Deutsche Bank

HIGHLY COMMENDED: Bawan Company SR540m initial public offering

In the equities category, the international initial public offering (IPO) of Dubai-based Damac Real Estate Development was the standout entry. The company’s $400m offering on the London Stock Exchange was the largest of its kind from a Middle East issuer since DP World in 2007, while the company also became the first Middle East developer to list equity in London. 

The pricing of the deal was fixed at $12.25, the lower end of the range, while the joint global coordinators, Citi and Deutsche Bank, extended their marketing activities to cover the results of Dubai’s World Expo 2020 bid. Dubai’s ultimate success in this bid had a positive impact, serving to lift investor sentiment surrounding the property market’s long term prospects. 

The IPO was also successful in garnering significant international interest for the bid, with approximately 24% and 22% of buyers hailing from the US and UK respectively, while 51% came from the Middle East and north Africa region. The US investor base in particular was an important component of institutional demand. Moreover, the 28.6% increase in Damac’s share price one month after the offering, followed by subsequent growth to date, points to a strong aftermarket for the developer’s stock. 

Damac’s IPO was issued while fears over an emerging property bubble in Dubai had been increasing. Speculative purchases, coupled with the kind of property price increases last seen during the boom years, have intensified investor caution over the long-term prospects for the emirate’s real estate market. 

Bawan Company’s SR540m ($144m) IPO was the highly commended deal for the equities category. A leading Saudi building and industrial group consisting of four business units and 13 subsidiaries, Bawan’s listing became the first premium initial public offering under the Capital Market Authority’s latest listing rules. Moreover, the offering was successful despite uncertainty over the strength of the domestic building and construction sector.

FIG capital raising 

WINNER: Dubai Islamic Bank Tier 1 hybrid sukuk

Mandated lead arrangers: HSBC, Dubai Islamic Bank, Emirates NBD, National Bank of Abu Dhabi, Standard Chartered

HIGHLY COMMENDED: Emirates NBD $750m Tier 2 bond

The need for Middle Eastern lenders to diversify their funding sources and increase capital provisions is leading to greater engagement and innovation in the regional securities market. In this respect, Dubai Islamic Bank’s $1bn Tier 1 hybrid sukuk was notable in terms of both its size and sophistication, making it the clear winner for the category. 

The earlier success of Abu Dhabi Islamic Bank’s (ADIB’s) hybrid sukuk in November 2012 served as a backdrop to this transaction, as increased investor awareness of sharia-compliant hybrid capital structuring stimulated demand. 

Initial price guidance was released in the 6.5% range (plus or minus 12.5 basis points) though exceptional demand saw the price tightened with final guidance set at 6.25%. This represents the lowest coupon for a US dollar Tier 1 issuance in the regional debt capital markets. 

Fourteen times oversubscribed, demand for the order book was only surpassed by ADIB’s offer, with order books reaching $15bn for a $1bn transaction. The transaction engaged a sukuk al-mudaraba structure, an equity-based partnership whereby management is exchanged for capital and was facilitated by the mandated lead arrangers HSBC, Standard Chartered Bank, NBAD, Emirates NBD and Dubai Islamic Bank. These structures are typically adopted when it is difficult to identify physical assets for investment. 

The transaction was designed to be eligible as Tier 1 capital under current United Arab Emirates central bank and Basel III guidelines. This has enabled Dubai Islamic Bank to strengthen its Tier 1 capital relative to regional standards, particularly as the lender’s capital ratios were declining off the back of increased asset growth. 

The highly commended deal for this category went to Emirates NBD’s $750m subordinated Tier 2 issuance in March 2013. This was the first Basel III hybrid capital issuance by Emirates NBD, as well as the first non-step callable subordinated debt from the Gulf Co-operation Council region. 

Infrastructure and project finance 

WINNER: $625m Octal Petrochemicals’ project finance syndicated term loan facility

Mandated lead arrangers for the credit facility: Bank Muscat, Bank Dhofar, National Bank of Oman, Bank Sohar, Ahli Bank, Qatar National Bank

Mandated lead arrangers for the term loan: Bank Muscat, Bank Dhofar, National Bank of Oman, Bank Sohar, Ahli Bank, QNB

HIGHLY COMMENDED: Sadara $2.2bn project sukuk

Oman’s ambitious plans to expand its downstream oil and gas industry have been bearing fruit in recent years. Major upgrades to refineries and investments in new petrochemical complexes are gradually transforming the Gulf state into a value added producer. 

