A celebration of the top deals in the Middle East over the past year.
Corporate Bonds
Winner: Almarai’s $500m sukuk
Joint global coordinators: HSBC, First Abu Dhabi Bank
Joint lead managers: GIB Capital, JPMorgan, Standard Chartered
Almarai is a Saudi Arabian multinational food and beverage company that began life with a mission to enhance Saudi Arabia’s dairy industry. In February 2019, the company issued a $500m five-year sukuk for refinancing purposes under its newly established $2bn trust certificate programme.
Although Almarai had issued several sukuk before, these had only been available to Saudi Arabian investors. This issuance marked its international capital markets debut, with the sukuk placed on Euronext Dublin – something that it had been talking about for a number of years.
The sukuk launched on February 26 and attracted huge demand, with the order book peaking at more than $5.4bn, an oversubscription of about 11 times the issue size. Pricing was tightened significantly and the final coupon was set at 4.31%. Almarai achieved impressive order book diversification with more than 60% distribution of the sukuk to non-Middle Eastern investors, including 36% to European accounts and 23% to Asia, reflecting the strength of its credit story.
This transaction marked the first international, investment-grade, non-government-related corporate issuance from Saudi Arabia, with the sukuk rated at Baa3 by Moody’s and BBB- by Standard & Poor’s. It was also the first US dollar-denominated sukuk by a food and beverage company based in a Gulf Co-operation Council country.
Equities
Winner: Saudi Aramco’s $29.4bn initial public offering
Joint global coordinators: Citi, Credit Suisse, Goldman Sachs, HSBC, JPMorgan, Bank of America, Morgan Stanley, Saudi National Commercial Bank, Samba Capital
Joint bookrunners: Al Rajhi Capital, Banco Santander, BNP Paribas, Bank of China, Crédit Agricole, Deutsche Bank, EFG Hermes, First Abu Dhabi Bank, Gulf International Bank, Mizuho, RBC Capital Markets, Riyad Bank, Saudi Fransi Capital, Société Générale, Sumitomo Mitsui Financial Group, UBS
Special advisers: Lazard, Moelis, Michael Klein & Co
The scale of Saudi Aramco’s long-awaited initial public offering (IPO) certainly did not disappoint. The IPO (when including its 15% greenshoe over-allotment option) raised $29.4bn, the largest amount ever to have been raised through an IPO and nearing $5bn more than previous record holder Alibaba’s $25bn IPO in 2014.
Saudi Aramco is the world’s largest integrated oil and gas company, and was responsible for producing one in eight barrels of the world’s crude oil between 2016 and 2018. The company’s longer term vision is to be the world’s pre-eminent integrated energy and chemicals company, operating in a safe, sustainable and reliable manner.
Until its December 2019 listing, the company was 100% owned by the Saudi state, which was expected to use the proceeds from the transaction to contribute to the country’s economic development, as outlined in its Saudi Vision 2030 strategy.
On the day of listing in December 2019 it floated 1.5% of its shares at an initial price of SR32 ($8.53), raising SR96bn (equivalent to about $25.6bn). Despite the huge size of the flotation it was comfortably absorbed by the market, with $119bn-worth of demand for its shares. The company subsequently sold a further SR14.4bn, exercising the full 15% greenshoe.
It was also a big day for Saudi Arabia’s capital markets. Aramco chose to list domestically on the country’s Tadawul stock exchange, which has only been operating since 2007. According to its own figures, the Aramco IPO saw the Tadawul’s total market capitalisation increase overnight from $509bn to $2300bn, putting it in contention to be one of the world’s 10 largest trading venues by market capitalisation.
Financial institutions group financing
Winner: NBK’s $750m perpetual additional Tier 1 notes
Global coordinators: Citi, JPMorgan, Standard Chartered, NBK Capital Joint lead managers: HSBC, UBS
National Bank of Kuwait (NBK) is the country’s largest bank and the oldest bank to be established domestically. Throughout 2019, its capital adequacy ratio (CAR) had been declining due to an increase in its risk-weighted assets (RWA), with the issue exacerbated by regulatory changes implemented by Kuwait’s central bank in September 2019, taking its total CAR to only fractionally above the regulatory minimum of 15%.
