The Deals of the Year 2018 winners from the Middle East.

Bonds: Corporate 

WINNER: Abu Dhabi Crude Oil Pipeline’s $3.04bn bond 

Joint global coordinators: First Abu Dhabi Bank, HSBC, JPMorgan, MUFG 

Lead managers: BNP Paribas, Citi, Mizuho Securities, Société Générale, 

Standard Chartered Bank 

Financial adviser to Adnoc: Moelis & Co

One of the largest non-sovereign bonds in the history of the Middle East was issued by Abu Dhabi National Oil Company (Adnoc), and it received an enthusiastic reception. The issue was more than three times oversubscribed and priced accordingly.

State-owned Adnoc is one of the largest oil producers in the world and this was its bond market debut. It follows a succession of Middle East issuers, both corporate and sovereign, that have been propelled into the capital markets by an extended period of low oil prices.

Abu Dhabi Crude Oil Pipeline (Adcop), an Adnoc subsidiary, was chosen as the issuing vehicle. It manages a 406-kilometre pipeline carrying crude from Abu Dhabi to the Fujairah oil export terminal on the Gulf of Oman. Investors took the reasonable view that Adcop risk was a proxy for Adnoc risk, which in turn equalled Abu Dhabi government risk. Rating agencies were of the same mind and rated the bonds AA, in line with the sovereign’s bonds.

After a two-team roadshow in Asia, Europe, the US and Middle East, Adcop announced initial price guidance for a dual-tranche issue – in the 3.9% area and the 4.8% area for a 12-year and a 30-year, respectively. Bankers said the dual structure allowed debt optimisation within the contractual cash flow tenor, while creating a visible liquid benchmark for future issuance.

Orders peaked at $11bn. An $837m 12-year bullet, with a sinking fund, was priced at 3.65%, while a $2.2bn fully amortising 30-year tranche was priced at 4.6%. This was the largest single currency corporate issuance out of any Gulf Co-operation Council state, and the largest ever amortising bond from the Middle East.

Bonds: SSA 

WINNER: State of Kuwait’s $8bn bond 

Joint global coordinators: Citi, HSBC, JPMorgan 

Joint lead managers: Citi, Deutsche Bank, HSBC, JPMorgan, National Bank of Kuwait, Standard Chartered

They do not come much bigger than this – at least not in emerging markets. Kuwait’s debut sovereign transaction was the largest ever dual-tranche issue from an emerging market, and it attracted an order book to match.

A deal was announced at the beginning of March 2017, with the intention of completing the offering ahead of an anticipated rate hike by the Federal Open Market Committee (FOMC), which duly obliged on March 15. A roadshow then took in London, New York, Boston and Los Angeles.

Solid investor feedback allowed the State of Kuwait to release initial price thoughts on a benchmark five- and 10-year transaction at T plus 100 basis points (bps) and T plus 120 bps, respectively. It was March 13, with two days to spare before the FOMC announcement and the plan was to execute intra-day.

The deal was finally priced at 8pm London time. By then orders worth $29bn had been logged from an extraordinary 778 accounts around the world. Not everyone stayed in the order book as prices were ultimately tightened to T plus 75bps on the $3.5bn five-year tranche and T plus 100bps on the $4bn 10-year piece.

These were the tightest initial pricing spreads of all the recently preceding Gulf Co-operation Council sovereign issuances, including Abu Dhabi, Qatar and Saudi Arabia. This was a testament to the quality of Kuwait’s credit and the investor appetite for its name, bankers said. Nearly 75% of the bonds went to investors outside the Middle East and north Africa.

Bankers added that this new pricing benchmark would help corporates to price their transactions more efficiently. Even during the sovereign pricing process itself, spreads tightened on the bonds of Kuwaiti corporates such as petrochemicals producer Equate. 

