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CASE STUDY: EQUATE Breaks Barriers for GCC Corporate Issuers with US$500mn Debut Sukuk

EQUATE Petrochemicals made its debuted in the international Islamic markets with a US$500mn hybrid Ijara/Murabaha sukuk issuance – the first such deal for a Kuwaiti corporate. A more than 7x oversubscription rate provides a new boost to EQUATE’s success story as it looks to fulfil its US$2bn sukuk programme.

Apr 26, 2017 // 3:46PM

Background

Following the success of its debut US$2.25bn dual-tranche conventional bond in November 2016, EQUATE Petrochemicals spotted an opportunity to keep its strong momentum going by issuing its first sukuk in February 2017, part of its US$2bn Islamic finance programme.

The company’s solid background, flush liquidity, strong performance of existing debt, combined with a favourable outlook for Middle Eastern corporates, allowed EQUATE to price the US$500mn 7-year Ijara/Murabaha sukuk at 100% with final yield of 3.944%.

Transaction Breakdown

The initial announcement of the deal on 1 February was followed by a high turnout for a 5-day roadshow held in the UAE, London, Hong Kong and Singapore.

EQUATE, on the back of its conventional bond issued in November 2016, took advantage of the favourable market backdrop and returned to the international debt markets to price a successful US$500mn Sukuk offering – first-ever from a Kuwaiti corporate.

With general market conditions remaining favourable and with Middle Eastern credit holding up well over the weekend, the decision was taken to announce IPTs at MS+210bp area the following Monday morning at the Dubai open, 5:00AM UK time.

Following the initial guidance announcement, the orderbook grew strongly, reaching in excess of US$4.25bn by 11.15AM UK time, allowing syndicates to release guidance of “MS+187.5bp area”.

The final orderbook stood at ~US$3.7bn with participation of 270+ accounts – a testament to investor demand for broader Middle Eastern corporate and EQUATE’s credit.

This put the bookrunners in a position to launch the transaction at 1:20pm UK time at a final spread of MS+175bp, eventually pricing the transaction at a final yield of 3.944%.

Regional MENA accounts dominated the book, taking 65% of allocations. Asian accounts also showed strong demand, taking 11%, with 23% going into Europe, 14% to the UK and remaining 1% to other regions.

Banks and private banks took 63% of allocations, primarily regional, with another 31% being placed with fund managers, 2% with pension funds and the remaining 4% allocated to other types of investors.

The size of the issuance – unusually large for corporates in the region – as well as the fact that proceeds were to be used for refinancing existing debt, rather than gaining additional leverage, contributed to achieving a 7.4x oversubscription rate.

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