Bahrain’s Energy Investment Holding Company nogaholding Returns to International Sukuk Market with Benchmark US$750m Hybrid Sukuk Al Ijara/Murabaha Offering

The Oil and Gas Holding Company (nogaholding), the energy investment and development holding entity of the Government of Bahrain, successfully priced its latest Sukuk issuance – a benchmark US$750 million Senior Unsecured Hybrid Sukuk Al Ijara/Murabaha in the international market on 17th May 2023.

The 10-year trust certificates with a scheduled maturity date of 25 May 2033 was priced at a profit rate of 6.625% per annum payable quarterly with a spread of US Treasuries + 306.1 basis points.

The transaction marks nogaholding’s return to the international capital markets. The trust certificates, rated B+ by Fitch Ratings, were issued under nogaholding Sukuk Limited’s US$3 billion Trust Certificate Issuance Programme. Fitch Ratings on 9th May 2023 affirmed the Programme rating at B+, which is housed under the Cayman islands-incorporated special-vehicle purpose nogaholding Sukuk Limited, the issuer of the certificates and trustee.

In Fitch’s view, nogaholding is required to ensure full and timely repayment of nogaholding Sukuk limited’s obligations, due to nogaholding’s various roles and obligations under the Sukuk structure and documentation.

“The rental due on a rental payment date will be an amount equal to the periodic distribution amount payable under the relevant certificates in respect of the corresponding periodic distribution period less instalments of the Murabaha profit payable in such periodic distribution period. These rental and Murabaha profit instalments will together fund the periodic distribution amounts payable by the trustee in respect of the relevant certificates,” said Fitch.

In a statement, nogaholding also confirmed a cash tender offer with respect to its outstanding US$750 million notes maturing in 2024, “in order to proactively manage its balance sheet and maturity profiles, starting with the 2024 maturity. The final amount tendered is approximately US$478 million (63.7% of the outstanding notes), at an attractive tender yield of 5.8%, making this inaugural tender offer a success.”

The company had mandated Arab Banking Corporation, Citigroup Global Markets, First Abu Dhabi Bank, HSBC Bank, J.P. Morgan Securities and National Bank of Bahrain to act as joint lead managers and bookrunners to the transaction and to arrange a series of investor meetings and calls with accounts in the UK, Europe, the GCC, Asia and Offshore US. Lazard acted as the sole financial advisor.

According to nogaholding, the issuance received strong interest from regional and international investors, across Bahrain and the other Gulf countries, as well as Europe and Asia. The order book reached more than US$3.75 billion ahead of the launch, allowing the company to offer a yield of 6.625% at close on 25th May from the initial price guidance of 7.25% a few days earlier. Because of favourable market conditions and strong investor demand for Islamic debt paper, several issuers in the Gulf Cooperation Council region are accessing the Sukuk and Islamic finance market or planning to do so during the year, Mark Thomas, Group Chief Executive Officer of nogaholding, welcomed “the support of the international investors to our continued efforts to support the Kingdom of Bahrain’s energy strategy. We value the confidence of our investors, highlighting our strong credit and transition into an integrated energy company. The new issue will contribute to nogaholding’s strategy of proactively managing its debt profile moving forward, in line with its capital structure and corporate strategy. The issuance was more than five times oversubscribed, with participation from investors demonstrating sustained, strong and valued support to nogaholding and the Kingdom of Bahrain.”

An interesting aspect of the Sukuk structure and documentation is an obligation on nogaholding to ensure that at all times the tangibility ratio is more than 50% (the tangibility ratio: total value of the lease assets to aggregate value of the lease assets and the deferred sale price outstanding).

However, according to Fitch ratings, “failure of nogaholding to comply with this obligation will not constitute an obligor event. If the tangibility ratio falls below 33%, at the option of the certificate holders, the certificate in relation to any series may be redeemed in whole or in part to the relevant scheduled dissolution date and the trustee will redeem these certificates on the tangibility event put date at their dissolution distribution amount. In this event, there would be implications for the tradability and listing of the certificates.’

These provisions are increasingly seen in Sukuk issues following the issuance by AAOIFI (the Auditing and Accounting Organisation for Islamic Financial Institutions) of its Standard 59 relating to the Sale of Debt.

The transaction is partly governed by English law and partly by Bahraini law. The proceeds from the Sukuk issuance will be used to support the company’s balance sheet and for general corporate purposes.

nogaholding is becoming more than an occasional user of Sukuk and accessing lslamic financing facilities through Murabaha syndications. Prior to this latest Sukuk issuance, nogaholding successfully priced an upsized 8-year US$600 million Senior Unsecured Sukuk Al Ijara/Murabaha at end March 2021 at 5.25% per annum. The transaction was also under the company’s US$3 billion Trust Certificate Issuance Programme.

In May 2022, it successfully refinanced its US$1.6 billion Murabaha facility and upsized it to US$2.2 billion. The new facility was structured as a dual-tranche (conventional and Islamic) sustainability-linked corporate finance facility based on a Secured Overnight Financing Rate (SOFR), with a maturity date of September 2026.

In February 2023, nogaholding signed a US$200 million revolving syndicated Murabaha credit facility with a consortium of banks led by Al Baraka Islamic Bank (AIB). This Murabaha facility came at a time as nogaholding prepares to undergo a strategic transformation from a traditional oil and gas holding company to a progressive and responsible energy company.

According to CEO Mark Thomas, “As an active contributor and growth catalyst in the local economy, nogaholding will continue engaging with leading financial institutions to accelerate the Kingdom’s energy strategy. Seeking diverse financial solutions for nogaholding will help support the Company’s financial plans and meet our mandates that are in line with the Kingdom’s Economic Vision 2030, and the goals set out by the Crown Prince during COP26.”

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