Bonds: FIG 

WINNER: Qatar Reinsurance Company’s $450m Tier 2 notes 

Structuring advisor: BNP Paribas 

Joint global coordinators and bookrunners: BNP Paribas, HSBC

Joint bookrunners: Emirates NBD, National Bank of Abu Dhabi (now First Abu Dhabi Bank)

Qatar Insurance Company (QIC) is regarded as one of the more sophisticated industry operators in the Middle East. So when its reinsurance arm, Qatar Reinsurance Company, came to market with a debut hybrid issue, investors lapped it up. 

This was, in fact, the first insurance hybrid from the entire central and eastern Europe, Middle East and Africa region, so it had considerable rarity value in addition to its other attractions.

Qatar Re is a global multiline reinsurer writing all major property, casualty and specialty lines of business from its headquarters in Bermuda and branch offices in Zurich, Dubai and Singapore. It is backed by a 100% parental guarantee of senior obligations from QIC, and benefits from QIC’s substantial and growing capital base.

Qatar Re proposed to issue a capped size of $450m perpetual non-call 5.5 subordinated Tier 2 notes, with a coupon that resets if the notes are not called. There were other investor-friendly features. While payment of the coupon is subject to mandatory deferral under certain circumstances, there is a dividend pusher at the parent level. The notes, rated BBB+ by Standard & Poor’s, also carry a specific and irrevocable guarantee from QIC.

Initial price thoughts were released in the 5.5% area and the books grew quickly. Guidance was tightened to the 5.125% area, and final guidance was at 5% plus or minus 5 basis points. When the books closed they bulged with orders of $6.25bn, nearly 14 times what was available. The deal was set at 4.95%.

Bankers said that the deal brought a new flavour to the region, as the pricing was guided by international comparables from Asia and Europe. Distribution was concentrated in Asia (30%), the UK (29%), the Middle East and north Africa (20%) and Europe (19%).


WINNER: Adnoc Distribution’s Dh3.1bn IPO 

Financial adviser to Adnoc: Rothschild 

Joint global coordinators and bookrunners: Bank of America Merrill Lynch, Citi, First Abu Dhabi Bank, HSBC

The initial public offering (IPO) of Adnoc Distribution was the largest on the Abu Dhabi Securities Exchange (ADX) for a decade, the first for six years and its first international offering. It was also the first to use a bookbuilding process.

Adnoc Distribution was wholly owned by the Abu Dhabi National Oil Company (Adnoc), which is itself state owned. Measured by the number of sites, it is the leading fuel and consumer retailer in the United Arab Emirates, where it has more than 360 retail service stations. In 2016 it had revenues of about $4.8bn and earnings before interest, taxes, depreciation and amortisation of more than $570m.

The IPO is a first step in Adnoc ‘s 2030 transformation strategy to unlock value and drive growth by engaging with new partners and investors. The objectives include attracting international investment to the UAE, deepening UAE capital markets, and providing a retail investment platform to non-oil and gas investors.

On offer was 10% of the company, with no greenshoe. But shortly before subscription opened towards the end of November, the Saudi Crown Prince had mounted his anti-corruption action, rocking local markets in general and recent IPOs in particular. As a result, Saudi investors could now not be relied upon to support the deal. Moreover, a directly competing offering by Brazil’s Petrobras Distribuidora threatened to siphon off demand. 

As it turned out, the deal was about four times oversubscribed, and the retail tranche was doubled from 5% to 10%. Another 30% of the shares went to international investors. They were priced at Dh2.50 ($0.68), towards the lower end of the initial Dh2.35 to Dh2.95 price range, and closed their first day at Dh2.65. At listing, Adnoc Distribution was the third largest stock on the ADX and the only large retail company, helping to diversify the exchange.

Green finance 

WINNER: National Bank of Abu Dhabi’s $587m green bond 

Joint green structuring advisers: HSBC, NBAD (now First Abu Dhabi Bank) 

Joint lead managers and bookrunners: Bank of America Merrill Lynch, Citi, Crédit Agricole CIB, MUFG

National Bank of Abu Dhabi (NBAD) burnished its already solid eco-credentials by issuing the Middle East’s first green bond. One of its rewards was to attract a level of European investor participation that was well above average.

