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Aabar taps demand for euro 2b exchangeable bond.

Most immediately, the issuance frees Aabar to settle its Daimler exchangeable bond, allowing it to reduce the cost of its debt.

Abu Dhabi: Aabar Investments has issued debt of a e1/42 billion exchangeable bond with a creative structure that combines Aabar's reputation as a long-term investor with the financial strength of its parent, the International Petroleum Investment Company (IPIC).

The bonds are exchangeable against Aabar's Unicredit stock ownership, amounting to a transaction that has achieved annual cost savings of 3.25 per cent and provided the funding necessary for the company's portfolio of long-term development assets to achieve their full value.

Most immediately, the issuance frees Aabar to settle its Daimler exchangeable bond, allowing it to reduce the cost of its debt.

Aabar manages a portfolio of investments spanning real estate to energy, and is a pillar in the Abu Dhabi government's vision to diversify the economy away from dependency on hydrocarbon revenues.

Aabar has attributed its success to its strong financial standing and that of IPIC, a campaign to explain its business and growth strategy to investors, its reputation as a bond issuer as evidenced by the gains enjoyed by holders of its previous bonds, its strong credit rating, the strength of its parent, IPIC, and the Abu Dhabi government.

The Aabar bond transaction has already claimed several records: It is the largest exchangeable bond ever issued by an unrated entity, the largest exchangeable bond issue in EMEA since 2008 (Deutsche Telekom); and the seven-year tranche is the largest maturity for an exchangeable bond since 2006.

The transaction has a combination of yield and premium, one that stands out in the EMEA's equity-linked market. Since 2009, there have only been three similar transactions with respect to the yield/premium combination.

Although the Aabar bonds are called exchangeable, the option only occurs in the final six months of the term. A banker familiar with the details of the transaction described it as "the exchangeable bond you can't exchange".

Usually, when a bond is issued, the company's share price falls as investors sell equity to buy debt. The Aabar issue was so well arranged that shares of Unicredit achieved a net gain on the day of issue as investors sought to hedge against their bond holding.

The transaction involved settling a bond exchangeable with Daimler shares carrying a premium of four per cent per annum and issuing a replacement bond exchangeable in shares of Unicredit carrying a premium of 0.75 per cent per annum. The annual cost saving for Aabar is 3.25 per cent.

"The success of such a novel instrument is a reflection of the strengths and high regard of Aabar Investments as an Abu Dhabi government entity," said Khadem Al Qubaisi, chairman of Aabar. "Given that this is the largest ever non-rated exchangeable bond, it is clear that Aabar's role and strategy is understood and supported by the global markets."

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Publication:Khaleej Times (Dubai, United Arab Emirates)
Geographic Code:7UNIT
Date:Mar 28, 2015
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