Aabar taps strong investor demand for high-quality bonds26 March 2015
Abu Dhabi: Aabar Investments has seized the initiative with a ground breaking debt by issuing a Euro 2Billion exchangeable bond with a creative structure that combines Aabar’s strong reputation as a long-term investor with the financial strength of its parent, International Petroleum Investment Company (IPIC).
The bond issuance, announced on March 24, highlights the continued strength of Abu Dhabi Government institutions, especially of Aabar, and the confidence the market has maintained in those institutions amid uncertain markets in the region.
The bonds are exchangeable against Aabar’s Unicredit stock ownership, amounting to a landmark transaction that has achieved annual cost savings of 3.25% and provided the funding necessary for the company’s portfolio of long term development assets to achieve their full value. Most immediately the issuance frees Aabar to settle its Daimler exchangeable bond, allowing it to considerably reduce the cost of its debt.
Aabar manages a portfolio of investments spanning real estate to energy, and is a strategic pillar in the Abu Dhabi government’s vision to diversify the economy away from dependency on hydrocarbon revenues.
There are few companies able to complete a transaction of this type. Aabar has attributed its success to:
- the strong financial standing of itself and its parent, International Petroleum Investment Company (IPIC)
- its concerted campaign to explain Aabar’s business and its growth strategy to investors
- Aabar’s solid reputation as a bond issuer as evidenced by the significant gains enjoyed by holders of its previous bonds
- Aabar’s strong credit rating, the strength of its immediate parent, IPIC, and its ultimate parent the Abu Dhabi government
The Aabar bond transaction has already claimed several records:
- the largest exchangeable bond ever issued by an unrated entity;
- the largest exchangeable bond issue in EMEA since 2008 (Deutsche Telekom);
- the 7-year tranche is the largest maturity for an exchangeable bond since 2006
The transaction has a tremendous combination of yield and premium, one that stands out in the EMEA’s equity-linked market. Since 2009, there have only been three similar transactions with respect to the yield/premium combination. All of this comes on the back of Aabar’s previous bond that picked up the Euromoney Deal of the Year in 2011.
Although the Aabar bonds are called exchangeable, the option only occurs in the final six months of the term. A banker familiar with the details of the transaction described it as “the exchangeable bond you can’t exchange”.
Usually, when a bond is issued, the company’s share price falls as investors sell equity to buy debt. The Aabar issue was so well-arranged that shares of Unicredit achieved a net gain on the day of issue as investors sought to hedge against their bond holding. The transaction involved settling a bond exchangeable with Daimler shares carrying a premium of 4% per annum and issuing a replacement bond exchangeable in shares of Unicredit carrying a premium of 0.75% per annum. The annual cost saving for Aabar is therefore 3.25%.
“The success of such a novel instrument is a reflection of the strengths and high regard of Aabar Investments as an Abu Dhabi Government entity,” said His Excellency Khadem Al Qubaisi, Chairman of Aabar. “Given that this is the largest ever non-rated exchangeable bond, it is clear that Aabar’s role and strategy is understood and supported by the global markets. We are proud of the team that has delivered this transaction, one that has transformed and changed the expectations of the market, just as we did with our previous bond.”