NBAD, which has since merged with First Gulf Bank to become First Abu Dhabi Bank, was an original signatory to the Dubai Declaration, calling on the financial sector to think and act greener. It was also the only United Arab Emirates bank to sign up to the Equator Principles, a framework for managing environmental risk.

The bank created its own Green Bond Framework in line with the Green Bond Principles before issuing its pioneering instrument. The proceeds would be used to finance eligible green projects in categories including energy, transport, decarbonising technologies and sustainable water and waste management. Two local beneficiaries named by national media were Abu Dhabi’s Shams solar power project and Etihad Rail.

The intraday execution began with initial price thoughts of mid-swaps plus 105 basis points (bps) for a five-year Reg S senior unsecured deal. Revised guidance was released at mid-swaps plus 100bps plus or minus 2bps. At the same time, a size of $500m was indicated to the market.

As the order book continued to grow, however, the decision was taken to issue up to the maximum green assets available to NBAD, which totalled $587m. The price was finalised at mid-swaps plus 98bps. The book was more than two times oversubscribed. 

European investors took 50% of the deal, an abnormally high proportion, ascribed to the green appeal of the bond. An HSBC analysis claimed that 50% of the investor base could be described as “green” investors.

Infrastructure and project finance 

WINNER: Dubai Airport’s $3bn financing 

Mandated lead arrangers: Citi, HSBC, First Abu Dhabi Bank 

Joint bookrunners: Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Bank of China, Dubai Islamic Bank, First Abu Dhabi Bank, Citi, HSBC, ICBC, Intesa Sanpaolo, JPMorgan, Noor Bank, Standard Chartered Bank

Creating the world’s largest airport is going to require some major financing, and Dubai has established a special platform for this purpose. It raised its first debt tranche of $3bn from 12 international and regional banks.

While Dubai International Airport is already the world’s busiest, its capacity will be increased from 90 million to 118 million passengers each year by 2020 to accommodate expected traffic growth. That’s as much as its urban location will allow. So capacity at the much smaller Al Maktoum International Airport will also be increased, from the current 7 million passengers a year to 152 million by 2025.

The total cost will be an estimated $35bn over 12 years, to be financed by a dedicated financing vehicle – Airport Financing Company or Finco, set up by the Department of Finance (DoF), Dubai Investment Corporation and Dubai Aviation City Corporation. Finco provides the flexibility to raise debt in stages and from multiple sources, such as conventional and Islamic lenders, export credit agencies and debt capital markets.

Initial facilities of $3bn were raised from seven international and five regional banks, split between $1.625bn in conventional facilities and Dh5.05bn ($1.375bn equivalent) in Islamic finance. The tenor was seven years with amortisation from year four, priced at Libor plus 200 basis points.

The transaction was made bankable based on DoF counterparty risk while eliminating the need for a direct guarantee. The DoF’s liability is limited to a per passenger tariff based on traffic during the previous year. Finco can amend the tariff in case of variations in the capital expenditure programme. 

Finco had little trouble attracting lenders, who included US, European and Chinese banks. The deal actually raised $6bn, leading to an oversubscription of $3bn and a substantial scale-back for the banks.

Islamic finance 

WINNER: Kingdom of Saudi Arabia’s $9bn sukuk 

Joint global coordinators and bookrunners: Citi, HSBC, JPMorgan

Joint bookrunners: BNP Paribas, Deutsche Bank, NCB Capital

It was superlatives all round when the kingdom of Saudi Arabia launched its debut sukuk. It had broken all emerging market records with its mammoth $17.5bn conventional bond back in October 2016, and did the same in the Islamic segment the following April.

The earlier deal showed the allure of the Saudi name in general. This was an Islamic instrument issued by the most important nation in the Muslim world and, within it, its pulling power was immense. But it also attracted investors who did not normally buy Islamic paper.