This meant NBK immediately needed to bolster its regulatory capital position by issuing additional Tier 1 (AT1) bonds. It chose to issue $750m-worth of the notes as this would meet its capital requirements and build in a buffer against future RWA growth. It also opted to issue the notes using the 144A/Reg S format, which allowed it to target US institutional investors. This bond was the first transaction out of the Middle East and north Africa (MENA) region to use the 144A/Reg S format.
As the bank had been absent from the international capital markets since 2017, it embarked on an extensive roadshow ahead of launch, covering investors based in Hong Kong, Singapore, the United Arab Emirates, Switzerland, the UK and the US.
The bank was able to leverage the positive feedback from the roadshow, as well its robust credit position, to generate strong demand. The perpetual non-call six-year bond was launched on November 21. With the order book reaching $2.3bn at its peak, the level of demand allowed it to set the yield at 4.5% – the lowest coupon ever for a Gulf Co-operation Council AT1 issuance.
The transaction achieved a very well-balanced distribution, with strong participation from high-quality accounts, both regionally and internationally, and 90% sold outside of the MENA region, including one-third going to US investors. The issuance was the largest AT1 capital offering from Kuwait to date.
Green finance
Winner: Majid Al Futtaim’s inaugural green sukuk
May 2019 transaction
Sole green structuring adviser and joint global coordinator: HSBC
Joint global coordinator: Standard Chartered
Joint lead managers: Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, Gulf International Bank
October 2019 transaction
Joint global coordinators: BNP Paribas, Citi, HSBC
Joint lead managers: Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD, First Abu Dhabi Bank
Majid Al Futtaim (MAF) is one of the largest developers and operators of shopping malls and hypermarkets in the Middle East and north Africa (MENA) region. Its $600m 10-year green sukuk in May 2019 was a ground-breaking transaction for the company as well as the region.
The deal was MAF’s debut green issuance, as well as the first green transaction from a non-financial institution in the MENA region. It is fitting for this breakthrough green issuance to have come from MAF, as it was one of the first companies in the MENA region to focus on sustainability, having first developed a sustainability strategy in 2011. The issuance involved the establishment of a green finance bond/sukuk framework for MAF – the first of its kind for a regional corporate.
The transaction was launched on May 14, 2019, following a roadshow that covered Singapore, Hong Kong, London and Paris. The issuance achieved healthy demand, despite volatile market conditions on the day, with the order book multiple times oversubscribed and pricing settling at 4.64%.
Building on the success of its first green issuance in May, and taking advantage of favourable markets conditions, MAF returned to the markets again in October 2019 issuing a further $600m with a 10-year tenor, at a 3.93% coupon – a tightening of 70 basis points compared with its first issuance.
The proceeds from both issuances will be used for investment in green buildings, energy efficiency, water and wastewater management and renewable energy projects.
High-yield and leveraged finance
Winner: Egypt’s triple tranche $4bn issuance
Joint bookrunners: BNP Paribas, Citi, JPMorgan, Natixis, Standard Chartered
In February 2019, Egypt brought a $4bn issuance to the international markets that went down well with investors. The issuance consisted of $750m five-year notes, $1.75bn 10-year notes and $1.5bn 30-year notes.
Egypt has a large-scale and ongoing programme of economic reforms and policies aimed at increasing the living standards of its citizens, and the financing raised from the bond will contribute to the state’s budget.
International investors have responded positively to signs of success in Egypt’s real growth plans, as the country achieved 5.3% gross domestic product growth in full-year 2018 figures. There was substantial investor interest in the issue, with the order book peaking at more than $21bn, allowing significant price tightening. Final coupons were priced at 6.2%, 7.6% and 8.7% for the five-year, 10-year and 30-year notes, respectively. It was the highest oversubscription (at peak) since 2017 for a Middle East and north Africa sovereign issuer.
The coupons were higher than those achieved by a similar $4bn issuance a year earlier in February 2018, also made up of five-, 10-, and 30-year notes. However, market observers suggested this was a reflection of the global economic context, rather than Egyptian factors, with the US Federal Reserve having increased its interest rates, and slower global economic growth.
Egypt achieved impressive investor diversity with the bonds, and attracted orders from high-quality accounts from around the world. US and UK investors accounted for more than three-quarters of the allocation across all three tenors.
