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Etisalat raises $4.3bn in region’s largest corporate bond sale ever Dubai’s Emaar Malls attracts strong demand for debut sukuk

DUBAI, June 11, (RTRS): Abu Dhabi-based telecommunications operator Etisalat sold $4.3 billion worth of bonds on Wednesday, setting one record as the region’s biggest corporate issue ever and another for the cheapest pricing, bankers said. The issue’s success was due partly to factors specific to Etisalat, which is rated Aa3/AA-/A+ by the main credit agencies, including its state ownership and healthy financial profile. It is also partly due to the Gulf’s strong economic performance during the global instability of the past few years, which has made more investors view the region as a safe haven. In its maiden bond issue, Etisalat sold fixed-rate debt in four tranches with maturities ranging from five to 12 years to replace some of the debt used to fund its 4.2 billion euro ($5.7 billion) purchase of a majority stake in Morocco’s Maroc Telecom from France’s Vivendi.

The firm tightened pricing for a seven-year, 1.2 billion euro tranche to 80 basis points over mid-swaps, 20 bps inside its initial thoughts, while a 12-year euro tranche of the same size was priced at 110 bps, 15 bps within the guidance. A five-year, $500 million U.S. dollar bond was priced at 67.5 bps over mid-swaps, compared to initial price thoughts of 80 bps, and a 10-year, $500 million offering was printed at 87.5 bps, against original thoughts of 100-110 bps.

The issue eclipsed past jumbo bond issues in the Gulf, including a $3.5 billion Islamic bond from Dubai property developer Nakheel which was repaid in 2009, bankers said. It was also the first time that any debt issuer from the Gulf, including governments, had priced a bond in the double digits above mid-swaps. The Qatar government achieved 115 bps over mid-swaps with a five-year sukuk in July 2012, and a 10-year trade from Abu Dhabi National Energy Co in April this year was at the same figure. Despite the tight pricing, the Etisalat bond still offered a small pick-up compared to the current secondary market prices of some Gulf quasi-sovereign issuers, such as Abu Dhabi state fund Mubadala Development Co, which had an eight-year bond trading at 66.6 bps over its Z-spread on Wednesday. Lead managers for the Etisalat issue were Deutsche Bank , Goldman Sachs, HSBC and RBS.

Emaar Malls Group, a division of Dubai’s Emaar Properties, raised $750 million on Wednesday via a debut Islamic bond issue and was able to drive down the cost of the deal due to strong investor demand. The 10-year sukuk received orders worth more than $5.4 billion, showing the growing attraction of investing in the region as its economy recovers from the after effects of the financial crisis and other emerging markets suffer from political and economic problems. Emaar Malls, whose main asset is Dubai Mall, one of the largest shopping complexes in the world, is also expected to sell a quarter of its shares to the public when it lists on the Dubai stock market later this year.

The company’s sukuk was priced at a profit rate of 4.564 percent and a spread of 182.5 basis points over midswaps, according to a document from lead managers on the deal. Initial price thoughts for the bond were in the area of 200 bps early on Tuesday, but the spread was trimmed three times due to the strong demand. This level of interest allowed Emaar Malls to sell the sukuk with almost no new issue premium, which is designed to attract investors to buy new bonds from a borrower. “The new issue premium has shrunk considerably - I would have preferred it (the spread) around 190 bps,” the investment head of a Dubai-based asset management firm said, speaking on condition of anonymity as he was not allowed to talk to media.

The deal’s pricing also showed that Emaar Malls can borrow more cheaply than its parent. “The Emaar (Properties) 2019 sukuk is trading at around 170 bps so a five-year maturity extension does not look rewarded by a 12.5 bps pick up,” said a senior Gulf-based banker. The deal also priced more tightly than some of Emaar Malls’ peer group. Investment Corporation of Dubai, which owns 29 percent of Emaar Properties, raised $300 million in May via a ten-year bond which was trading at around 199 bps over z-spread on Wednesday, according to Thomson Reuters data. A $500 million 10-year bond sold in April by Majid Al Futtaim, the Dubai-based malls operator, was trading at around 192 bps over z-spread. Bookrunners for the Emaar Malls deal were Al Hilal Bank, Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD, First Gulf Bank, Mashreq , Morgan Stanley, National Bank of Abu Dhabi, Noor Bank and Standard Chartered.

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