The transaction began with a three-day roadshow in Abu Dhabi, Dubai and London. On day three, terms were announced for a dual-tranche US dollar benchmark five- and 10-year sukuk, with two-day execution to capture demand around the globe. 

Saudi Arabia came up with a structure that had not been used by any other sovereign to date, making use of both mudaraba and murabaha frameworks. The innovative asset-light structure does not require the identification and sale of tangible assets, allowing a swift execution process. It was accepted by the highest ever number of scholars.

The books were opened with initial price thoughts of mid-swaps plus 115 basis points (bps) area and plus 155bps area for the five- and 10-year tranches, respectively. The deal was finally launched as equal tranches of $4.5bn with spreads of 100bps (five years) and 140bps (10 years). 

This had been the largest order book for any sukuk, at over $33bn from more than 520 ‘high quality’ accounts globally, bankers said. Bankers away from the deal acknowledged that it elevated sukuk out of the ‘niche’ category, and that the size of the book meant it contained more than just emerging market investors. 

Leveraged finance 

WINNER: Adeptio’s $1.43bn loan 

Sole bookrunner, mandated lead arranger, facility agent and security agent: First Abu Dhabi Bank

Mandated lead arrangers: Ahli United Bank, Credit Suisse, First Abu Dhabi Bank, Standard Chartered Bank

The largest acquisition financing to have been completed in the Middle East region was a dual-tranche $1.43bn term loan for Adeptio AD Investments. The funds were used to take out a bridge facility put in place for the purchase of Kuwait Food Company in 2016.

That takeover was itself the biggest ever merger and acquisition deal in the Gulf Co-operation Council region’s consumer sector. The seller was Kuwait’s Al Kharafi family, in the shape of its Al Khair National for Stocks & Real Estate investment vehicle. It owned 69% of Kuwait Food Company, better known as Americana, which runs food chains including KFC, Pizza Hut and Costa Coffee across the Middle East and north Africa region.

Kuwait Food Company was listed on the Kuwait Stock Exchange. Adeptio paid Kd2.65 ($8.69) per share for the Al Kharafi stake and then, as exchange rules required, launched a mandatory tender offer for the remaining shares. The share price paid by Adeptio valued the business at $3.4bn. 

Adeptio was able to secure a short-term bridging facility, reported to be $1.65bn, to part-finance the transaction. The lenders were said to include First National Bank of Abu Dhabi and First Gulf Bank (since merged to create First Abu Dhabi Bank), Emirates NBD, Standard Chartered Bank and Credit Suisse.

It was the refinancing of this facility that necessitated the new dual-tranche loans. The first is a seven-year $592m term facility for operating company Kuwait Food Company, used to pay a dividend to the parent. The second is a four-year $833m facility for holding company Adeptio, used to refinance the acquisition bridge. The operating company loan is structured to be sharia compliant.


WINNER: Ma’aden Aluminium Co’s $2.9bn-equivalent refinancing 

Financial advisers and mandated lead arrangers: BNP Paribas, National Commercial Bank

In the largest corporate loan out of Saudi Arabia since 2015, Ma’aden Aluminium Company (MAC) refinanced its original secured project finance facility with $2.9bn-equivalent of unsecured debt. The refinancing terms were sculpted to meet the aluminium smelter’s needs.

Saudi-based MAC is one of the world’s largest aluminium complexes, owned 75:25 by major metals and mining players Ma’aden and Alcoa. It plays a key role in Saudi Arabia’s efforts to diversify its economy away from hydrocarbons. Its construction was initially funded by a $3.3bn project finance facility closed in 2010 and provided by 16 banks and the Saudi government’s Public Investment Fund.

The company has since reached full production and is considered to be a world-class primary aluminium producing asset in terms of efficiency, scale and modernity, delivering strong operational and financial results.

The $2.9bn non-recourse unsecured transaction fully refinanced the original facility. Its terms were bespoke, designed to fit MAC’s financial performance and future needs, including balloon repayment features and cash sweep repayment features tailored for each tranche.

