By Abhinav Ramnarayan

LONDON, May 23 (IFR) - National Bank of Abu Dhabi took advantage of rarity value to upsize its convertible bond issue to US$465m this afternoon and still achieve a coupon of 1%, the tight end of guidance.

The UAE's second largest lender earlier today said it would look to issue a US$350m convertible bond with a yield of 1.0%-1.5%, with a US$35m upsize option and a premium of 30% to the stock price.

Traditional convertible bond investors do not often get a chance to invest in investment-grade financials, especially from the Gulf, and the scarcity led to strong demand.

With the order book coming close to US$1.5bn, leads upsized by US$115m, maintaining the US$35m greenshoe which could take proceeds to US$500m. The bond is set to mature in March 2018.

The issuer opted to issue a convertible bond because of investor demand for NBAD shares, the first lead banker said.

"The state owns a huge part of it 70% and a lot of its free-float is held by a small number of individuals and institutions. The percentage that can be traded by non-GCC accounts is minimal," the lead banker said.

"Everytime they went out on roadshows investors asked when they could invest in NBAD equity, and this [convertible bond issuance] was a good solution to that problem," he added.

Leads Bank of America Merrill Lynch, Barclays, JP Morgan and NBAD pre-sounded the deal earlier this week. With strong interest shown in one-on-one meetings abroad, the deal went ahead despite difficult equity markets.

The 1% US$465m deal priced at par where the yield is far tighter than if NBAD had issued a senior bond.

Its outstanding 2017 bonds were trading at 120bp over mid-swaps around midday, translating to a yield of 2.2%.

Adding a few basis points to account for the difference in tenor, a new senior note would have come at a 2.22% yield, the lead banker said, while a second lead suggested it would come at 2.7%.

The initial conversion price will be set at a premium of 30% above the VWAP of the NBAD stock between launch and pricing. The settlement date is June 5.

(Reporting By Abhinav Ramnarayan, Editing by Owen Wild)

((abhinav.ramnarayan@thomsonreuters.com;))

Keywords: UAE BOND EQUITIES/