The Deals of the Year 2016 winners from the Middle East.

Bonds: Corporates 

WINNER: National Bank of Kuwait $700m additional Tier 1 perpetual non-call capital securities

Joint lead managers: NBK Capital, Citi, NBAD, Watani Investment Company

Global coordinators: HSBC, Standard Chartered Bank

Co-manager: Union Bank

The winner of this year’s Middle East corporate bonds category was National Bank of Kuwait’s $700m additional Tier 1 perpetual non-call capital securities.

Not only was this the largest bond issuance in the history of Kuwait and the first rated Tier 1 offering in the Middle East and north Africa region, it was also the first dollar-denominated capital security issuance (offshore) to be placed formally in the country. 

It was rated Baa3 by Moody’s, and was the highest rated additional Tier 1 security from the Gulf Co-operation Council and one of the lowest pricings of a GCC issuer perpetual security at 5.75% per annum.

National Bank of Kuwait wanted a three-month process with the aim of completing the issuance by the first week of April 2015 so it could protect against a future increase in interest rates, an overcrowded market and a blackout period. 

It was against this time frame that pricing was set on April 1, 2015 and settlement was achieved on April 9, 2015.

To meet the deadlines, the size of the additional Tier 1 required capital had to be quantified, and there had to be internal and shareholder approval to proceed with a capital security issuance. Regulatory approval from the Central Bank of Kuwait and qualification under Basel III guidelines also had to be granted, along with approval from the Irish Stock Exchange and marketing approval from the Capital Markets Authority.

Following international meetings and calls with potential investors, the issuance was two times oversubscribed and achieved a $1.4bn orderbook. The spread versus mid-swaps was six-year mid-swaps plus 411.9 basis points.

The bond attracted global interest, with more than 66% of the allocation going to non-Middle East investors.

Bonds: SSA 

WINNER: Government of Ras Al Khaimah $1bn sukuk

Joint lead manager and bookrunners: National Bank of Abu Dhabi, Al Hilal Bank, Citigroup, JPMorgan

In March 2015, the Ras Al Khaimah (RAK) government launched its first 10-year sukuk. The $1bn Islamic bond was also notable for being the emirate’s largest public issuance.

The government, acting via the Investment and Development Office (IDO), successfully priced the Reg S sukuk via an intraday execution. The transaction was issued off RAK’s $2bn Trust Certificate Issuance Programme.

Following a series of investor meetings in Singapore, Malaysia, Abu Dhabi, Dubai and London, the transaction was announced on March 24, 2015, at 9am United Arab Emirates time. Books were opened with initial price thoughts set at mid-swaps plus 25 basis points (bps) for a dollar benchmark 10-year sukuk. 

Strong demand from the Middle East, Asia and Europe saw the orderbook surge to $2.5bn. The guide price was then revised, to mid-swaps plus 115bps area plus or minus 5bps, and this was released at 1:30pm UAE time, with an expected transaction size of $750m. The orderbook opened at 3pm UAE time with orders exceeding $3.8bn.

Given the exceptionally strong orderbook, the transaction was launched at 3:45pm UAE time at the tight end of the guide price, at mid-swaps plus 110bps, with RAK choosing to upsize the issue size to $1bn. The deal ended up being 3.5 times oversubscribed, with a final orderbook of $3.5bn and a total of 175 orders.

The final spread of mid-swaps plus 110bps implies that RAK priced inside its peer group and demonstrates investor confidence in the credit and conservative funding strategy employed by the IDO.

The sukuk is set to mature on March 31, 2025, with a profit rate of 3.094% a year, semi-annual payments and a re-offer yield of 3.094% a year.


Teva Pharmaceutical $7.4bn concurrent common and mandatory convertible offerings

Financial advisers: Rothschild

Bookrunners: Barclays, Citi, Bank of America Merrill Lynch, BNP Paribas, Credit Suisse, HSBC, Morgan Stanley, Mizuho Securities, RBC Capital Markets, SMBC Nikko

The pharmaceutical industry saw a surge in deals during 2015, and it was against this backdrop that Teva Pharmaceutical Industries made its concurrent offering of $3.71bn America depository securities (ADSs) and $3.71bn of mandatory convertible preferred securities.