A consequence of this trend has been a growing sophistication in the financing methods used to support these developments. In September 2013, Bank Muscat successfully executed a $625m refinancing of Octal Petrochemicals’ project finance syndicated term loan facility coupled with its existing bilateral working capital facilities.

The arrangement marked the first significant sharia-compliant working capital financing in Oman since regulations governing Islamic finance were introduced in 2011. 

The deal was structured in two tranches, with the first being a medium-term US dollar tranche, while the other constituted a long-term mixed Omani rial-US dollar tranche. The long-term tranche has a tenor in excess of 10 years, making it one of the longest achieved by a private sector project in the country. 

As such, the arrangement is regarded as a major advance in the growth of long-term local currency financing transactions for private sector projects in Oman. Moreover, Octal received an all-in interest rate for more than a year, followed by an annual review, for the Omani rial denominated portion of the long-term tranche. 

This bucked the trend of Omani rial lenders typically being reviewed with greater frequency, due to the absence of a long-term yield curve in the country’s banking market. 

The judges commended the $2.2bn facility raised by Sadara Chemical Company, a joint venture between Dow Chemical Company and the Saudi Arabian Oil Company, as part of the largest ever financing in the petrochemicals sector. 

Islamic finance  

WINNER: Emirates $1bn international sukuk

Bookrunners: Abu Dhabi Commercial Bank, Citi, Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD, Standard Chartered

HIGHLY COMMENDED: Bahra Advanced Cable Manufacturing’s $200m structured warehouse financing solution

In the Islamic Finance category, Dubai-based Emirates airline’s March 2013 $1bn international sukuk set a number of records through its innovative structure. Emirates was not only the first airline to issue an international sukuk, the deal was also the first time an airline had employed an amortising structure in debt capital markets. 

Facilitated by bookrunners Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD and Standard Chartered Bank, the transaction was notable for its use of a sukuk-al-wakala structure; a more recent innovation in the sukuk market, whereby funds are invested through an agency-style agreement. 

Accordingly, the Emirates transaction was structured around an investment in a pool of the airline’s seat capacity for an agreed period and return, becoming the first US dollar sukuk to adopt this capacity-based structure. 

The orderbook was three times oversubscribed despite the fact it was the carrier’s second capital markets issuance in the same quarter. Following a limited roadshow covering the United Arab Emirates, Switzerland and the UK, the final issuance allocated 85% to the Middle East and north Africa region, 7% to Europe and 5% and 3% going to Asia and US offshore, respectively. Proceeds generated by the issuance will be used by the carrier to procure new aircraft.

Faced with increasing fuel prices, soaring maintenance costs and a new era of competition, many of the world’s airlines are investing in fleet upgrades to retain their competitive edge in the global market. Dubai-based Emirates is part of a vanguard of Gulf carriers investing heavily in this fleet renewal strategy. 

The highly commended deal in this category went to Bahra Advanced Cable Manufacturing’s $200m Islamic structured warehouse financing solution. Arranged by Standard Chartered, the deal was the first of its kind in Saudi Arabia and was used to finance the company’s inventory and sales of high- and low-voltage electrical cables.

Loans 

WINNER: National Industrialisation Company SR4bn murabaha facility

Mandated lead arrangers: Saudi British Bank, HSBC, Riyad Bank, Saudi Investment Bank, Samba Capital, Emirates NBD, Al Rajhi Bank, Banque Saudi Fransi, Bank Al Bilad

HIGHLY COMMENDED: Investment Corporation Dubai’s $2.55bn deal

In October 2013 Saudi Arabia’s National Industrialisation Company (Tasnee) signed a SR4bn ($1.07bn) murabaha facility with a number of domestic, regional and international lenders to refinance outstanding loans and fund the company’s future projects. The mandated lead arrangers for this deal included seven Saudi banks as well as Emirates NBD. 

