Qatari natural gas producer, Ras Laffan, launched a $2.23 billion triple tranche blow-out bond in July, capturing $17.5 billion of orders – the most for a Gulf issue in history – in a deal that signalled the new power of Gulf issuers to price risk aggressively.
Investors piled into the debt thanks to its capped size, the liquidity in the benchmark, the positive natural gas story and the mispricing of the issuer’s outstanding bonds.
The liquefied natural gas producer, commonly known as RasGas, rated Aa2/A/A+, launched a triple tranche bond comprising: a $500 million, three-year tranche at 300bp over US Treasuries; a $1.15 billion, five-year tranche at 312.5bp; and a $600 million, 10-year at 325bp.
The leads were Citi, Credit Suisse and HSBC. Bankers on the deal say the new issue concessions over the Qatar sovereign for the three-year, five-year and 10-year stand at 60bp, 65bp and 58bp, respectively.
The three-, five- and 10-year tranches received $4.5 billion, $7.5 billion and $5.5 billion of demand from around 400 global accounts – in total, beating by $5.5 billion the $12 billion order book for the Qatar and Abu Dhabi sovereign bonds this year.
World distribution
Distribution was truly global. The US bought 45% of the paper, Europe bought 30%, the Middle East 15% and Asia 10%. Nevertheless, a higher proportion of Middle Eastern investors grabbed the three- and five-year tranches: the sweet spot for regional investors and accounting for the larger size of the five-year tranche compared with the 10-year paper. RasGas is 70% owned by government-backed Qatar Petroleum and 30% by Exxon Mobil. The issuer has outstanding amortizing long-dated project finance bonds, which have been largely sold to buy-and-hold real money investors such as pension funds and life insurance funds.
These bonds are illiquid, expensive for the issuer and trade at a premium of 100bp to 200bp to the sovereign. “We wanted to broaden the investor base and aggressively reprice, rather than re-establish RasGas’s yield curve,” says Samad Sirohey, managing director of debt capital markets at Citi in Dubai.
The leads embarked on an ambitious project to transform the project finance issuer into a high-grade corporate borrower. As the company benefits from large cashflows, the issuer opted for shorter maturities to reduce coupon payments and all-in funding costs, which could subsequently be repaid from existing cashflow.
As a result, the three-, five- and 10-year format, the classic format for multi-tranche corporate issuance, was chosen. The transformation paid off as RasGas’s existing cash bonds tightened by 40bp on the existing interpolated yield curve. This trailblazing transaction has established a precedent for other Gulf corporate borrowers.
“The global investor base has required a high premium for Middle East risk, but by telling the positive credit story and by significantly tightening pricing guidance, this deal helped to take Qatar and the region forward,” says Andrew Dell, head of debt capital markets for the CEEMEA region at HSBC.