Thursday, Nov 24, 2011

(This item was originally published Wednesday.)

--Fears that economic conditions could deteriorate further

--IPIC issue seen as opening floodgates for Abu Dhabi issuers

--Refinancing a key theme

By Nour Malas and Nikhil Lohade

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--A slew of Abu Dhabi-based companies are rushing to tap the credit markets, pleased about the terms on offer and concerned that global economic conditions could deteriorate further and crimp future investor appetite, according to bankers.

Three Abu Dhabi-based banks have sold bonds in November, mostly to refinance existing debt and boost their liquidity ratios, while two more of the emirate's companies including Abu Dhabi National Energy Co., or Taqa, have said they may tap the market this year or early in 2012.

A three-tranche $3.75 billion issue by International Petroleum Investment Co., an Abu Dhabi government investment firm, late last month seemed to have opened the floodgates for issuers in the emirate. IPIC, rated 'AA' by Fitch Ratings and 'Aa3' by Moody's Investors Service, said Wednesday it has repaid two loans worth a combined $3.75 billion ahead of maturity, using the proceeds from its bond sale, as it "prudently" managed its liabilities.

"IPIC's recent issuance had a demonstration effect," said Michael Grifferty, president of the Gulf Bond and Sukuk Association, an industry association representing the Gulf debt capital market. "But strong Abu Dhabi names generally can access the markets. It has been more a matter of the price, particularly for the banks," Grifferty said.

The borrowing has also been driven by concerns over Europe's sovereign-debt crisis and broader global economic growth, which stalled bond plans from several Gulf-based issuers earlier this year; but fears that the situation may get worse--coupled with tight local bank lending--has sent them back to the credit market, mostly raising funds to refinance existing debt.

Union National Bank sold a $400 million 5-year bond in early November, followed by Abu Dhabi Commercial Bank's $500 million, 5-year Islamic bond issue and Abu Dhabi Islamic Bank's $500 million 5-year sukuk. All three banks have shares listed on the Abu Dhabi Securities Exchange.

Energy firm Taqa on Tuesday announced it could issue bonds after meeting with investors in Asia, London and the U.S.; a week after its chief financial officer said the company was mulling various options to refinance $1.5 billion worth of debt due by the end of 2012.

ADCB's Chief Executive Ala'a Eraiqat said banks in Abu Dhabi issuing under existing programs were likely matching upcoming debt maturities and keeping risk in check. "Banks in the medium-term debt market have regular maturities, and we go ahead and raise debt if pricing or the cost of funds is right. Most of these issues are part of existing programs, so they're matching maturities."

The 5.5-year tranche of IPIC's bond was priced at 262.5 basis points over U.S. Treasuries, which several bankers reckoned was attractive in current market conditions.

Bankers said issuers elsewhere in the Gulf region are eyeing bond sales ahead of the end of the year, with many eager to push through sales before what they anticipate could be a deteriorating debt situation in Europe, and before they close their books for the year.

"People thought initially that markets are closed, but with each issue they are realizing that there's still money available," said a senior banker in Abu Dhabi, adding that highly-rated issuers in resource-rich Abu Dhabi and Qatar are favorite picks among investors, helping the companies lock in better pricing. "I think people across the region are worried with the situation in Europe," the senior Abu Dhabi banker said. "They think it may get worse."

"We don't work in isolation of international markets, so there's always that kind of caution there. But Abu Dhabi has very strong support, and ADCB itself is well understood by the market," ADCB's Eraiqat noted.

Another reason that several companies are eyeing the bond market is that local bank credit still remains hard to get. International banks, meanwhile, are unwilling to take on the risk exposure of direct lending through syndicated loans and find better business in debt sale mandates for local corporates.

"There is a window of opportunity to raise debt right now. Some companies delayed their plans earlier in the year hoping for an improvement in global market conditions, and are rushing to the market now as they find a more willing investor audience, while a high level of uncertainty is likely to remain both at regional and international level," said Giambattista Atzeni, vice president and Mena business manager for BNY Mellon Corporate Trust.

"The cost of funding is seen rising globally as investors price the perceived increase in risks. Refinancing is likely to be the main theme next year and existing issuers will have to compete with new names that are likely to come to the market," Atzeni added.

-By Nour Malas and Nikhil Lohade, Dow Jones Newswires; +971502890223, nour.malas@dowjones.com

Copyright (c) 2011 Dow Jones & Co.

(END) Dow Jones Newswires

24-11-11 0349GMT