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CASE STUDY: ADNOC Makes Record-Setting Debut with USD3bn Bond

CASE STUDY: ADNOC Makes Record-Setting Debut with USD3bn Bond

The Abu Dhabi National Oil Company’s (ADNOC) hugely successful debut capital markets transaction, a USD 3bn dual-tranche bond, achieved a number of milestones – it was the largest single-currency corporate issuance in the GCC, one of the largest in the Middle East’s corporate history – and marked the start of a bold new financing strategy at the state-owned oil company.

Background

In early 2017, ADNOC Group embarked on a strategic rethink in a bid to capitalise off a dynamic and fast-changing oil and gas sector.

The company is pursuing a strategy centred on boosting capital efficiency and optimising its structure, which includes – where possible – ringfencing capital deployment and debt to specific infrastructure assets in a bid to make them more capital efficient, and more closely align the risks associated with those specific assets to the value offered to investors and customers.

The strategy is pivotal to ADNOC Group’s bold transformation plan, as it seeks to deploy capital in ways that allow it to break into new markets and focus on higher value-adding activities.

Against this backdrop, ADNOC Group spent much of 2017 opening up new funding sources and diversifying its current investment base through more targeted, ringfenced transactions. In October 2017, Abu Dhabi Crude Oil Pipeline LLC (ADCOP), the company’s midstream-focused subsidiary which owns and operates the 406 km Fujairah crude oil pipeline, a strategically important asset for Abu Dhabi’s energy security and exports, broke new ground to issue a USD3.037bn senior secured dual-tranche bond.

Transaction Breakdown

ADCOP announced its intention to proceed with a series of fixed income investor meetings in the United States, Europe, Asia and the Middle East, on 19 October 2017, followed by a potential US dollar-denominated benchmark dual-tranche bond transaction, with tenors of 12 and 30 years, subject to markets conditions.

The company, in conjunction with the global coordinators and bookrunners, sought to poise regional preferences for tenor and repayment structure with appetite in international markets in a bid to balance the uptake between both groups.

As a result, and following strong indications of interest, the announced transaction saw the inclusion of a bullet-type 12-year bond, mainly aimed at UAE and GCC-based investors, and an amortising 30-year bond targeting long-money investors in the US, Europe and Asia.

At 2.00 pm Abu Dhabi time, on Wednesday 25th October, following successful investor meetings and strong indications of interest received from investors, ADCOP released Initial Price Thoughts (“IPTs”) at a yield of 3.90% area on the 12-year bullet tranche and 4.80% area on the 30-year amortising bond.

The orderbook grew rapidly reaching roughly USD5bn within few hours of announcing IPTs and continued to grow due to strong interest from high-quality investors across all geographies, mainly the Middle East and US.

US orderbooks went subject on Thursday 26th October at 1:00 am Abu Dhabi time, whereas Europe/MENA/Asia books were set to go subject on Thursday 1:00 pm Abu Dhabi time. The orderbook continued to grow in size during the course of the day, reaching in excess of USD11bn by Thursday 1.00pm Abu Dhabi time.

On the back of strong support by key investors, a well-articulated credit story and an effective execution strategy, ADCOP released Final Price Guidance (“FPG”) on Thursday at 2:00pm Abu Dhabi time, at 3.70% coupon (+/- 5bps) for the 12-year tranche and 4.65% coupon (+/- 5bps) for the 30-year (will price in range).

The transaction was launched at the tight end of the FPG on both tranches, resulting in a tightening of 25bp from IPTs on the 12-year tranche and 20bps on the 30-year tranche.

The final book was heavily counterbalanced by the broader sovereign mandate to secure additional Foreign Direct Investment into the Emirate of Abu Dhabi. Both tranches were heavily dominated by Europe and US-based fund managers.

About 43% of the 12-year bullet tranche went to accounts based in the US, followed closely by 42% to Europe, 8% to Asia and 7% to MENA. By type, 70% of the 12-year notes were placed with fund managers, 17% with insurers, 8% with banks and private banks, 4% with agencies and pension funds, with the rest going to other investors.

Roughly 51% of the 30-year amortiser went to accounts based in the US, 35% to Europe, 10% to Asia and 4% to MENA. About 80% of the book went to fund managers, 10% to insurers, 6% to banks and private banks, 3% agencies and pension funds, and 1% to other types of investors.

An oversubscription rate of more than 3X allowed ADCOP to command significant price tension while minimising attrition and allowed the company to achieve a pricing level very close to that enjoyed by the sovereign.

Most importantly, the debut capital markets transaction allowed the company to open up new liquidity pools and set a new long-term funding benchmark for future targeted transactions as it continues down the path of its strategic transformation.

It also achieved a number of key milestones: the deal had the highest rated amortising bond out of the Middle East; the largest single-currency corporate issuance out of the GCC; and one of the largest corporates bonds in the region’s history.

 

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