Deals of the year logo 2022

A look at the year's most noteworthy deals in the Middle East.

Bonds: Corporate   

Qatar Energy’s $12.5bn triple tranche bond

Global coordinators: Citi and JPMorgan

Active joint bookrunners: Citi, Deutsche Bank, Goldman Sachs, HSBC, and JPMorgan

Structuring agents: Bank of America, Credit Suisse, MUFG and QNB Capital 

Formerly known as Qatar Petroleum, Qatar Energy is an energy company wholly owned by the state of Qatar that contributes 30% to the country’s gross domestic product. It is a leader in the liquified natural gas (LNG) market, supplying 21% of LNG exports globally.

The company’s first return to the debt capital markets since 2006, and its first public bond sale, proved to be a big one with a total size of $12.5bn split across five-, 10-, 20- and 30-year tranches. It was the biggest-ever transaction by a corporate from the Middle East and north Africa (MENA) region, as well as the biggest by an oil and gas corporate from the emerging markets. It was also the biggest transaction by an emerging market issuer in 2021.

The $4bn 30-year tranche was issued in Formosa format and generated strong demand from Taiwanese investors, allowing Qatar Energy to print the biggest-ever Formosa bond by a corporate in the MENA region. The Formosa tranche also diversified the company’s investor base, with more than 27% of the trade going to Asian investors.

The scarcity of the issuer and other Qatari names in the debt capital markets proved to whet the appetite of investors, with the final orderbook surpassing $40bn, enabling the company to tighten the pricing of the bonds by 30–35 basis points from initial price thoughts, landing at a flat-to-minimal spread over the Qatari sovereign credit curve.

The deal was allocated to high-quality international investment grade-focused investors, with more than 93% going to real money accounts, such as fund managers and insurance companies, and over 96% going to accounts outside of the MENA region.

Bonds: sovereign, supranational and agency   

UAE’s $4bn triple tranche bond

Joint lead managers: Abu Dhabi Commercial Bank, Bank of America, Citi, Emirates NBD, First Abu Dhabi Bank, HSBC, JPMorgan, Mashreq and Standard Chartered

Structuring agents: Bank of America, Abu Dhabi Commercial Bank, Emirates NBD, First Abu Dhabi Bank, and Mashreq 

The UAE followed its peers in the Gulf Co-operation Council (GCC), as it made its debut in the international debt capital markets in October 2021.

After conducting a virtual non-roadshow to introduce itself to large real-money investors, the sovereign found a clear market window to bring its debut issuance, which comprised a $1bn 10-year, a $1bn 20-year and a $2bn 30-year dual-listed Formosa tranche. 

The market backdrop was challenging due to concerns on macroeconomic events, such as China’s real estate market debt crises, the global energy crisis and concerns around inflation. Despite this, the UAE still managed to receive a decent reception with the combined order book peaking at more than $22.5bn. 

There was strong demand from the UAE’s banks, particularly on the shorter tranche due to high-quality liquid asset status of the bond, as well as from international investors, such as real-money and central banks, due to the sovereign’s strong credit ratings and eligibility for JPMorgan’s Emerging Markets Bond Index. The strong demand allowed the UAE to price the deal in line with the tightest spreads in the region and print $4bn, rather than the $3bn it had originally planned.

The UAE became the first sovereign to issue a 40-year tranche as part of its debut offering globally, and achieved the lowest-ever coupon and spread by any sovereign on a 40-year Formosa tranche. It was also the first GCC sovereign to issue a 20-year dollar benchmark and achieved the second-lowest-ever coupon by any sovereign on a 20-year dollar tranche. Meanwhile, the UAE achieved the second-lowest-ever spread by a GCC sovereign on a 10-year dollar tranche. 

Equities  

Retailors’ NIS795m IPO

Sole global coordinator: UBS 

Retailors is a leading retailer in Israel, specialising in the sale of sports and leisure clothing, accessories and footwear. It has licences to operate Nike stores in Israel, Canada and certain European countries, as well as Foot Locker stores in Israel. Since 2020, it has also operated its own chain of stores, Dream Sport.

