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CASE STUDY: Going Large in the International Markets: Qatar Issues Massive Us$9bn Bond

The State of Qatar’s landmark US$9bn triple-tranche bond beat market expectations and marked the sovereign’s first return to the bond market since 2012. It was also the third largest emerging market bond to date.

Jan 24, 2017 // 3:29PM

Deal At A Glance

Deal Type: Senior  Unsecured Bond

Deal Structure: 144a/Reg S Bond

Issuer: State of Qatar (via Ministry of Finance)

Governing Law: UK Law

Listing: Luxemburg

Global Coordinators and Bookrunners: HSBC, JPMorgan, MUFG, QNB Capital

Bookrunners: al khaliji, Bank of America Merrill Lynch, Barclays, Deutsche Bank, Mizuho, SMBC Nikko

Legal Adviser to Issuer: White & Case

Legal Adviser to Bookrunners: Skadden

Size: US$9bn

Issue Date: May 2016

Maturity Date: (a) June 2021, (b) June 2026,  (c) June 2046

Yield: (a) 2.375%, (b) 3.25%, (c) 4.625%

Reoffer price: (a) 98.924%, (b) 98.963%,  (c) 97.606%

Spread: (a) MS+125bp / UST+120bp, (b) MS+165bp / UST+150bp, (c) MS+260bp / UST+210bp

Use of Proceeds: To help fund the state budget

Background

The State of Qatar sought to tap the international capital markets in a bid to fund a widening budget deficit (US$12.5bn) generated by lower than anticipated oil revenues. The sovereign’s goal was to access liquidity from a broad range of global investors at competitive market prices, and re-establish its credit curve after a three year absence from the markets.

What was originally expected to be a circa US$5bn bond issuance nearly doubled in size off the back of strong demand from nearly 900 accounts. On 25 May, the State of Qatar issued a whopping US$9bn bond with tranches maturing in 5, 10 and notably, 30 years, generating over US$22bn in orders from global investors.

Transaction Breakdown

A deal roadshow and bookbuilding process in May spanned all four dominant investor regions including physical roadshows in Asia, Europe and the US and a targeted four-day roadshow in Hong Kong, Los Angeles, Singapore, Boston, New York and London.

After being well-received and generating over US$20bn in orders from nearly 760 accounts, the sovereign launched the US$9bn triple-tranche trade with the 5, 10 and 30 year tranches carrying initial price thoughts (IPT) of MS+140bp, MS+180bp, and MS+280bp respectively.

The depth and breadth of the orderbook allowed the sovereign to tighten pricing by 20bp on the 5 and 30-year tranches, and by 15bp on the 10-year tranche. The 5, 10 and 30-year tranches priced at MS+125bp / UST+120bp, MS+165bp / UST+150bp, and MS+260bp / UST+210bp respectively.

The notes generated a final orderbook of nearly US$22bn from approximately 900 accounts and represented the largest CEEMEA bond offering to date, trading well in the secondary market.

One novel aspect of the deal was the inclusion of a 30-year tranche, which significantly impacted the volume achievable, the profile of the transaction, and the quality of investors involved. The 5-year tranche saw fund managers allocated 40%, insurance pension funds 6%, banks and private banks 39%, and agency & central banks 15% of the notes. The 10-year tranche saw fund managers pick up 31%, banks and private banks 52%, agencies and central banks 5%, and insurers & pension funds 12%. The 30-year tranche saw fund managers pick up 54%, banks and private banks 10%, agency & central banks 1%, and insurers & pension funds 35%.

In terms of geography, 50% of the 5-year notes were allocated to accounts in the US, 10% in MENA, 10% in Asia, 15% in Europe, and 15% in the UK. About 55% of the 10-year notes were allocated to accounts in the US, 5% in MENA, 10% in Asia, 10% in Europe, and 20% in the UK. Roughly 53% of the 30-year tranche was picked up by accounts in the US, 5% in MENA, 12% in Asia, 10% in Europe, and 20% in the UK.

Middle East

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