Abu Dhabi said to study restructuring options for $1.2bn Etihad-linked bonds

An Etihad Airways Airbus A380 taking off in London. (Shutterstock)
Updated 19 September 2018
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Abu Dhabi said to study restructuring options for $1.2bn Etihad-linked bonds

  • Bonds issued through SPV with other airlines
  • Etihad asks Abu Dhabi government for help

DUBAI: The government of Abu Dhabi is looking at proposals to restructure some $1.2 billion of troubled bonds that were issued by Abu Dhabi state-owned carrier Etihad Airways in partnership with other airlines, sources familiar with the matter said.
Etihad issued $700 million of bonds through a special purpose vehicle (SPV) called Equity Alliance Partners (EAP) in 2015, and $500 million in 2016. Proceeds of the paper went to Etihad and other airlines it partially owned at the time, including Alitalia and Air Berlin, which are now both insolvent.
The notes were seen as strengthening Etihad's partnerships with those airlines after it spent billions of dollars in acquisitions.
The EAP bonds have been trading at a significant discount for over a year, however, after Alitalia entered special administration and Air Berlin filed for bankruptcy.
Etihad has no legal responsibility to bail out the portion of the bonds which benefited the two European airlines as the notes have no cross-default provision.
But with over $500 million of the paper held by United Arab Emirates investors, it has asked the Abu Dhabi Department of Finance to find a way to reduce losses for investors and limit any damage to the reputation of the local debt market, sources familiar with the matter said.
The department is now working with a financial adviser to find restructuring solutions, said the sources. One option being discussed could involve adjusting the structure of the paper to obtain a better credit rating. Rating agency Fitch has been involved in some of the discussions, the sources said.
Etihad declined to comment while a spokesman for the Abu Dhabi Department of Finance did not respond to a request for comment. Fitch declined to comment.
Any type of restructuring would require bondholders’ approval.
Etihad agreed to cover Alitalia’s portion of the debt, equivalent to around $230 million, at maturity through an agreement between the airlines which was signed before Alitalia entered special administration. But Air Berlin’s portion, of roughly the same amount, has no such guarantee.
Any intervention by the Abu Dhabi government, which could materialise before the end of this year, might see Abu Dhabi inject around $200-300 million into the issuing vehicle, said the sources.
This amount would be applied towards a partial early redemption of the notes at a discount of around 15 percent to par value for note holders seeking an early exit, the sources said. That would imply a write-off of Air Berlin’s obligation under the structure, while Alitalia’s debt would be honoured.
Creditors unwilling to exit at a discount might swap their notes into new instruments with a higher credit rating. The notes could feature a credit enhancement in the form of a guarantee of the obligations of Air Serbia and Air Seychelles, which are part of the borrowing structure, the sources said.
The first tranche of the notes, due 2020, is rated CC by Fitch, while the second tranche due 2021 is rated C.
With an Abu Dhabi intervention, the notes would become investment grade because of the oil-rich emirate's strong credit profile, so any capital injection by the government could be partially offset by a reduction in interest payments.
Last month, the SPV said it received a bid of just over $4 million in cash for the debt obligations of Alitalia and Air Berlin across the two EAP bond tranches.
The bid included around $6 million that would become payable to the SPV in case of recovery of an equivalent amount from the obligations, and a payment of 60 percent of money recovered after a 35 percent recovery threshold was reached.
The bid had an expiry date of Aug. 31; the SPV asked the bidder to extend the deadline to give note holders time to review terms. Since then, the SPV has given no update on the bidding process.


Saudi Aramco to invest in refinery-petrochemical project in east China

Updated 18 October 2018
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Saudi Aramco to invest in refinery-petrochemical project in east China

  • This is the third such project in China that Saudi Aramco has set its sight on
  • Last month, Saudi Aramco signed a long-term deal with the Zhejiang project’s operator Zhejiang Rongsheng to supply crude oil

ZHOUSHAN, China/SINGAPORE: State oil giant Saudi Aramco signed an agreement on Thursday to invest in a refinery-petrochemical project in eastern China, part of its strategy to expand in downstream operations globally.
The memorandum of understanding between the company and Zhejiang province included plans to invest in a new refinery and co-operate in crude oil supply, storage and trading, according to details released by the Zhoushan government after a signing ceremony in the city south of Shanghai.
Zhejiang Petrochemical, 51 percent owned by textile giant Zhejiang Rongsheng Holding Group, is building a 400,000-barrels-per-day refinery and associated petrochemical facilities that was expected to start operations by the end of this year.
This is the third such project in China that Saudi Aramco has set its sight on as it seeks to lock in long-term outlets for its crude oil and produce fuel and petrochemicals to meet rising demand in Asia and cushion the risk of a slowdown in oil consumption.
Last month, Saudi Aramco signed a long-term deal with the Zhejiang project’s operator Zhejiang Rongsheng to supply crude oil.
The oil giant had not yet finalized the size of its stake in the project and still needed to complete due diligence, Aramco’s Senior Vice President of Downstream, Abdulaziz Al-Judaimi, said on the sidelines of the event.
Saudi Aramco expects to supply 170,000 barrels per day of Saudi crude to the refinery in Zhoushan when it starts operations, he said.
The first crude carrier supplying the refinery should arrive in December or January, depending on when the project starts, he added.
Aramco also owns part of the Fujian refinery-petrochemical plant with Sinopec and Exxon Mobil Corp, and has plans to build a 300,000-bpd refinery with China’s Norinco. It is also in talks with PetroChina to invest in a refinery in Yunnan.