On May 13, 2021, Retailors listed on the Tel Aviv Stock Exchange (TASE), with a NIS795m ($247m) initial public offering (IPO). The offering consisted of a NIS477m primary raising and NIS95m secondary sell-down by existing shareholders, Leumi Partners, through the cashless exercise of a call option. Concurrently with the IPO, the company received an investment from Foot Locker for 10% of the company’s post-IPO share capital, raising NIS223m and reaching total proceeds of NIS795m.

The deal priced at NIS52.50 per share, at the top end of its initial price range, which represents a market capitalisation of NIS2.5bn and enterprise value of NIS2.6bn at IPO.

The proceeds of the offering, and the investment by Foot Locker, will be used by the company to fund the expansion of its business activities — primarily to accelerate its store rollout in Europe and Israel.

Books were covered on the first day of the book-building process, with the deal demand multiple times oversubscribed across the price range. Significant investor interaction took place ahead of launch, with both local and international investors, which led to a high conversion of orders, de-risked the transaction and increased momentum during book-building.

The deal was the largest consumer retail TASE IPO since 2015.

Financial institutions group financing   

NBK’s $1bn medium-term notes 

Joint global coordinators: Citi, JPMorgan and NBK Capital

Joint lead managers: Bank of America, Goldman Sachs, HSBC, MUFG, and Standard Chartered 

On September 9, 2021, National Bank of Kuwait (NBK) issued $1bn of senior unsecured, six-year (non-call five) notes. The offering marks the first-ever callable senior unsecured bond issuance by a Middle Eastern financial institution, showcasing NBK’s ability to pioneer innovative structural features in the region.

The issuance also acts as the first-ever senior instrument from the Middle East region to have a fixed-to-floating coupon structure. The interest rate was set at 1.625% per annum, fixed until the first optional redemption date, and is floating thereafter at the secured overnight financing rate plus 105 basis points (bps).

On the back of a well-diversified orderbook, with 90% allocated to international investors, NBK printed the largest-ever public debt issuance by a Kuwaiti bank. A strong reception by investors globally, whereby NBK engaged with more than 50 investors during the marketing phase, allowed for a healthy book-building process that saw the orderbook peak at $1.9bn from 80 accounts. 

NBK was able to tighten pricing by 20bps from initial price talk to US Treasuries plus 95bps. US investors were the top in the orderbook, with 43%, followed by Asian and European investors with 26% and 12%, respectively. Middle Eastern investors acquired 10%, with UK investors representing 9%.

The instrument is a callable, senior unsecured offering, and is not subordinated nor related to any total loss-absorbing capital requirements, giving NBK the flexibility to call back the instrument after five years. With this offering, NBK successfully met its strategic aims in terms of pricing and envisioned issue size as well as achieved a number of milestones. 

Infrastructure and project finance   

Jazan Integrated Gasification and Power Company

Global coordinators, bookrunners and mandated lead arrangers: Abu Dhabi Commercial Bank, Al Rajhi Bank, Alinma Bank, Arab Petroleum Investments Corporation, Bank of China, Banque Saudi Fransi, First Abu Dhabi Bank, JPMorgan, Mizuho Bank, Natixis, Riyad Bank, Saudi British Bank, Saudi National Bank, Standard Chartered Bank, and Sumitomo Mitsui

Mandated lead arrangers: Bank Al Jazira, Bank Albilad, DZ Bank, Intesa Sanpaolo, MUFG, and Korea Development Bank 

At the end of October 2021, the $11.9bn acquisition by Jazan Integrated Gasification and Power Company, a joint venture (JV), of an integrated gasification and power project from Saudi Aramco was concluded.

The JV is owned by Air Products (20%), Saudi Aramco (20%), ACWA Power (25%) and by Air Products Qudra JV (9%). The JV will serve Aramco’s Jazan Refinery, a project to process 400,000 barrels per day of crude oil to produce products such as ultra-light sulphur diesel and gasoline.

The JV will oversee the commissioning, testing and operation of the Aramco Jazan Refinery, under a 25-year contract for availability fixed capacity charges. In practice, the JV will receive vacuum bottom oil from Saudi Aramco’s adjacent refiner and gasify it with heat and oxygen, to produce synthetic gas which will be employed to produce 3.8 gigawatts of power, as well as steam, hydrogen and other utilities – all to be sold back to Saudi Aramco.