The offering, which was the second largest ever equity/equity-linked raise in the healthcare sector and the largest by an Israeli issuer, followed Teva’s July 2015 $40.5bn acquisition of Allergan’s generic pharmaceuticals business. In the same month, it also announced its $33.75bn bridge financing, which it aimed to refinance through the issuance of debt, equity and mandatory convertible securities.

The ADS and mandatory convertible orderbooks were more than three and two times oversubscribed, respectively, with total demand exceeding $16bn, a discount of only 0.6% from the pre-launch price. The common stock offering was priced at a tight 1.5% file-to-offer discount, versus an average discount of 4.5% on precedent concurrent offerings. The mandatory convertible preferred securities were priced with a 7% coupon and a 20% conversion premium (the mid-point of price talk).

The offerings were allocated to high-quality investors, with 73% of the ADSs and 47% of the mandatory convertibles placed with institutions designated as ‘Tier 1’ or ‘Tier 1a’.

Although Teva’s acquisition of Allergan Generics was well received, its stock price declined from $73.11 immediately after the deal was announced to a low of $55.44 in October 2015. This was mainly due to a significant increase in market volatility, with a key measure – the VIX index – in excess of 20 for several months, indicating stressed market conditions. Teva launched its offerings during a period of relative market calm, before the VIX again rose above 20 just two weeks following the offerings.

Green Finance 

WINNER: Ashalim concentrated solar power project financing 

Financial adviser: Deutsche Bank

The 25-year long-term multi-currency financing structure for one of the largest concentrated solar power (CSP) plants in the world stood out in the Middle East green finance category this year.

The project finance deal for the Ashalim CSP Plot A project was closed by Abengoa Solar and its 50:50 joint venture partner Shikun & Binui in July 2015 with a total investment of $1.1bn. It was procured under a build-operate-transfer scheme by the Israeli government.

Located in Israel’s Negev Desert, the Ashalim CSP Plot A project includes the development, design, construction, operation, maintenance and financing of a CSP plant with a capacity of 121 megawatts, which is set to be operational by the first half of 2018. 

The plant, which will be the largest in Israel, will be able to store energy to produce electricity whenever required after sunset. The clean energy it generates will serve more than 69,000 households and prevent the emission of the 463,000 tonnes of carbon dioxide that would be produced annually by a conventional power station.

All of the energy generated will be sold under a purchase power agreement for the whole concession period of 25 years to the Israel Electricity Corporation.

The Ashalim CSP is notable for its multi-currency funding structure involving Israeli new shekel- and euro-denominated funds provided by local banks, a euro-denominated loan from the European Investment Bank and US dollar facilities from the Overseas Private Investment Corporation, which match the required uses of funds during the construction period. 

The tailor-made financial structure includes long-tenor debt denominated in Israeli new shekel as well as euro- and dollar-denominated lending provided by commercial local banks and institutional investors, alongside multilateral financing institutions.

Closing this project required careful balancing of the specific requirements of the distinct financial institutions across the US, Europe and Israel as well as a robust, optimised and efficient funding structure.

The wider Ashalim scheme comprises two CSP plants and a photovoltaic power plant across three neighbouring plots that share certain infrastructure. The total capacity of the Ashalim scheme exceeds 250 megawatts. 

Infrastructure and Project Finance 

WINNER: Petro Rabigh II $1.7bn international syndicated facility 

Mandated lead arrangers (international tranches): Citi, BNP Paribas, Crédit Agricole, Mizuho, SMBC, Norinchukin Bank, HSBC, BTMU, Sumitomo, Mitsui Trust Holdings 

Mandated lead arrangers (local tranches): Islamic Development Bank, ApiCorp, Riyad Bank, Banque Saudi Fransi, National Commercial Bank, Arab National Bank, Samba, HSBC Saudi Arabia, Alinma Bank, Al Rajhi Bank 

Facility agent: Bank of Tokyo-Mitsubishi UFJ 

Documentation agent: Samba 

Financial adviser: SMBC

Successfully launching and closing a transaction during a challenging period for commodities requires banks to be committed to supporting key sponsors. It was against this backdrop that the Petro Rabigh II $1.7bn international syndicated facility was judged the stand-out entry in the infrastructure and project finance category for the Middle East.

