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Middle EastJune 30 2011

Mubadala shines in stormy Middle East

With unrest spreading through many Middle Eastern and north African countries, the stability of the United Arab Emirates is making the country a haven for investors in the region, with Abu Dhabi's development and investment company Mubadala a leading light when it comes to utilising the bond markets.
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Abu Dhabi, capital of the United Arab Emirates, is one of the richest places in the world, with gross domestic product per capita of nearly $100,000. Its wealth is largely derived from extensive oil reserves, but the emirate's government is keen to diversify the economy and, in 2002, founded business development and investment company Mubadala to invest in long-term, capital-intensive projects that are both commercially viable and socially beneficial.

Initiatives include gas pipelines, private healthcare and even the recently established Paris-Sorbonne University in Abu Dhabi. Such schemes do not come cheap, however, so Mubadala aims to derive at least part of its funding from the capital markets.

Different thinking

The group launched an inaugural $1.75bn bond in 2009, and earlier this year chose to return to the market with a $1.5bn benchmark transaction, equally split between a five-year and a 10-year tranche. To casual onlookers, the spring of 2011 may not have seemed the best time for an Arab issuer to tap the bond market. But Mubadala is slightly different.

"Given our Aa3/AA/AA ratings and our ownership structure – 100% owned by the government of Abu Dhabi – we have strong options when it comes to funding. In fact, we sometimes have to push back on banks because maximum leverage is not always optimum leverage," says Ali Najafbagy, head of capital markets at Mubadala.

The group is one of the most financially sophisticated operators in the Middle East, with a team of more than 20 financiers, many of whom are former debt capital market, syndicate and structured finance bankers.

"We maintain a proactive investor relations strategy. We are in constant dialogue with many fixed-income investors, credit rating agencies, as well as banks and other stakeholders. We are very committed to transparency and, among other things, issue semi-annual results, followed by live stakeholder calls and question-and-answer sessions; we do a lot of roadshows and participate in conferences throughout the year," says Mr Najafbagy.

In other words, Mubadala is known and respected by the investor community. Nonetheless, the group did come to market in the middle of April, when much of the Middle East was in turmoil. And discussions about capital market issuance started at the end of 2010, before any disruption had hit the region.

Strong reputation

"Towards the end of 2010, we finalised our budget for 2011, which included a benchmark corporate bond transaction" says Mr Najafbagy. "We did not consider postponing our transaction in light of events, first because volatility had decreased from its peak by April and also because the fixed-income community has become much more knowledgeable about Mubadala partly thanks to our proactive investor relations strategy and transparency. In fact, a lot more investors are reaching out to us directly," he adds.

Mubadala began roadshowing on Thursday, April 7, with joint lead managers Barclays Capital, HSBC, National Bank of Abu Dhabi, Société Générale and Standard Chartered. Keen to garner investors from around the world, the company presented in Hong Kong, Singapore, Abu Dhabi, Dubai, London, San Francisco, Los Angeles, Boston and New York.

Intriguingly, investor questions focused on Mubadala’s business mix and the ongoing support of the Abu Dhabi government. “We had prepared a couple of pages in our presentation on the political situation but most people chose to skip those pages as they said they are familiar with Abu Dhabi and with us. They were much more interested in our businesses and our shareholder,” says Mr Najafbagy.

Launch success

On Monday, April 11, Mubadala announced its intention to launch, books opened officially the following day and, by close of play on Wednesday, April 13, there were $7bn-worth of orders.

"We were very happy with the way the deal was received. We were confident when we came to market but conditions can always change so the outcome was very satisfactory for us and our shareholder. We have a big financing team so there was a lot of focus on pricing and allocation but in the end, we achieved a good balance between tight pricing and strong secondary market performance," says Mr Najafbagy.

The $750m five-year tranche carried a spread of 180 basis points (bps) over Treasuries with an issue price of 98.975, while the 10-year tranche was issued at 99.484 with a spread of 210bps over Treasuries. Two years ago, when Mubadala first tapped the market, its five-year bonds were priced at 395bps over Treasuries while the 10-year bonds were priced at a spread of 462.5 basis points.

For both tranches, banks, central banks, institutional investors and private banks took up more than 90% of the bonds. About a third of investors came from Europe and just under 20% came from Asia. The five-year deal attracted 30% interest from the Middle East and north Africa region and 19% from the US, while the 10-year attracted 20% interest from the Middle East and nearly 30% from the US.

There is much more demand for longer-dated, higher-yielding paper with 20% allocated into the Middle East.

Ali Najafbagy

"We were keen to attract high-quality, buy-and-hold accounts and we wanted to achieve global distribution. We succeeded on both fronts. We were particularly impressed by the interest in our 10-year bonds, including from regions traditionally axed for shorter-dated maturities such as the Middle East. In 2009, for instance, only 12% of our 10-year bonds went to the Middle East. This time around, there is much more demand for longer-dated, higher-yielding paper with 20% allocated into the Middle East," says Mr Najafbagy.

Mubadala will doubtless return to the bonds markets over the next few years. In the meantime, its most recent benchmark issue is trading comfortably above launch price. 

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