Abu Dhabi’s national oil company’s new debt-issuing unit, ADNOC Murban, began holding investor meetings on Tuesday ahead of its first bond sale scheduled for this year, according to an investor note seen by Reuters.
The meetings, coordinated by JPMorgan and Morgan Stanley, will continue through Friday and will target investors in Asia, Europe, the United States, the Middle East and Africa, according to the memo.
ADNOC and JPMorgan did not respond to emailed requests for comment. Morgan Stanley declined to comment.
The ability to tap into the debt capital markets will give ADNOC the flexibility to raise debt with longer maturities and potentially better prices.
In an investor presentation reviewed by Reuters, the chief investment officer of ADNOC Group said ADNOC has traditionally funded itself with equity and limited use of bank loans.
“We believe it is useful for modern treasury to add access to debt capital markets to our funding toolkit, to complete the set of instruments at our disposal,” the CIO said. Klaus Froehlich.
Its regional counterpart Saudi Aramco issued its first bonds in April 2019, raising $12 billion ahead of its record $29.4 billion IPO.
Qatar Energy also raised $12.5 billion in last year’s biggest bond sale in emerging markets.
“For clarity, we do not intend to enter the markets in the same way as our regional peers did with an inaugural jumbo debt offering. More likely, we will enter the market in sizes of ‘about $3 billion to $5 billion a year,'” Froehlich said.
Proceeds from the upcoming bond sale will be used to refinance loans, he said. ADNOC has $6 billion in loans maturing this year and $10 billion over the following three years.
“But, just so you understand, we just paid off a $3 billion bank line in cash, so this bond program is not necessarily a necessity to refinance bank loans, but a proactive step in order to build a curve,” Froehlich said.
Investors have already been offered bonds that indirectly carry the ADNOC risk.
ADNOC presented Murban as a “superior proposition for bondholders” in the presentation to investors, in part due to a potential “highest position in ADNOC’s liquidity cascade”.
Investors in ADNOC Murban are paid before ADNOC Group royalties, most operating expenses and taxes, according to the presentation.
Named after ADNOC’s flagship quality, Murban, the debt issuance unit is expected to be rated AA by S&P, Aa2 by Moody’s and AA by Fitch, ADNOC Murban said in a statement earlier Tuesday.
It said the ratings are aligned with its shareholder, the Emirate of Abu Dhabi, a regular issuer in the debt capital markets.
Debt issued by ADNOC Murban will not receive guarantees from ADNOC or the Abu Dhabi government, S&P said in its rating report on Tuesday.
“Murban temporarily takes ownership of the barrels of Murban assigned to it by ADNOC under the Assignment Agreement and immediately sells the same … barrels to ADNOC Trading and ADNOC,” S&P said.
“Murban has effectively been inserted into the crude oil value chain such that it owns no reserves and bears no production costs, royalties or taxes, but has first claim on the cash proceeds of those barrels of oil. crude from Murban.”