The financing was noteworthy for its combination of public banks and international and local lenders with conventional and Islamic tranches. The $1.7bn 16.5-year commercial tranche, including Islamic and bank financing, was part of a $5.2bn package put in place to finance Petro Rabigh II’s $8.1bn project. Other tranches of financing included $3.2bn from the Japan Bank for International Cooperation and the Saudi Public Investment Fund. 

In September 2005, Saudi Arabian Oil Company and Sumitomo Chemical Co formed a 50-50 joint venture to develop a world-scale integrated refinery and petrochemicals complex on the west coast of Saudi Arabia. Construction of Petro Rabigh commenced in 2006, with about 60% of the investment being procured through project finance. In 2008, Petro Rabigh held its initial public offering on the Saudi Arabian Stock Exchange with public shareholders owning 25% of the company. The first phase (Petro Rabigh I), which started operations in 2009, expanded Saudi Arabian Oil Company’s original Rabigh refinery by developing an integrated petrochemicals complex. Petro Rabigh II is the second phase to produce high-value speciality products from petrochemical feedstock provided by the Petro Rabigh I facilities.

Islamic Finance 

WINNER: Completely sharia-compliant $1.75bn Jazan Air Separation Unit project financing

Mandated lead arrangers: Société Générale Corporate & Investment Banking, Alinma Bank, Samba Financial Group, National Commercial Bank, Banque Saudi Fransi, Saudi British Bank, SMBC, Mizuho Bank Nederland, Bank of Tokyo-Mitsubishi UFJ, First Gulf Bank

The winner in this year’s Islamic Finance category for the Middle East is the $1.75bn limited-recourse financing of the world’s largest air separation unit (ASU), located in Saudi Arabia’s Jazan Economic City (JEC).

JEC is being developed by the Saudi state and Saudi Aramco, the country’s oil company, to promote the development of the province with a particular focus on the refinery, the petrochemical industry, the port, power, water and desalination. It is a strategic industrial complex for Saudi Aramco and part of its plan to increase exports of more added-value refined products. 

The project company is 75% owned by ACWA Holding and 25% owned by Air Products & Chemicals. It has signed a 20-year nitrogen and oxygen supply agreement with Saudi Aramco, which will act as off-taker on a take-or-pay basis. Air Products & Chemicals will act as the engineering, procurement and construction provider on the project as well. 

Project financing for the JEC ASU was a flagship transaction for the Middle East and essential for the industrial complex. The ASU will separate atmospheric air into its primary components of nitrogen and oxygen to feed the 3700 megawatts integrated gasification combined cycle power plant and the 400,000 barrels-per-day oil refinery. When up and running, it will produce 55,000 tonnes of nitrogen and 20,000 tonnes of oxygen per day.

The project is the world’s largest 100% Islamic project financing to date, following the conventional itsina-ijara and wakala-ijara schemes. The total project cost is about $2.1bn, of which $1.75bn is financed by Islamic senior facilities denominated in both Saudi Arabian riyal and US dollars. The senior debt financing involved five Saudi multi-lateral agencies providing riyal financing only, and five international multi-lateral agencies providing dollar financing only. The facilities, each with a 23-year tenor, are made up of an $850m Islamic loan from international lenders and an SR3.3bn ($900m) Islamic loan from local lenders.

Leveraged Finance 

WINNER: Hikma $500m five-year debut transaction

Joint lead managers: Barclays, Citi, HSBC, National Bank of Abu Dhabi

Global pharmaceuticals company Hikma Pharmaceuticals successfully closed its $500m five-year debut transaction in April 2015 in a well-structured deal that marked it out as this year’s winner in the Middle East in the leveraged finance category.

The transaction was about 2.4 times oversubscribed and was accompanied by a healthy geographic diversification of commitments with the UK representing 30%, the Middle East 24%, Europe 38%, Asia 3% and US offshore 5%. The bulk of allocations (70%) went to fund managers while banks/private banks took 25% and insurance/pensions investors were allocated 5%. The orderbook reflected the scarcity of value investors attached to this rare issuance from the Middle East and north Africa region and specifically from Jordan, this trade being the first Eurobond since 2010 and the first corporate issuance out of Jordan.

Hikma held a series of investor meetings during a four-day roadshow in the United Arab Emirates, London, Frankfurt and Munich. A five-year US dollar benchmark transaction was then announced to the market on March 31, 2015, at 2:30pm London time with initial price thoughts set at mid-swaps plus 300 basis points (bps). 