This issuance enabled the sovereign to make further progress in its aim of diversifying its funding sources, with increased utilisation of international debt markets, and it also allowed the country to increase the maturity profile of its debt, reducing its reliance on short-term sources.
Infrastructure and project finance
Winner: Mohammed bin Rashid Al Maktoum Solar Park’s $2.4bn financing
Mandated lead arrangers: Agricultural Bank of China, Bank of China, China Everbright, Industrial and Commercial Bank of China, Natixis, Standard Chartered, Union National Bank
The Dubai Clean Energy Strategy 2050 aims to produce 25% of Dubai’s energy from clean sources by the end of 2020, rising to 75% by 2050. The Mohammed bid Rashid Al Maktoum Solar Park, a collaboration between Saudi Arabia-based developer ACWA Power, Dubai Electricity and Water Authority and the Silk Road Fund, has been hailed as a landmark project for the emirate’s plans to transition to low-carbon energy and achieve these targets.
Now in its eighth year of construction, the fourth phase of the project will deliver a number of industry records, including the installation of the world’s tallest solar tower, standing at 260 metres, and the largest energy storage capacity of any similar facility, allowing for around-the-clock uninterrupted power generation. On completion of phase four, the facility will become the largest thermo-solar plant in the world, with a total installed capacity of 950 megawatts, which is planned to rise to 1 gigawatt by 2020 and 5 gigawatts by 2030.
The phase four financing package has become the first in the Gulf Co-operation Council region to receive the Climate Bonds Initiative’s certification for renewable energy financing. The certification issuance was facilitated by Natixis, one of the project financing banks, and Sustainalytics, which conducted the verification of the certification process. When complete the facility will generate clean energy for 320,000 residences and save 1.6 million tonnes of carbon emissions annually.
The financing package includes a soft mini-perm structure with facilities split between $1.2bn with a contractual maturity of 25 years, $1.2bn with a contractual maturity of 27 years, and a refinancing trigger set at four years after the commercial operation date. The bulk of the funds were provided by a consortium of Chinese banks in co-operation with the Silk Road Fund, which is owned by the Chinese government to promote investment in countries that are partners of its Belt and Road Initiative.
Islamic Finance
Winner: Islamic Development Bank’s €1bn inaugural green sukuk
Sole green structuring agent, joint lead manager and bookrunner: HSBC
Joint lead managers and bookrunners: Citi, First Abu Dhabi Bank, HSBC, LBBW, Natixis, Société Générale, Standard Chartered, Warba Bank
Co-manager: SMBC Nikko
In November 2019, Islamic Development Bank (IsDB) launched its inaugural green sukuk. This transaction by the region’s leading development bank provides a strong indication of the growing commitment to climate change issues by Middle East issuers.
This landmark issuance marks the first ever euro-denominated green sukuk, and the largest euro sukuk on record globally. The five-year deal launched on November 26, following an extensive marketing exercise that took place in London, Paris, Frankfurt and Amsterdam. The order book grew steadily overnight and throughout the following day and eventually priced at 0.037%, marking the lowest coupon ever achieved by IsDB for a benchmark size transaction.
As part of its mission, IsDB is committed to alleviating poverty, promoting human development, science and technology, Islamic banking and finance, and enhancing co-operation among member countries in collaboration with its development partners. Its green sukuk will assist its member countries in their efforts to transition to a low-carbon economy.
Proceeds from the transaction will be invested in programmes to promote measures such as renewable energy, clean transportation, pollution prevention and sustainable management of water throughout the Islamic world, with this sukuk envisaged as the first of many more sustainable and green issuances by IsDB under its sustainable finance framework.
This issuance was IsDB’s third public offering in 2019, following two benchmark US dollar sukuk.
Loans
Winner: The Public Investment Fund of Saudi Arabia’s $10bn bridge loans
Bookrunners: Bank of America, BNP Paribas, Crédit Agricole, Citi, HSBC, JPMorgan, Mizuho, MUFG, Standard Chartered, SMBC Nikko
Saudi Aramco’s announcement in March 2019 that it had agreed to purchase a 70% stake in Saudi Basic Industries Corporation (Sabic) from the Public Investment Fund of Saudi Arabia (PIF) for $69.1bn was a major moment for the global chemicals industry. Sabic was founded in 1976 with the aim of using natural gas, extracted as a by-product when drilling for oil, to create valuable and useful chemicals. Prior to Sabic’s creation the natural gas was simply flared on the spot.