The bank group provided $7.3bn non-recourse senior facilities, consisting of a $1.6bn Saudi Industrial Development Fund facility, a $300m fixed rate facility and the balance from a group of 21 international, regional and Saudi banks. The $300m fixed rate facility was arranged by Natixis and provided by Korean investors. The remainder of the $11.9bn financing ($4.6bn) came from sponsors’ equity injections.

The project represents a strategic milestone for Saudi Arabia, boosting both the economic and social development of Jazan Economic City, which is expected to create more than 500,000 jobs in the region.

Islamic Finance   

Saudi Aramco’s $6bn multi tranche inaugural sukuk

Active bookrunners: Al Rajhi Capital, Alinma Investment, BNP Paribas, Citi, First Abu Dhabi Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, NCB Capital, Riyad Capital, Standard Chartered, and Sumitomo Mitsui 

Saudi Arabian Oil Company (Saudi Aramco) is the world’s largest integrated energy and chemicals company. It issued its debut sukuk in June 2021 — a $6bn triple-tranche offering spread across $1bn three-year notes, $2bn five-year notes and $3bn 10-year notes. The transaction was the first sukuk from the region incorporating changes intended to reflect the latest Accounting and Audit Organization for Islamic Financial Institutions guidelines, enabling the bookrunners to market the deal to UAE investors.

Following launch, the company underwent a comprehensive two-day global sukuk engagement exercise that saw it meet with more than 200 institutions, with more than half in smaller, more focused sessions.

Initial price guidance was around 105 basis points (bps) over US Treasuries (UST) for the three-year bonds, around 125bps over UST for the five-year notes and around 160bps over UST for the 10-year tranche. However, significant interest — with orderbooks reaching in excess of $60bn — enabled final pricing at 40bps lower across the three tranches. It attracted more than 100 new investors from across the globe, enabling Saudi Aramco to further diversify its investor base.

The deal was the largest-ever corporate international sukuk transaction and the largest orderbook ever achieved for a sukuk transaction.  

Leveraged Finance   

Arabian Centres Company’s $650m sukuk and $225m tap

Initial issuance

Joint global coordinators and bookrunners: Albilad Investment Company, Credit Suisse, Goldman Sachs, HSBC, JPMorgan, Kamco Invest, and Warba Bank

Tap issuance

Joint global coordinators and bookrunners: Goldman Sachs and HSBC 

Arabian Centres Company (ACC) is a real estate company specialising in developing and managing retail properties such as shopping centres and malls.

In April 2021, ACC closed a $650m 5.5-year sukuk, offering a yield of 5.625%. Pricing was tightened from initial guidance of around 5.875% after orders topped $1.35bn. ACC took advantage of the positive performance of the $650m issuance to re-tap the sukuk for an additional $225m, taking the outstanding amount to $875m. The transaction is a rare example of a tap issuance in the international high yield sukuk domain.

The company has said the debt sale will be used for general corporate purposes and to fulfil its financial and strategic objectives. Both offerings allowed ACC to continue to diversify its funding sources into a global investor base.

Loans  

EIG’s five-year acquisition financing bridge facility

Underwriters and bookrunners: BNP Paribas, Citi, First Abu Dhabi Bank, HSBC, JPMorgan, Mizuho, MUFG and Sumitomo Mitsui

Bookrunners: Abu Dhabi Commercial Bank, Bank of China, Crédit Agricole, and Standard Chartered

Mandated lead arrangers: Natixis, Riyad Bank and Société Générale 

On April 9, 2021, Saudi Arabian Oil Company (Saudi Aramco) signed a deal with a consortium led by EIG Global Energy Partners (EIG) to optimise its assets through a lease-and-lease-back agreement involving its stabilised crude oil pipeline network. EIG is a large US-based institutional investor specialising in private investments in energy and energy-related infrastructure.

The total deal value stood at around $25.3bn, with a purchase price of $12.4bn for a 49% stake, making the acquisition the largest example on record of infrastructure foreign direct investment in Saudi Arabia. 

The transaction was financed through a five-year $10.82bn acquisition financing bridge facility. In addition, $1.6bn of equity financing was raised. It entailed a highly bespoke and complex non-recourse project financing approach, structured against dividends to the borrower, from the contractual payment obligations of the off-taker.

