Mashreq’s USD 500 mn bond sale meets heavy demand, allows lender to lock in the lowest coupon by a UAE bank in past three years

Mashreq’s AT1 bonds were 4.4x oversubscribed: Our friends at Mashreq issued a USD 500 mn additional Tier 1 bond, yesterday, with an annual coupon rate of 7.125%, with a 270.5+ basis point (bps) reset margin, the lender said in a statement (pdf). The issuance carries the lowest coupon for AT1 bonds set by a bank in the UAE in the past three years.

Mashreq booked USD 2.3 bn in orders for the offering, making the sale 4.4x oversubscribed. The transaction saw the largest price tightening by any UAE bank for an AT1 issuance in the past five years, Mashreq said.

Who bought in? Some 77.5% of the offering was allocated to Middle East-based investors, while Europe (including the UK) snapped up some 19.5%. The balance was divided between Asian markets and offshore US interests.

Sound smart: The issuance carries Mashreq’s tightest-ever reset margin (+270.5 bps) for any of its bank capital issuances (AT1 and Tier 2) — that’s the tightest spread ever achieved on a conventional, USD-denominated AT1 benchmark issuance out of the Middle East. The transaction was Mashreq’s first since it raised USD 300 mn in its 2022 offering.

Use of proceeds: Mashreq will use the funds to “continue its growth plans into 2024 and beyond,” our friend Ahmed Abdelal, Mashreq’s Group CEO, said.

The marketing plan: Mashreq kicked off with a “well-attended global investor call” and then pushed through “a couple of days of intensive marketing” that included an in-person roadshow in London.

Uh, Enterprise, what are AT1 bonds? They’re a common way for banks to raise core tier-one capital without diluting shareholders by issuing new equity. Additional tier one certificates (or “AT1 certificates”) are a type of subordinated debt, meaning they rank below other types of bank debt in the event of liquidation. This makes them riskier than senior debt, but still gives them priority over equity holders. AT1 certificates are “perpetual,” having no fixed maturity date. They pay interest similarly to bonds, but can often be converted into equity under certain conditions, which is why they are often referred to as CoCos, short for “contingent convertibles,” in the industry.

BACKGROUND- Mashreq hired banks to advise on the issuance last week. The bonds will be perpetual and non-callable for 5.5 years, meaning Mashreq cannot redeem them within this period without incurring a penalty.

ADVISORS- Mashreq appointed Abu Dhabi Commercial Bank, Al Ahli Bank of Kuwait’s DIFC branch, BofA Securities, Citi, Emirates NBD Capital, FAB, Kamco Investment Company, Mashreq, and Mizuho as joint lead managers and joint bookrunners.

MARKETS THIS MORNING-

Asian markets are mixed this morning, with the Nikkei and Shanghai Composite in the red, while the ASX 200, Kospi, and Hang Seng are all in the green. US equities futures were comfortably in the green overnight as traders look forward to yet another data dump later today — this time May private payroll data from ADP. Futures for major European benchmarks were all up in overnight trading with the exception of France’s CAC 40.

THE CLOSING BELL: TADAWUL-

The TASI fell 1.7% yesterday on turnover of SAR 7.1 bn. The index is down 3% YTD.

In the green: Sal (+2.7%), Saudi German Health (+2.5%) and Tanmiah (+2.5%).

In the red: Al Baha (-7.1%), Al Rajhi Takaful (-5.8%) and NCLE (-5.4%).

THE CLOSING BELL: NOMU-

The NomuC fell 2% yesterday on turnover of SAR 63.1 mn. The index is up 6.1% YTD.

In the green: Knowledgenet (+9.5%), Miral (+8.7%) and Food Gate (+8.1%).

In the red: Pro Medex (-8.9%), Burgerizzr (-8.8%) and Academy of Learning (-8.6%)

CORPORATE ACTIONS-

Kingdom Holding’s general assembly approved the distribution of SAR 1 bn in dividends at SAR 0.28 per share for 2024, it said in a filing to the exchange. The general assembly also signed off on the purchase of additional shares in Citigroup worth SAR 1.7 bn.

The board of National Gas and Industrialization Company approved the distribution of SAR 80.5 mn in dividends at SAR 1.1 per share for the first half of 2024, it said in a disclosure to the exchange. The eligibility date is set at 8 July and the distribution date at 22 July.

Tadawul-listed Bawan Company’s board greenlit a SAR 90 mn in dividends for 2H 2023 at SAR 1.5 per share, it said in a statement (pdf). The distribution date was unannounced.

Tadawul-listed Zahrat Al Waha for Trading’s board has approved the distribution of SAR 30.4 mn dividend for FY 2023 at SAR 1.35 per share, it said in a disclosure to Tadawul. The distribution date will be announced later, it added.

Shareholders of Al Sagr Cooperative Ins. recommended a 114.3% capital increase to SAR 300 mn, through a SAR 160 mn rights issue, according to its prospectus (pdf).

Saudi Fisheries has submitted its request for a capital reduction to the Capital Market Authority for approval, it said in a regulatory filing to Tadawul. The food manufacturer is gearing to cancel 66.2% of its share capital in an effort to offset incurred losses, according to an earlier disclosure to the exchange. The move — which falls under the company’s restructuring plan — will bring its capital down to SAR 135.2 mn.