DUBAI: An impending bond issue by Abu Dhabi-based telecommunications firm Etisalat may not only be the region’s largest deal so far this year, but also set a record for tight pricing as the Gulf becomes more of a mainstream investment destination.
Etisalat’s debut bond will 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.
Investor roadshows are due to finish on June 10 and banking sources told Reuters earlier this week that the firm could then issue a four-tranche deal, consisting of five- and 10-year bonds denominated in US dollars and seven- and 12-year bonds denominated in euros.
The size has not been fixed but some bankers speculate that it will be between $2 billion and $3 billion - a level that would be easily absorbed by massive investor demand. The largest deal from the Gulf so far in 2014 was Saudi Electricity Co.’s $2.5 billion, two-part sukuk in April.
“This is the type of credit that bondholders love to hold - highly rated, established track record with scope for further growth, excellent cash flow visibility and decent transparency,” said Chavan Bhogaita, executive director at National Bank of Abu Dhabi. The bank is a passive bookrunner on the trade.
“Add the benefits of government ownership and rarity value, and you have a deal that’s firmly on the radar screens of investors.”
Beyond the factors specific to Etisalat, major trends are working in favor of the issue. Political turmoil in other emerging markets, such as Ukraine and Thailand, has left investors searching for attractive alternatives.
Meanwhile, the Gulf’s strong economic performance during the global instability of the past few years is helping to establish it for the first time as a mainstream investment destination for global funds - a trend underlined on the equities side last month by index compiler MSCI’s upgrade of the United Arab Emirates and Qatar to emerging market status. Five-year Abu Dhabi credit default swaps, which insure its sovereign debt against non-payment, traded at 43.35 basis points on June 3, through the previous low of 45 bps seen in May 2008, Thomson Reuters data showed. The CDS have tightened 41 percent in the last 12 months. At the same time, debt issuance by companies in the Gulf has decreased in recent months as strong economies have made it easy for firms to reduce leverage and borrow from banks.
So high demand is fighting against low supply, pushing credit spreads down. This could mean Etisalat, one of the most highly rated telecommunications firms in the world with ratings of Aa3/AA-/A+ from the main agencies, prices portions of its bond at under 100 basis points above mid-swaps - a first for any debt issue from the Gulf, including sovereign issues.
Region’s biggest bond sale in 2014 set for pricing record