On size alone, the agreement is surpassed only by domestic mining giant Maaden, yet is still among the largest facilities in recent times. Moreover, the facility has the longest tenor, at eight years, for a holding company in Saudi Arabia. Tenors of this length are typically employed for project finance transactions or for government entities. Under the terms of the facility, Tasnee secured finer pricing than in previous arrangements, partly achieved through the sukuk pricing mechanism. 

Notably, Tasnee was able to secure new bank participants to create the facility. These institutions were outside of its existing core relationships; achieving one of the company’s initial objectives and bringing together a total of eight banks. In total, the facility was oversubscribed 1.5 times. The proceeds will help the company, which is a key player in Saudi Arabia’s industrial and petrochemicals sectors, implement new projects and upgrade existing infrastructure. To that end, Tasnee is working with domestic petrochemical companies to on a butanol plant in Jubail, to be completed in May 2015. 

The highly commended deal in this category went to Investment Corporation Dubai’s $2.55bn syndicated loan. Despite an initial target of $1.8bn, strong demand ensured the government-linked company exceeded its objective. This deal also represented the first Dubai government-associated syndicated loan since the financial crisis.

M&A 

WINNER: Merger of Aldar Properties and Sorouh Real Estate 

Joint financial advisors to the Joint Steering Committee: National Bank of Abu Dhabi, Goldman Sachs 

Advisor to Aldar Properties: Credit Suisse

Advisor to Sorouh Real Estate: Morgan Stanley

HIGHLY COMMENDED: SavolaGroup’s acquisition of Al-Muhaidib’s share in Savola Foods Co and Azizia Panda United Company

Abu Dhabi’s real estate market has been slow to recover from the global downturn. Yet government measures to stimulate a recovery are beginning to have an impact. The merger of the two largest publicly traded real estate developers, Aldar Properties and Sorouh Real Estate, on June 27, 2013, fell under new legislation facilitating a statutory all-share merger. The deal established one of the largest property developers in the Middle East and north Africa region, with about $13bn in assets and a land bank of 77 million square metres. 

The arrangement also set a number of milestones in the emirate. It was the first merger by amalgamation of two public companies in the United Arab Emirates as well as the first public-to-public transaction on the Abu Dhabi Stock Exchange. As such, the deal was considered groundbreaking for the country, enabling a more effective means of merging UAE-listed companies. 

Structuring the transaction was a complex process that included a nine-month due diligence and negotiation period. The deal also had to secure the support of shareholders from both companies, and was completed in conjunction with the government of Abu Dhabi. The final transaction has led to a significant diversification of the new shareholder base, as well as providing the new entity with greater access to capital markets through increased scale and liquidity. The significance of this deal will likely mean that it becomes a model for the future integration of UAE-listed companies. 

SavolaGroup’s acquisition of Al-Muhaidib’s shares in Savola Food Co and Azizia Panda United Company is the highly commended award in this category. The acquisition saw SavolaGroup obtain an additional 10% and 18.6% share in the respective capital of its subsidiary groups. This was also the largest merger and acquisition deal in Saudi Arabia in 2013. 

Real estate finance 

WINNER: Arabian Centres Company SR2700bn senior Islamic facility

Mandated lead arrangers: Samba Capital, Al-Inmaa Bank, The National Commercial Bank, Gulf International Bank, Saudi HollandiBank, AlinmaBank

In one of the largest and most complex real estate financings in the history of Saudi Arabia, Arabian Centres Company, a domestic retail property developer, secured a SR 2700bn ($720bn) senior Islamic facility in June 2013. Structured under two agreements, the deal consisted of a murabaha facility of SR1.95bn and a bai-al-ajal facility for SR750m. It was arranged with a tenor of 7.5 years. 

The final arrangement was geared towards the refinancing and restructuring of an existing outstanding facility, while supporting Arabian Centres in expanding its real estate business. The facility was embedded with a self-liquidating structure with semi-annual amortisation and a structured security package that was secured by the company’s real estate portfolio as well as its present and future rental proceeds. 