It represents the largest-ever closed acquisition financing transaction in the region.

M&A   

EIG’s acquisition of 49% stake in Aramco Oil Pipelines 

Financial adviser to Aramco: Moelis & Co

Financial adviser to EIG: HSBC

In April 2021, Saudi Arabian Oil Company (Saudi Aramco) entered into a sale of a 49% stake in Aramco Oil Pipelines Company, to a consortium led by EIG Global Energy Partners (EIG) for $12.4bn. Aramco Oil Pipelines is a newly formed entity with rights to 25 years of tariff payments for oil transported through Aramco’s oil pipeline network.

The EIG-led consortium attracted a global group of leading institutional investors from China, Saudi Arabia, Korea, the UAE and US, including, among others, Mubadala Investment Company, Silk Road Fund, Hassana Investment and Samsung Asset Management. The transaction, one of the world’s largest-ever energy infrastructure transactions, valued the company at $25.3bn.

The deal is structured as a 25-year lease and lease-back arrangement. Under the terms of the acquisition agreement, Saudi Aramco will lease rights in its fully operational stabilised crude oil pipeline network.

The transaction is a continuation of Saudi Aramco’s strategy to unlock the potential of its asset base and maximise value for its shareholders. It also reinforces Aramco’s role as a catalyst for attracting significant foreign investment into Saudi Arabia.

The partnership is expected to generate significant value for the entire Saudi Arabia energy ecosystem through attracting low-cost international capital, recycling these proceeds into higher growth and returns and emphasising Saudi Arabia as an investment destination of choice.

The innovative structure of the deal allows Aramco to maintain sovereignty and control over the assets, while not incurring financial liabilities from the lease structure.

Restructuring  

Saudi Electricity Company’s

SAR168bn recapitalisation exercise

Sole financial adviser: HSBC 

Saudi Electricity Company’s (SEC) recapitalisation exercise sets the record as the single largest Islamic finance transaction to date. As part of a wider regulatory shake up of the country’s energy sector, SEC converted and restructured its financial liabilities to the Saudi government into a sharia-compliant equity-like instrument amounting to SAR168bn ($44.75bn).

The outcome of the restructuring brought an immediate deleveraging of its $128bn balance sheet from a debt-to-equity ratio of 2.2 to a ratio of 0.6, which is considered to be a healthy debt level for a utility company of its scale.

The restructuring is expected to optimise SEC’s financial and operational sustainability. While the utility company’s debts are configured in this way, the government will no longer collect fees, allowing SEC to take full advantage of its revenue from tariffs in order to further boost electricity generation levels and enhance its ability to meet all its financial obligations.

The reforms also introduce the adoption of a new mechanism to oversee and regulate the company’s revenue model. The country’s energy sector regulator, ECRA, will determine SEC’s revenue to ensure it can cover the costs of providing services, achieve a fair return on invested capital and return to profitability. 

Sustainable finance   

Apicorp’s inaugural $750m green bond

Global coordinators, joint lead managers and bookrunners: Bank of America, Barclays, Crédit Agricole, HSBC, JPMorgan, LBBW, Nomura, and Standard Chartered  

Apicorp is a multi-lateral development bank with shareholding in 10 member states of the Organisation of Arab Petroleum Exporting Countries in the Middle East region. Apicorp’s core objective is financing energy projects and industries within the Arab region and beyond.

In September 2021, it issued its debut green bond, with the use of proceeds assigned to projects related to renewable energy, pollution prevention and control, and green buildings.

The $750m transaction is highly significant in the sustainability transition of the energy sector within the Middle East region, with it expected to play an important role in encouraging further sustainable offerings from sovereign, supranational and agency issuers, and energy companies. It shows how entities from a key transition sector can access international sources of environmental, social and governance-driven funding.

Following launch, the company undertook a unique in-depth marketing exercise to meet more than 100 prospective investors. The bond achieved the tightest-ever new issue spread on a benchmark transaction for Apicorp, at mid-swaps plus 40 basis points, achieving a clear ‘greenium’ and minimal new-issue premium. The issuance was well-subscribed with the orderbook reaching almost three times deal size.

Apicorp is only the second energy company in the world to print an international green bond and it is the first from the Middle East region. 

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