Two Abu Dhabi banks were in the primary market on Tuesday, though with contrasting results.
Abu Dhabi Islamic Bank got a huge response to its US$750m US dollar AT1, the first such security in that currency since the collapse of Credit Suisse and the writedown of the Swiss bank's most junior debt four months ago. However, a US$500m senior unsecured issuance from Abu Dhabi Commercial Bank barely scraped over the line.
ADIB had heavily marketed its deal and had signalled it was planning to issue on Tuesday. ADCB, on the other hand, was an intraday trade that came out of the blue. Whether, in the circumstances, it was the correct strategy for ADCB to go out on the same day as ADIB, especially as it was going to offer a much less attractive yield given the difference in structures, is a question that the leads are likely to mull over. A lead on the ADCB deal said, however, it was "not competing directly with ADIB, which was mostly a PB trade".
ADIB (A2/A+; Moody's/Fitch) had announced its mandate for a perpetual non-call 5.5-year AT1 sukuk on July 5 with calls and meetings to follow. During the roadshow, leads sent a message that the deal would be likely on July 11, when it duly emerged.
Books opened for the unrated sukuk at 7.875% area. The best comparables were AT1 securities issued by other Gulf banks. They ranged from Riyad Bank's US$750m perpetual non-call 2027 sukuk bid at a yield-to-call of 6.24%, according to leads during the roadshow, to Emirates NBD's US$750m perpetual non-call 2027 conventional AT1 issue bid at 7.77%.
Spot on
One investor said ahead of books opening, the sukuk would likely come with a low to mid seven handle. "We expect the new issue to price in the range of 7.25% to 7.5%, which would be lower than our fair value target of around 8%. In our view, despite tight valuations, the new issue should be well-supported in the secondary given strong industry dynamics and the bank’s strong standalone credit profile, which is buttressed by [a] high likelihood of sovereign support should the need arise," said Faisal Ali, senior portfolio manager at Azimut. "We also think a lack of high-yield sukuk issuance in an environment when the local banking system is flush with liquidity will provide further support to the new issue."
Ali's assessment proved to be spot on. With books climbing to more than US$7bn excluding leads, pricing was tightened to 7.25%. Another lead banker on the ADCB deal said that ADIB got "a fantastic level" for a US dollar AT1 issuance. He compared the yield with a US$1.25bn four-year non-call three senior non-preferred issuance by Deutsche Bank on July 6 that priced at 7.146%. "That's essentially three-year SNP risk at [more or less] the same level as ADIB," he said.
He also said the deal came about 125bp inside where a European national banking champion such as BNP Paribas would likely price an equivalent (non-sukuk) AT1 in the US dollar market.
ADIB ticked all the boxes to encourage demand: a highly-rated bank at senior level from a region flush with cash, issuing in sukuk with an attractive looking absolute yield. More than 80% of the paper was allocated to accounts in the Middle East and North Africa region, and 70% to private banks. ADIB shows "the strength of the private bank bid for blue-chip names in the GCC," said a lead banker.
The banker said the sukuk was getting bid close to 102 after it was free to trade on Wednesday. "There was a big delta between where the local private banks would take it - close to where it is now, at 7% - and where a broadly distributed trade would land," he said. Indications of interest from international accounts were in the mid to high 7s.
ADIB is one of the best-known banks in the GCC region. "The bank benefits from possessing a strong deposit franchise," said Ali, which provides the bank low cost funding. "This in turn translates into above average profit margins when compared to peers. [The] bank's Egypt operations provide some downside risk to the credit profile given Egypt’s weak macroeconomic environment. However, given the relatively small scale of its Egyptian exposure, we do not see a material impact on the bank’s risk metrics even if there is further weakness in the operations of its Egyptian holding."
The bank has a call coming due in September on a US$750m perpetual. HSBC and Standard Chartered were the global coordinators and structurers on this latest issue. They were also bookrunners alongside Abu Dhabi Islamic Bank, Citigroup, Emirates NBD Capital, First Abu Dhabi Bank and JP Morgan.
Bit bored
Abu Dhabi Commercial Bank (A/A+; S&P/Fitch) opened books for a benchmark five-year conventional note at 130bp area over Treasuries. The second lead banker on the trade said the starting premium was 25bp.
The bank, which is indirectly majority-owned by the Government of Abu Dhabi, was last in the market in September with a US$500m 4.5% due 2027 green bond, which was quoted at a G-spread of plus 62bp, according to Refinitiv. A more relevant comparable was the bank's non-labelled US$500m 3.5% March 2027s, also issued last year, which were at a G-spread of plus 92bp.
The deal, though, ended with just US$660m-plus of orders, including US$84m from the leads. That did still enable leads to tighten pricing to plus 120bp, to leave a 15bp premium. The final yield was 5.452%.
"I think folks are probably just a bit bored of more Middle East banks," said a banker away from both the ADCB and ADIB trades. "There's no spread, they are already quite tight and not overly liquid."
The second ADCB lead banker said that low beta senior trades in general "are not exciting", but the main thing was that "the deal got done".
Abu Dhabi Commercial Bank, Barclays, Deutsche Bank, Emirates NBD Capital, JP Morgan and Mizuho were the leads.