With the support of Samba Capital, the National Commercial Bank, Gulf International Bank, Saudi HollandiBank and AlinmaBank, the facility was arranged with a repayment profile that fitted the company’s cash-flow model. Moreover, both facilities to the company are ranked equally with respect to security aligned through inter-creditor arrangements. Accordingly, the security package for the facilities includes a number of land leases, tenancy agreements and charges over particular title deeds as well as rental proceeds.

Arabian Centres, a subsidiary of Fawaz Al Hokair Group, specialises in the construction, development and operation of shopping malls in Saudi Arabia. In total, the company manages 13 shopping malls comprising 1.2 million square metres of retail real estate, and is in the process of doubling its gross leasable area in the market. 

Restructuring 

WINNER: Dana Gas’s $1bn sukuk restructuring

Advisors: Moelis, Deutsche Bank, Blackstone

HIGHLY COMMENDED: Investment Dar’s $4.2bn restructuring

Dana Gas, a United Arab Emirates-based integrated energy firm, has endured a challenging few years as key operations in Egypt and the Kurdistan region of Iraq have weathered internal political crises. Throughout 2011 and 2012, the company’s government-related payments in these countries were severed as a result of conflict between Baghdad and the Kurdistan regional government in the case of Iraq, and budgetary pressures associated with regime change in Egypt. 

As a consequence of these events, the maturing of a $1bn sukuk in 2012 required significant restructuring to meet the company’s altered financial situation. The initial stages of the deal saw the write down of $150m from the original figure, including $80 million worth of sukuk holdings by Dana Gas and a further $70m cash pay down. The remaining $850m was then split into two tranches; a $425m ordinary sukuk, with the remaining $425m structured into a convertible sukuk. Both structures have a five-year maturity. 

The deal was highly complex, requiring significant negotiation and due diligence to ensure Dana Gas was content with the key terms of the restructuring, while avoiding a haircut for sukuk holders. This was the UAE’s first ever sukuk restructuring which included both convertible bond and Islamic finance dimensions. The final deal saw 99.95% sukuk-holder approval for the transaction, based on an increased in blended profit rate from 7.5% to 8%. 

The Investment Dar’s $4.2bn restructuring was the highly commended deal in this category. This deal was notably complex as the Investment Dar was operating under Kuwait’s Financial Stability Law, a relatively new and untested construct with uncertain rights for creditors. On this basis, the restructuring process required meeting both shareholder and investor expectations from a broad international background.

Securitisation  

WINNER: Gulftainer Company’s Dh784m syndicated commodity murabaha facility

Bookrunner: Noor Bank

In a Dh784m ($213.45m) syndicated commodity murabaha facility, Dubai-based Noor Bank assisted Gulftainer Company, the world’s largest privately owned port management and third-party logistics firm, in the refinancing of its existing debt. The deal was also designed to provide funds for capital expenditure including acquisitions and infrastructure development.

Under a dual-tranche structure with two facilities to meet both requirements, the facility was backed by assignment of 75% of receivables and revenue. Signed on December 18, 2013, the facility has a maturity of seven years with a profit rate set at 450 basis points above the Emirates Interbank Offered Rate. The deal is backed by the assignment of 75% of Gulftainer’s receivables and revenue (specifically the top 15 counterparties).  

With operations across five continents, including the Middle East, Africa, Asia and Europe, Gulftainer has seen consistent growth over the past decade. The second tranche of the facility, intended for capital expenditure, will play a crucial role in the company’s longer term expansion plans. New projects in Iraq, Russia, Lebanon and Brazil since 2012 point to the company’s global ambition, while the 2013 majority acquisition of Gulf Stevedoring Company in Saudi Arabia, positioned the company as the largest terminal operator in the Middle East, in terms of total terminals operated. 

Gulftainer’s expansion comes at a time of rapid change for the region’s global trading patterns. Increasing connectivity to emerging markets has largely shielded the Gulf region’s trade activity from the economic slowdown in western Europe and the US. With Asia-Middle East trade set to rival transatlantic trade within a few years and the increasing containerisation of petrochemical cargo, the Gulf Co-operation Council states are also well positioned to benefit from value-added oil and gas production. 

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Read more about:  Awards , Deals of the Year , Middle East