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Middle East

CASE STUDY: Jordan secures tighter pricing on latest Eurobond than on previous year’s issuance

Following a recent JOD34mn (US$47.9mn) local sukuk issuance in October, the government of Jordan turned to the international capital markets with a benchmark-sized dollar bond. The Kingdom’s US$1bn issuance is its largest-ever Eurobond, and the tighter pricing achieved relative to the country’s 10-year November 2015 Eurobond – despite regional geo-political tensions and a rating outlook revision to negative by S&P Global Ratings in April – represents a large success for the Kingdom.

Nov 3, 2016 // 9:36AM

Deal At A Glance

Deal Type: Dollar-denominated Eurobond

Deal Structure: RegS/144A

Location: Jordan

Borrower: The Hashemite Kingdom of Jordan

Governing Law: English Law

Listing: Irish Stock Exchange

Bookrunners: Citigroup, JP Morgan

Legal Advisors to Borrower: Dechert, Khalifeh & Partners

Legal Advisors to Bookrunners: Davis Polk, Ali Sharif Zu’bi Advocates & Legal Consultants

Size: US$1bn

Tenor: 10 years (long)

Coupon/Margin: 5.750%

Reoffer Price/Yield: 5.800%

Spread: UST+403bp

Issue Rating: B1/BB- (Moody’s/S&P Global Ratings)

Issue Date: November 2016

Maturity Date: January 2027

Use of Proceeds: To help fund the Kingdom’s 2016 budget deficit

Background

The proceeds of the sovereign’s US$1bn long 10-year bond will be used to help finance the government’s 2016 budget deficit, which stood at 3.50% of the country’s GDP in 2015.

In order to effectively position the credit story of Jordan, roadshows organised by the bookrunners were conducted in London, Boston and New York, in addition to investor conference calls.

The positive reception to Jordan’s credit story amongst the international fixed income investor community and strong appetite for the country’s bond was evidenced by the fact that the final orderbook reached around US$3.4bn, driven by robust investor demand amounting to over 260 orders.

Transaction Breakdown

Following the roadshows, initial price thoughts (IPTs) in the ‘low 6% area’ were released to the markets on Monday morning in London.

The strong investor demand accumulated early on in the book building process and the oversubscribed orderbook generated sufficient momentum to allow the bookrunners to revise the pricing guidance to within the 6.125% area, before the final pricing guidance was set at within the 5.85% area +/- 5bp. Final pricing was set at the tighter end of the range at 5.800% on October 24.

The transaction was issued on November 1 2015, set to mature on 31 January 2027.

The pricing on the Kingdom’s latest issuance – with a 1-year maturity extension and new issue premium – compared favourably to its last Eurobond issued in November 2015 and due to mature in January 2026, which was recently yielding around 5.45%-5.50%.

As a result, the country’s new 10-year long bond was able to achieve a tighter spread and lower yield relative to its November 2015 10-year long bond at the latter’s time of issue.

“This was a highly successful transaction for the Kingdom of Jordan that surpassed the success of its long 10-year November 2015 bond issue in every measure – it was the largest Eurobond issue ever printed by Jordan and had the largest orderbook and oversubscription ratio, in addition to securing more attractive pricing for Jordan on a yield and spread basis relative to the 2015 issue,” said Khaled Darwish, Executive Director, MENA Debt Capital Markets at JP Morgan, who worked on the issue.

The bond’s popularity, which enabled the tighter pricing on last year’s issuance, was widespread. 45% of the notes were distributed across the Americas, 28% in the UK, 15% in Europe and with 6% across the Middle East and Asia respectively.

By type, 88% of the bonds were bought by fund managers, 7% by banks and private banks and 5% by pension funds and insurance companies.

Middle East

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