A solid and diversified orderbook in terms of geographic distribution and investor type built rapidly, reaching more than $500m by the end of the day. At 9am London time on April 1, 2015, price guidance was revised to mid-swaps plus 287.5bps to 300bps with the orderbook standing at $800m and books set to go live by 12noon.

Following the revised guidance, books grew to $1.2bn. A five-year $500m transaction was subsequently launched on this at the tight end of the guidance at mid-swaps plus 287.5bps, which represented a yield of 4.37% and a coupon of 4.25%.

The transaction also achieved Hikma’s key objective of establishing a benchmark in the international capital markets.


WINNER: Mazoon Electricity Company multi-tranche dual-currency US dollar/Omani rial loan

Mandated lead arrangers: Bank Muscat, JPMorgan

Facility agent: Al Ahli Bank

The winner in the Middle East loans category was Mazoon Electricity Company (MZEC), which is owned by Electricity Holding Company (EHC). Demand in MZEC’s footprint is expected to grow at a compound annual growth rate of 10% over the next five years. Network expansion and related capital expenditure by MZEC is a key driver of its medium- to long-term business plan.

In October 2013, EHC sought financial advisers and lead arrangers for five of its distribution and transmission subsidiaries (including MZEC) to enable it to embark on a capital structuring and first-time rating exercise. It also wanted to raise long-term funding of OR800m ($2.08bn) to refinance existing short-term debt, repay shareholders’ loans and raise funds for its capital expenditure. 

In June 2014, the lead arrangers and advisers for the subsidiaries were appointed and the deal was code named Project Lamar. By April 2015, MZEC had obtained its first rating by Moody’s Investor Services, of A3 (investment grade). In September 2015, the 3.3 times oversubscribed MZEC deal closed.

The OR250m MZEC deal comprised a dual-tranche term loan of OR240m and working capital of OR 10m. The loan consisted of an Omani rial tranche of OR117m and a US dollar tranche of $320m.

The project was notable as the first long-term financing for electricity distribution assets in Oman. It was also the first long-term financing with an enabling mechanism catering for MZEC’s ongoing borrowing requirements to finance its future capital expenditure. It had a door-to-door tenor of 11 years with a long-dated embedded availability period of one year at no cost, and a one-year moratorium on principal repayments. Additionally, it included a sculpted repayment schedule with a 20% balloon and no-cash sweep to enable excess cash to be re-applied to the business to fund future growth capital expenditure and mitigate refinancing risk.

The Omani rial interest rate is fixed for five years, which is a relatively rare feature as the Omani rial has no yield curve. On the dollar side, pricing is floated and the hedging decision is left at the discretion of the borrower, which has enabled EHC to adopt a hedging policy at group level.


WINNER: Al Noor Hospitals Group and Mediclinic International £6.9bn merger

Advisers to Mediclinic: Rand Merchant Bank, Morgan Stanley

Advisers to Al Noor Hospitals Group: Rothschild, Jeffries, Goldman Sachs

Mediclinic International’s reverse takeover of Al Noor Hospitals Group was the standout winner in this year’s mergers and acquisitions category for the Middle East. The transaction resulted in the creation of the third largest non-US private hospital group globally with a well-balanced geographic profile in southern Africa, Switzerland and the United Arab Emirates, as well as exposure to the UK market. Additionally, Mediclinic has moved its primary listing to the London Stock Exchange (LSE) while retaining an inward secondary listing on the Johannesburg Stock Exchange as well as a potential listing in Namibia.

The transaction gives Mediclinic the ability to capitalise on the benefits of being an international group, including sharing best clinical practices in areas such as oncology, bariatrics and robotics to develop new services. Its LSE listing and entry on the FTSE 100 will provide greater access to global investors and increased stock liquidity. 

Discussions between Mediclinic and Al Noor only began in early 2015 but by February 2016 the reverse takeover had already been completed and Mediclinic International began trading on the LSE. 

The deal had to be innovatively structured so it could be implemented at a fair market value for both companies. Consequently, the premium to Al Noor shareholders was paid through a special dividend funded by the subscription by Mediclinic’s largest shareholder, Remgro, and the subsequent reduction in Al Noor’s capital. A total of £1bn ($1.43bn) in bridge funding was required, so Rand Merchant Bank and Morgan Stanley provided Remgro with a £600m loan facility to fund its subscription for Al Noor shares and an additional £400m loan facility to Al Noor to fund the take up of the tender offer. Long-term funding and evaluation of innovative takeout options for the bridge funding was also required. 

