x Abu Dhabi, UAEFriday 21 July 2017

$2bn bond sale helps Taqa lower debt cost

Taqa has slashed its expenses on existing debts by around $45 million per year as the result of a $2 billion bond sale which met with heavy demand this week.

The Government-controlled company has investments in power and energy projects. Above, Taqa's Shuweihat 1 power and water plant in Abu Dhabi. Courtesy Taqa
The Government-controlled company has investments in power and energy projects. Above, Taqa's Shuweihat 1 power and water plant in Abu Dhabi. Courtesy Taqa

Taqa has slashed its expenses on existing debts by about $45 million (Dh165.2m) per year, as a result of a $2 billion bond sale that met heavy demand this week.

The energy firm, also known as Abu Dhabi National Energy Company, received $20.5bn of orders for the sale, with single orders of as much as $400m. It refinances $1.75bn in debts maturing next year.

Taqa received such a strong order book from Europe and Asia that it closed its order book for the United States earlier than anticipated, said Ryan Wong, Taqa's group vice president of treasury.

"The book was building so strong that we closed the deal at 9am New York time," he said.

The sale would result in a "fairly significant" reduction in the company's cost of funding its operations, Mr Wong added.

"The new bonds that we raised will be used to replace a couple of bonds maturing in 2013. The interest rate on the bonds we're replacing is higher than the new bonds."

About a third of the orders for both tranches came from Europe, making up the largest investor base, followed by the US, the Middle East and Asia.

The size of the order book was evidence of a "resounding success" by Taqa, said Salman Ansari, the regional head of capital markets for the Middle East, North Africa and Pakistan at Standard Chartered.

"This is a testament to the strength of the company's credit and highlights the continued demand for high quality GCC credits prevailing in the international markets," he said. "Ultimately, the strong demand allowed Taqa to price the issuance inside its secondary market curve."

Taqa will pay a 2.5 per cent coupon for a five-year bond worth $750m, and 3.625 per cent for a 10-year $1.25bn bond.

That compares with a coupon rate of 6.6 per cent and 4.375 per cent on the debts being refinanced.

The Arabian Gulf is having its most active year for debt issuance on record, with $40.6bn raised so far this year. However, concerns have grown about the possibility of a bubble in emerging market credit, as yields are flattened by high demand.

Abu Dhabi and its government-related entities have experienced such a wave of international liquidity that yields on government debts have fallen below local and dollar rates of inflation - meaning some investors are effectively paying to be able to lend to perceived "safe havens" ultimately backed by the country's vast oil reserves.

The trend is also affecting the funding costs of some government-related entities such as Qatar National Bank, which sold bonds with a coupon below local consumer price inflation rates last month.

ghunter@thenational.ae