after it called off its maiden conventional bond issue in the international market, Dubai's Majid Al Futtaim Holding is trying again. This time, stronger global demand for Gulf debt, and better investor sentiment towards Dubai in particular, mean a much smoother ride for MAF.
The shopping mall developer is eyeing a seven-year, $500 million conventional bond, longer than the five-year tenor favoured in the region. It released price guidance at 5.375 percent on Wednesday.
It tapped the global market with a $400 million, five-year sukuk (Islamic bond) in February at 5.85 percent. The sukuk has since rallied to yield 4.47 percent on Wednesday - meaning the company is offering about 90 basis points for an additional 2-1/2 years with its conventional bond. That is seen as an ample premium by many potential investors.
'One would expect the conventional bonds to come at a slight premium to the existing 2017 sukuk although in today's market, supply/demand technical factors could well skew this logic,' said John Bates, head of fixed income at asset manager Silk Invest.
A regional fixed income trader described the premium as 'attractive'. 'It has been fairly priced with some value left for investors,' he said.
In June last year, MAF decided not to issue its bond because of market volatility stemming from the euro zone debt crisis. At the time, sources close to the deal said the company was playing hardball on pricing, which was difficult for a first-time issuer.
Since then, MAF may have decided to take a slightly more generous approach to pricing, while February's successful sukuk issue has also helped its case.
It is riding a general improvement in sentiment towards Dubai issuers, thanks to perceptions that the Gulf is riding out the global financial crisis comfortably and that Dubai is succeeding in solving its corporate debt problems.
GCC conventional bond spreads have narrowed about 20 percent this year, according to HSBC NASDAQ Indexes. Dubai's seven-year credit default swaps were at 385 bps on Wednesday, about 100 bps tighter since mid-January.
Beyond these factors, MAF has some special attractions. It has indicated it will cap the new bond at $500 million; limited supply is likely to support the paper in the secondary market.
Also, the company, which is also the sole franchisee for French hypermarket chain Carrefour in the Gulf, can use its rarity value as the only corporate issuer in the Gulf which is both investment-grade and completely privately owned. So many investors are expected to be eager to diversify their portfolios with MAF.
'MAF is a one-off credit within the Gulf region; it is one of the highest-rated private corporates,' Bates said.
MAF's core business is mall development and the expansion of leisure facilities such as cinemas and retail outlets. The firm, which conceived Dubai's popular indoor ski slope, plans to build shopping destinations in other parts of the Middle East.
The developer has said it expects to open around 15 new Carrefour hypermarkets and about 25 to 30 new supermarkets in 2012. It both builds and operates its malls.
It has previously focused on bank financing, but appears to believe funding its ambitious long-term growth plans solely from banks is increasingly difficult and not necessarily desirable.
'Terming out the debt maturity reduces liquidity risk and is therefore positive for the credit profile of the company. If it manages to lower its cost of debt by diversifying its funding sources, this is also positive for the company,' said Tommy Trask, credit analyst at Standard and Poor's in Dubai.
'The key risks are geographic concentration, high development exposure, rapid rollout of new hypermarkets, and political instability in some countries where the company is present.'
MAF's income from businesses outside the United Arab Emirates reached 46 percent in 2011, and about 10 percent of the company's revenue comes from Egypt, its largest revenue base after the UAE. The mall developer secured a $500 million loan in March to build the Mall of Egypt project in Cairo, a 160,000-square metre site which will be one of North Africa's largest.
Following the Arab Spring unrest last year, MAF was forced to take writedowns of 300 million dirhams ($82 million) on its hotel assets in Bahrain and 250 million dirhams on its Egypt assets. Despite this, the company's gross revenue rose 10 percent in 2011 to 19.6 billion dirhams, while total assets hit 36.1 billion dirhams. Revenue for the first quarter of 2012 rose 19 percent year-on-year, MAF's roadshow presentation showed.
There are few bond issuers to which MAF can be compared, but Dubai property developer Emaar, rated several notches below investment grade, has increasingly expanded into hospitality and retail, and runs the gigantic Dubai Mall. Dubai's government owns a 32 percent stake in Emaar.
The B1-rated Emaar's $500 million five-year sukuk issued last year, which was originally sold at 8.5 percent, yielded 6.12 percent on Thursday, having tightened about 200 bps this year.
JP Morgan, National Bank of Abu Dhabi, Barclays, Standard Chartered and UBS are lead arrangers for MAF's deal, which is due to price on Wednesday.
(Additional reporting by Praveen Menon; Editing by Andrew Torchia) Keywords: EMIRATES MAF/BOND
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