Dolphin Energy, an Abu Dhabi government-owned gas pipeline and production venture, is nearing a deal to refinance Dh12.66 billion (US$3.44bn) in debt that comes due in mid-July, according to bankers. The debt, which included a $2.45bn bank loan and $1bn in Islamic financing, was bridging capital used to finance the company's underwater pipeline project between Qatar's offshore North Fields and the UAE and Oman.
With gas pumping and construction on that project nearing completion, Dolphin is entering a new phase in which it uses revenues from the project to repay money it borrowed to finance construction. Dolphin is now considering whether to seek another bank loan, or use a combination of loans and bonds to tap rising international appetite for regional bond issues. An announcement on the final refinancing arrangement is expected within the next three weeks, although officials at Dolphin declined to comment on their plans.
Signs are emerging that investor demand for Gulf bond sales is rising. Qatar Telecom said last week that a $1.5bn bond issue was more than seven times oversubscribed, receiving more than $13bn in bids. A $1.25bn bond issued last month by Aldar Properties, Abu Dhabi's largest developer, was also oversubscribed. Mubadala Development, Abu Dhabi's strategic investment arm and the owner of Dolphin, announced a $1.75bn bond programme in April, the same month that Qatar's government successfully issued a $3bn bond.
"There is a lot of interest out there," Declan Mcgrath, the managing director and head of credit markets origination at Royal Bank of Scotland in Dubai, told Bloomberg Monday. "We have a fairly full pipeline for the next six to nine months." Should Dolphin refinance mainly with a bond issue, analysts said it would further bolster confidence in the Gulf's capital market. They said a long-term bond may be more attractive to global institutional investors.
Such lenders are interested in buying longer-term debt at fixed interest rates. International lenders also often demand higher interest rates because they are unfamiliar with GCC borrowers. "If you sweeten the deal to the international investors, give them slightly more yield, then they're induced to do the credit work and get familiar with the name," said Ibrahim Bitar, the director of capital markets at Arqaam Capital in Dubai. "And once they're familiar with your name, if you need to borrow more in the future it's much easier to come to the market with a new bond issue."
Dolphin may benefit from more attractive pricing on its debt refinancing than would have been likely just a few months ago as interest rate spreads tightened and foreign capital returned to the region, analysts said. Spreads "are likely to shrink going forward, since the economy's growth has bottomed," Mr Bitar said. Dolphin is expected to raise a total of $4bn when it refinances, or $550m more than its original $3.45bn in loans. The extra funds will help finance the construction of a 240km pipeline to transport gas from Taweelah, where the main pipe comes ashore from Qatar, to Fujairah, where Abu Dhabi Water and Electricity Authority is constructing a massive gas-fired power station. This pipeline is scheduled for completion in the third quarter of next year.