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Strong markets, scarcity drive DP World’s $1 bln convertible Etisalat’s dollar bonds outperform euro paper in secondary mkt

DUBAI, June 12, (RTRS): DP World took advantage of strong market conditions and scarcity value to raise a $1 billion convertible bond with a ten year lifespan on Thursday, in order to fund growth opportunities and diversify its funding sources. The issue is a rare example of an international convertible bond from a Middle Eastern company and comes at a time when convertible bonds have drawing investors’ attention following a spate of issuance by European firms. Pricing for DP World’s debut convertible issue came at the mid point of both the 1.5 to 2 percent coupon guidance and the 35 and 40 percent conversion premium above the reference share price, a statement from the company said. The reference price, set according to the volume-weighted average price between the start and close of trading of DP World shares on Thursday, was given as $27.14.

“The proceeds from the convertible bond provide us with additional financial flexibility at an extremely low interest rate to take advantage of further organic or inorganic investment opportunities in order to enhance returns to shareholders over the medium term,” Sultan Ahmed Bin Sulayem, chairman of DP World, said in the statement. From a pricing perspective, the coupon level was attractive for DP World when compared with other regular debt issues by the likes of Emaar Malls Group, according to Ali Adou, senior vice president, asset management at The National Investor, referring to the $750 million sukuk sold on Wednesday.

DP World is also in talks with lenders to triple the size of an existing $1 billion loan, as well as extend the lifespan and cut the interest rate, seeking to leverage investors’ renewed confidence in the emirate and the fact banks have plenty of cash to lend to reduce its borrowing costs. While the size of investor orders for the convertible bond wasn’t disclosed, a banker working on the deal said the total amount was very comfortably covered. The banker said investors were drawn to a rare opportunity to secure bonds belonging to a Middle Eastern firm as well as a ports operator in a sector which would benefit from global economic growth in the coming years.

The last major convertible bond sold by a Gulf company was in May 2013 when National Bank of Abu Dhabi completed a $465 million, five-year convertible that was later raised to $500 million. Pricing came with a 1 percent coupon and a 30 percent conversion premium. However, a number of European corporates have issued convertibles in the last two weeks, including French telecoms firm Alcatel-Lucent, Swiss duty free group Dufry , and French oil and gas group Maurel & Prom. JP Morgan acted as global coordinator for DP World’s convertible sale and Citigroup, HSBC and UBS were classed as joint bookrunners. The company can buy back the bonds after three years, should the DP World share price be 30 percent above the value of the reference share price or if more than 85 percent of the bonds have been converted by investors. Investors can have the company buy back the bonds at years four and seven.

Debut bonds sold by Abu Dhabi-based telecommunications operator Etisalat were bid up in the secondary market on Thursday, with the US dollar tranches outperforming euro paper, traders said.
Etisalat sold $4.3 billion worth of bonds in four tranches on Wednesday, setting one record as the region’s biggest corporate issue ever and another for the cheapest pricing of any Gulf bond above mid-swaps, bankers said.
The two euro tranches attracted massive demand from European investors, particularly fund managers, partly because of the European Central Bank’s decision last week to cut its deposit rate below zero. This caused the euro tranches to price very tightly and then underperform moderately in the secondary market, traders said.

About 80 percent of the euro bonds - a seven-year, 1.2 billion euro tranche and a 12-year tranche of the same size - went to European investors, allocation data showed - an extremely high ratio for a bond issue from the Gulf.
By contrast, only 46 percent of the dollar bonds - a five-year, $500 million tranche and a 10-year tranche of the same size - went to Europeans. Thirty-one percent went to Middle East investors.
At 0915 GMT on Thursday, the 2021 euro bond, which had priced at 99.051, was trading with bid-offer quotes of 99.52-99.67. The 2026 euro bond, priced at 98.329, was at 99.47-99.67, traders said.
The US dollar tranches rose more steeply. The 2019 bond was bid and offered at 100.45-100.60 against its pricing of 99.691, and the 2024 bond at 100.425-100.625 from 99.059.
Lead managers for the Etisalat issue were Deutsche Bank , Goldman Sachs, HSBC and RBS.

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