Abu Dhabi National Energy Co. (TAQA) plans to sell bonds as the state-run power provider seeks to refinance $2 billion of debt with borrowing costs near record lows.
The yield on the company’s December 2021 bonds has slid 231 basis points, or 2.31 percentage points, since the utility known as Taqa sold the securities 11 months ago. That compares with a 185 basis-point decline in HSBC/Nasdaq Dubai’s Middle East Conventional Corporate U.S. Dollar Bond Index. Another Abu Dhabi-owned business, International Petroleum Investment Co., began meeting investors in Europe last week to sell debt.
Companies in Abu Dhabi, capital of the United Arab Emirates, are tapping bond markets to pay for expansion. Government-affiliated businesses in oil-rich states of the Persian Gulf are partnering with private ones to build refineries, chemical factories and plants to process natural gas. The U.A.E. holds 6 percent of the world’s proven crude reserves, most of them in Abu Dhabi.
“The cost of money will absolutely be lower” for Taqa than rates on its existing debt, Hemant Dharnidharka, head of credit research at SJS Markets Ltd. in Bangalore, said by telephone yesterday. The company could sell now at a coupon of 3.6 percent, he said. “For corporates, it makes sense to lock in these lower rates.”
The yield on Taqa’s 5.875 percent bonds maturing in December 2021 plunged from 5.78 percent on Dec. 7, 2011, when the securities started trading, to a low of 3.33 percent on Nov. 8. They traded yesterday at 3.47 percent, data compiled by Bloomberg show.
The HSBC/Nasdaq Dubai corporate index showed regional yields slumping over the same period to 3.57 percent yesterday from 5.41 percent in December. The Abu Dhabi government’s 6.75 percent bonds due in 2019 yielded 2.12 percent yesterday, down 1.46 basis points from December.
“We need to refinance payments next year,” Taqa’s Chief Financial Officer Stephen Kersley said on a conference call on Nov. 14. “We like to go out at a time that’s convenient for us, not at the last minute.”
Taqa holds stakes in businesses generating power or producing oil and gas in the Middle East, North Africa, India, North America and the North Sea.
Kersley declined to comment on when the company would sell bonds. A Taqa official who declined to be identified said last week that the utility has hired BNP Paribas SA (BNP), Citigroup Inc., HSBC Holdings Plc, Standard Chartered Plc and National Bank of Abu Dhabi PJSC (NBAD) for a bond sale that could come this year.
Borrowing costs have eased worldwide as central banks pump cash into economies by cutting interest rates and as high oil prices leave crude exporters flush with cash, Ahmad Alanani, Middle East director at Exotix Ltd., an investment bank, said by phone in Dubai yesterday. Risks to low borrowing costs in the Middle East include a potential U.S. economic recovery, he said.
“We could see rates move against us next year,” Alanani said. “That’s good for equity and bad for debt.” Most Persian Gulf currencies, including the U.A.E. dirham, are pegged to the dollar, so local interest rates tend to mirror those in the U.S.
Still, state-owned borrowers in Abu Dhabi benefit from backing by the government with the second-lowest credit risk in the Middle East, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
Moody’s Investors Service ranks Taqa, owned 75 percent by the Abu Dhabi government, as A3, the agency’s seventh-highest rating. Taqa, which raised $2 billion in loans this week, owes $4 billion next year. That includes about $2 billion in bonds due in August, according to data compiled by Bloomberg.
International Petroleum Investment, a refinery investor known as IPIC, is gauging interest in Europe this month in a possible bond sale, a person familiar with the discussions said Nov. 14. The meetings began in Frankfurt and Munich on Nov. 15 and are set to end in Paris on Nov. 22, the person said.
IPIC, rated at Moody’s fourth-highest investment grade, has $3 billion in loans due next year, according to a presentation to investors. It has an additional $1 billion in bonds maturing in 2015, data on Bloomberg show. The yield on IPIC’s 5.5 percent bonds expiring in March 2022 tumbled from 5.83 percent when the securities began trading on Nov. 1, 2011, to a record low of 3.44 percent on Oct. 19. The bonds yielded 3.57 percent yesterday.
Officials at Taqa declined to comment yesterday. IPIC didn’t immediately respond to an e-mail seeking comment.
“IPIC is one of our top picks” among corporate borrowers in the Middle East and North Africa, UBS AG analysts led by Kathleen Middlemiss and Tatiana Boroditskaya wrote in a Nov. 19 note. They cited government ownership and the “implicit state support” for many borrowers as reasons for their assessment.
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