The refinancing was split into three amortising tranches, allowing MAC to access local, regional and international liquidity. A seven-year $400m facility was provided by four regional and international commercial banks, including BNP Paribas. A 10-year $1.4bn-equivalent murabaha facility was provided by 10 Saudi commercial banks. And a 14-year $1.1bn-equivalent facility was provided by the Public Investment Fund, a Saudi sovereign fund which is a Ma’aden shareholder. 

The commercial bank facilities were oversubscribed, confirming the attractiveness of the asset and the suitability of the structure. This strong market reception has allowed the company to reduce its financing costs while extending its debt maturity.


WINNER: Hapag-Lloyd and United Arab Shipping Company 

Financial adviser to UASC: Lazard  

Financial adviser to Hapag-Lloyd: Citi

The merger of United Arab Shipping Company (UASC) with Hapag-Lloyd had more than its fair share of challenges. It took place in a depressed market, was a cross-border deal, and involved a Gulf state-owned and a German-listed company. But it succeeded and the result is a healthier business.

The cyclical international container shipping industry has been suffering a downswing, leaving an oversupply of vessels. More competitive than ever, it is rationalising and consolidating and lone operators risk getting left behind. It was in that context that UASC, owned by Qatar, Saudi Arabia and other Gulf states, and Hamburg’s Hapag-Lloyd chose to merge.

UASC in particular was lagging behind the industry leaders in terms of size. That meant weak bargaining power in the world of shifting alliances that has become so important to container shipping.

A combined entity would be one of the largest global companies, with enough scale to ride out downturns, and more clout in alliance politics. More than $400m in synergies from a merger were envisaged from 2019 onwards. And there was a good fit – the German line had a strong network but lacked big ships, while the Gulf entity had large ships but lacked the network to fill them.

The UASC shareholders contributed 100% of their shares in return for a 28% stake in an enlarged Hapag-Lloyd, with the consideration being paid in newly issued Hapag-Lloyd shares. The combined business had 237 ships with a combined capacity of 1.6 million 20-foot equivalent units, making it a top five player with strong strategic positioning in a market environment that remains tough. 

By early 2018, Hapag-Lloyd shareholders had benefited from a share price that has increased by 113.5% since news of the transaction leaked to the market, compared with 26.5% for the DAX and 23.2% for the shipping index.


WINNER: Orbit Showtime Network 

Financial adviser to Orbit Showtime Network: Houlihan Lokey

Pay-TV has become an incredibly tough business in recent years, and the Middle East and north Africa (MENA) region is no exception. The arrival of Netflix and Amazon in MENA has created a new source of competition for the region’s operators, including its biggest – Orbit Showtime Network (OSN). 

The Dubai-based joint venture between Kuwait’s Kipco and Saudi Arabia’s Mawarid responded to the new market dynamics by introducing more flexible subscription options and targeting a bigger customer base. OSN also turned to Houlihan Lokey to think through its various options for raising fresh funds to implement its long-term strategy, and re-work its capital structure to support its new business plan. 

After advising on various alternatives, OSN ultimately raised a $150m three-year secured term loan facility, amended covenants and other terms of an existing $255m facility, and cancelled its $145m revolving credit facility. It is notable that OSN was able to raise new subordinated capital – the $150m facility – without the usual, simultaneous equity injection. Instead, the lender and equity-holders agreed that the latter would implement a phased equity injection.  

It was an optimal outcome for OSN. The November financing package created a sustainable capital structure, brought covenant flexibility for the business to grow, and allows management to navigate MENA’s changing and increasingly competitive pay-TV market.   

It also kept its shareholders happy, by not diluting their stakes, as well as its lenders which received security and the comfort of a phased equity injection. While OSN’s capital structure, and the deal itself, lacks the complexity of some restructurings seen in other regions throughout 2017, what’s important is that all participants walked away happy. Multi-stakeholder management, which was largely in the hands of Houlihan Lokey, provides the lynchpin of the deal’s success. 


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