Additionally, the advisers had to navigate the regulatory requirements in dealing with two other clinical firms who approached the UK Takeover Panel intending to make an offer for Al Noor.


WINNER: Dubai World $14.6bn restructuring

Adviser: Evercore

The $14.6bn restructuring of Dubai World, which picked up this year’s restructuring award for the Middle East, followed a previous restructuring in 2010 that saw an approximately 30/70 split of the holding company’s outstanding obligations into new Facility A and Facility B loans. At this time, an ongoing disposal of non-core assets was expected to promote a gradual repayment of Facility A over time with the Facility B repayment/refinancing being addressed closer to final maturity in 2018.

However, a slower than expected disposal of non-core assets by the end of 2014 resulted in a delayed deleveraging of Dubai World’s balance sheet. There were also significant upcoming near-term maturities ($2.9bn in Facility A in 2015 and $10.9bn in Facility B in 2018). Additionally, the company’s capital structure needed to be optimised to ensure stable financing through the Expo 2020 events and to provide the opportunity to maximise achievable asset disposal proceeds and enhance Dubai World’s credit profile at financial maturity.

Evercore was appointed financial adviser to the Optimisation Committee, which comprised Dubai World’s largest lenders: Abu Dhabi Commercial Bank, Emirates NDB, HSBC and Standard Chartered. 

The firm structured and negotiated a deal that could be supported by all stakeholders and included full prepayment of Facility A. The deal also extended Facility B’s final maturity date to 2022 and provided enhanced economics for Facility B lenders. This resulted in a requirement for ongoing deleveraging/repayment of Facility B and an enhanced collateral package for Facility B lenders.

However, there were numerous challenges. For example, there were no near-term trigger events. In addition, although Dubai World was seeking a four-year extension, it was unwilling to reprice the exposure to market levels as that would have required further cash injections by the government. There was also a diverse syndicate of about 150 lenders of record, with competing interests and expectations. And, because an across the board agreement had to be reached, a transaction through Decree 57 and/or scheme of arrangement was likely to be needed.

Securitisation and Structured Finance 

WINNER: Emirates UK Export Finance guaranteed $900m sukuk 

Joint structuring agent and joint lead manager: HSBC, Citi, JPMorgan, National Bank of Abu Dhabi 

Joint lead managers: Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD Capital, Standard Chartered Bank

Co-lead manager: NCB Capital

The $900m Emirates UK Export Finance (UKEF)-guaranteed sukuk clinched the Middle East Deal of the Year award in the securitisation and structured finance category. It was notable for being the first sukuk guaranteed by any export credit agency. It was also the largest export credit agency-wrapped debt capital markets transaction in the aviation sector and the first time that the UKEF guaranteed the funding such a long time in advance of the delivery of the aircraft. 

The transaction was a true cross-border trade, with a Middle Eastern airline, a UK guarantor and global investors. Additionally, it was a unique transaction as export finance-guaranteed transactions typically target a limited number of investors, whereas this was distributed to a wide variety with about 50 placing orders.

Following a March 12 announcement to the market of a potential UKEF-guaranteed issuance, a series of calls and meetings were set up with investors, aimed at getting their feedback on the proposed transaction, structure, pricing and credit. On March 23, a $913.03m transaction involving four new Airbus A380-800 aircraft was announced in London with initial price thoughts of mid-swaps plus 100 basis points (bps). Strong demand was registered and the orderbook totalled about $900m within the first few hours, hitting $1.5bn by close of business. By the next day, books were in excess of $1.9bn, allowing the joint lead managers in London to release price guidance of mid-swaps plus 95 area (plus or minus 5pbs) to price in range. 

The orderbook reached $2.5bn in the next few hours. By close of business, it had surpassed $3bn, allowing the final credit spread to be set at mid-swaps plus 90bps. On March 25, the final orderbook stood at $3.3bn. The deal was finally priced at a final profit rate of 2.471%.

The market response, which resulted in the orderbook being almost four times oversubscribed, met the Emirates and the UKEF’s objectives of introducing this product to Islamic investors.


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