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Strong investor appetite for a stream of UAE issuances continues, with both Adnoc and Rakbank locking in good pricing as investors seek that perfect mix of yield and safety ahead of what some worry could be a pickup in turbulence this fall.
UP FIRST- Adnoc is set to raise USD 4 bn from the sale of its three-tranche bonds, Reuters reports, citing IFR. The USD-denominated bonds were issued by Adnoc’s debt issuing arm, Adnoc Murban, under its global medium term note program and are set to be listed on the London Stock Exchange, according to IFR.
The details: The USD 1 bn five-year bonds were priced at about 70 basis points (bps) above US Treasuries with the same tenor, the USD 1.5 bn 10-year tranche at 85 bps above, and the 30-year tranche at 115 bps.
That’s a good pricing for Adnoc, which had initially guided on pricing at 105 bps above treasuries for the five-year notes, 115 bps over for 10-year bonds, and 145 bps for the 30-year tranche.
IN CONTEXT- Plenty of companies around the world are tapping the bond market right now to lock in finance amid fears that risk premiums could rise if there’s more turbulence in global markets (or worries about economic downturns). Investor appetite is also strong right now,, as buyers look to lock-in returns before the US Federal Reserve kicks in with interest rate cuts, translating into lower yields.
BACKGROUND- Adnoc said in revealed in 2022 that Adnoc Murban, the special-purpose vehicle it set up for the debt program, was set to become Adnoc’s primary debt issuer in the bond market in 2024. Assigning it an AA rating, Fitch expects Adnoc Murban to raise up to USD 10 bn in debt,
ADVISORS- JPMorgan and Morgan Stanley are acting as global coordinators. BofA Securities, Citi and FAB are active bookrunners while our friends at HSBC are passive bookrunners alongside ADCB, Mizuho, and SMBC Nikko. Adnoc was revealed earlier this week to have hired the banks to advise on the benchmark-sized issuance.
Rakbank raises USD 250 mn in Tier 2 bond sale
The National Bank of Ras Al Khaimah (Rakbank) raised USD 250 mn from the sale of Tier 2 security bonds yesterday, according to a press release. The issuance carries a maturity of 10.25 years, with a 5.25-year non-call period. The bank kicked off investor meetings for the debt sale last Friday.
Investor appetite was solid: The issuance was 4x oversubscribed, receiving USD 1 bn in orders, allowing Rakbank to price the issuance at a spread of 42.5 basis points over US Treasuries.
Tier 2? Tier 2 capital forms a part of a bank’s capital reserves. Unlike core capital listed as tier 1 (such as reserves and equity capital), tier 2 is composed of assets considered more unreliable or risky due to being more illiquid or being harder to quantify.
SOUND SMART- A non-what? A non-call period is the length of time Rakbank promises not to “call” the bond — to exercise its option to buy back the bond at a predetermined price before the issuance reaches maturity.
Why does that matter? It gives investors confidence that they’ll book the coupon payments from the bonds they buy for at least the duration of the non-call period, even if interest rates decline.
ADVISORS- Our friends at Mashreq, along with Abu Dhabi Commercial Bank, Al Ahli Bank of Kuwait, Bank ABC, Citigroup, Doha Bank, Emirates NBD, First Abu Dhabi Bank, Kamco Invest, QNB Capital, and Standard Chartered were tapped to manage the issuance.
UAE debt issuances are standing out globally
The UAE is emerging as a standout among higher-rated emerging market borrowers as a global risk-off, worries about US growth, and lower US yields push investors to look at safer EM assets in search of returns, Bloomberg suggests.
UAE were the best performers in a basket of AA-rated bonds in the Bloomberg EM Sovereign Total Return Index. Federal and emirate-level bonds were the best performers in the index for the fourth month in a row, the longest streak since 2021. “The bonds have handed investors an 8.1% return since the end of April, beating 55 of their 70 peers in the emerging-market gauge including many high-yield names,” the business information service writes.
What’s the appeal? “Investors like the combination of twin surpluses, FX reserve accumulation, lack of political noise and a supportive local bid,” fixed-income portfolio manager at Arqaam Capital, Fady Gendy, told Bloomberg.
UAE debt’s rarity also adds to their allure, with the federal government issuing its fourth-ever eurobond in June, Abu Dhabi debuting a USD 5 bn debt issuance in April, and no further bond expected this year, Gendy added.