For Saudi Aramco the acquisition fits in with its downstream growth strategy, with the company increasing its investments in refining and petrochemicals to secure new markets for its crude.
For PIF, when the deal is completed it will provide it with valuable capital to invest in Saudi Arabia’s major economic growth plans. In the interim, in October 2019 it sought $10bn in bridging finance to enable it to accelerate its investment activities, and the proceeds from the Sabic divestment to Saudi Aramco will be used to repay the loan.
The transaction was PIF’s second international financing facility following an $11bn debut club loan in September 2018, which also led to the creation of PIF’s core banking group. The 10 international banks that provided the syndicated facility are part of this group, with each making equal commitments. The loan transaction was the largest public sector transaction completed in the Middle East and north Africa region in 2019.
M&A
Uber’s $3.1bn acquisition of Careem
Exclusive adviser to Careem: Jefferies
Careem is a ride-hailing, food delivery and mobile payments business with operations across 15 countries and more than 100 cities in the Middle East and north Africa. The company, which was launched in 2012, was a pioneer of ride-hailing services in the region and was Uber’s primary competitor there, so it is easy to see why Uber was keen to acquire it ahead of its planned initial public offering (IPO), especially following its retreat from operations in China, south-east Asia and Russia.
The $3.1bn takeover comprised $1.4bn in cash and $1.7bn in notes convertible into cash or Uber stock at the holder’s discretion, with the notes convertible into Uber shares at a price equal to $55 apiece, marking a nearly 13% increase over Uber’s share price in a previous funding round in January 2018 (the details of the Careem acquisition being agreed some months ahead of Uber’s October 2019 IPO).
Following detailed negotiations, which had taken place over a nine-month period, the transaction was announced in March 2019. Careem will retain its brand, its own CEO, with co-founder Mudassir Sheikha continuing to sit at the helm, as well as its own management team and a separate board; though three Uber representatives will sit on the five-person board.
Both companies will continue to operate in parallel in the region. The acquisition completed in January 2020 via a staged asset sale, with staggered closings for jurisdictions upon regulatory approval.
The transaction represents one of the largest transportation-as-a-service merger and acquisition exits ever completed, as well as one of the largest technology transactions in the Middle East to date.
For both companies, the acquisition will provide potential to expand the scale and variety of services offered through their applications. The ability to combine back-end systems and shared technology infrastructure could also deliver cost savings, and plans to share drivers and consumer demand across the two platforms could reduce waiting times for both drivers and customers.
Sovereign, supranational and agency financing
Winner: Mamoura’s $3.5bn multi-tranche issuance
Joint lead managers: Citi, Deutsche Bank, First Abu Dhabi Bank, HSBC, JPMorgan, SMBC Nikko Capital
Co-managers: Crédit Agricole, ING Bank, Mizuho
Mamoura, one of Abu Dhabi’s largest investment funds, was created through the merger of the International Petroleum Investment Company and Mubadala Development Company in 2017. The ambition of the newly formed Mamoura is to be a global investment powerhouse for Abu Dhabi, as well as to support its economic development.
The state-owned company has a number of aims via its funding strategy, with key elements being to diversify its funding sources and issue funding at a low cost while also extending and smoothing out the debt maturity profile.
With these aims in mind, in October 2019 it launched a jumbo triple-tranche issuance comprising a $1bn five-year bond, $1bn 10-year bond and $1.5bn 30-year Formosa bond (a bond issued in Taiwan, in non-Taiwanese currency). The 30-year bond is the first Formosa to have been issued from the United Arab Emirates, and is dual-listed on both the London and Taiwan stock exchanges. This allowed it to attract a significantly higher proportion of Asian investors than with its previous issuances.
Books opened for the transaction on October 29, following a roadshow that visited London, New York and Boston. At its peak, the order book was almost three times oversubscribed, allowing pricing to be tightened across all three tenors, finishing at 2.5%, 2.875% and 3.7% for the five-year, 10-year and 30-year, respectively. The coupons on all three deals were the lowest ever achieved by Mamoura.
