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Thu 10 Mar 2011 02:56 PM

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Abu Dhabi's IPIC pays price for Arab world unrest

State-backed IPIC pays premium on debt as Arab uprisings drive up corporate borrowing costs

Abu Dhabi's IPIC pays price for Arab world unrest
BOND ISSUES: Abu Dhabi’s IPIC paid a premium on its existing debt to raise $4.4bn in bonds as turmoil in the Middle East drives up corporate borrowing costs (Getty Images - for illustrative purposes only)

Abu Dhabi’s International Petroleum Investment Co paid a premium on its existing debt to raise $4.4bn in bonds as turmoil in the Middle East drives up corporate borrowing costs.

IPIC priced €1.25bn ($1.7bn) of five-year notes to yield 5.032 percent on Wednesday, 108 basis points more than existing dollar-denominated five-year bonds that mature a year earlier. The state-owned investment company may use the money for its €4bn offer for the shares it doesn’t already own in Spanish oil company Cia. Espanola de Petroleos SA, Fitch Ratings said on March 7.

“It’s a strange time to go to the markets in part because of the Middle East crisis but I suppose they really had very little choice,” Jim McCormick, the London-based head of fixed- income research for Europe, Middle East and Africa at Nomura Holdings said in an interview in Dubai.

“What it tells you in terms of the underlying conditions is simply that it is going to be a more difficult time for Middle East issuers until we have some clarification on what’s happening and that could take a very long time.”

Middle East unrest that ousted presidents in Tunisia and Egypt spread to the region’s oil-producers including Oman, Bahrain and Libya where a rebellion is raging against the country’s leader Muammar Qaddafi. The yields on debt issued by companies in the six-member Gulf Cooperation Council have receded this week after soaring to a seven-month high of 5.97 percent on February 28, the HSBC/Nasdaq Dubai GCC Conventional Corporate US Dollar Bond Index shows.

IPIC also sold €1.25bn of 10-year securities at a yield of 6.047 percent, 53 basis points higher than its existing 10-year dollar bond.

The yield on the company’s existing five-year 3.125 percent bonds in dollars due in November 2015 rose 6 basis points to 3.95 percent as of 9:35 a.m. in London, according to Bloomberg composite prices. The yield on its dollar bonds maturing in 2020 rose 5 basis points to 5.63 percent. The yield on Abu Dhabi government’s bond maturing in 2019 fell 1 basis point to 4.8 percent.

“They were a bit generous in terms of spread, versus the Abu Dhabi government,” said Abdul Kadir Hussain, chief executive officer at Mashreq Capital in Dubai, who oversees $2bn in bonds. “That was a combination of factors including the regional turmoil and the fact that this was the first euro deal for the issuer.”

IPIC also sold 550 million pounds ($891m) of 15-year bonds yesterday that priced to yield 270 basis points more than gilts. The company raised $2.5bn in a debut offering of five- and 10-year dollar bonds in November. The $1.5bn of 10-year notes were priced to yield 245 basis points over similar-maturity Treasuries.

Fitch and Standard & Poor’s gave IPIC’s bond program a AA rating, the third-highest investment grade ranking.

“There’s a lot of uncertainty in the region in general, so the company has to pay up for that,” Juan Esteban Valencia, a credit strategist at Societe Generale in London said on Wednesday.