* Second USD hybrid bond issue by Gulf firm other than bank
* Unrated company was selling in soft market
* 12.00 percent profit rate at wide end of price thoughts
* $200 mln size was $100 mln less than ideal size target
* But Asian, European accounts bought as well as Gulf
By Abhinav Ramnarayan
DUBAI, Nov 17 (IFR) - Corporate hybrids appear to be in
vogue in the Gulf after Emirati schools operator GEMS Education
last week followed Saudi Arabia's Almarai and the
United Arab Emirates' Majid Al Futtaim in issuing bonds that
also receive equity treatment.
On Thursday, GEMS Education issued a $200 million, perpetual
non-call five hybrid sukuk, though the deal came with one of the
highest yields from a Gulf issuer. It was only the second U.S.
dollar hybrid bond issue from a Gulf company other than a bank.
But investors needed some convincing to put money into a
subordinated bond from an unrated company, and GEMS Education
had to compromise on size and price.
The par-priced deal came at the wide end of initial price
thoughts of 11.75-12.00 percent and raised $100 million less
than its ideal target.
The market was soft in the first half of the week which,
together with the structure, meant the deal was a tough sell
with the execution process stretching over three days. Making
matters harder for the leads was the fact there were no obvious
"When we first starting talking to investors, they were
saying the deal could price anywhere between 8 percent and 12
percent," a banker close to the deal said.
"But then the market drove them to the 12 percent level and
the issuer had the maturity to take it."
A rival banker said: "I wouldn't have started any tighter,
despite the very generous (profit rate). They don't have any
benchmarks around that name. If you want institutions to buy the
company, you need to offer a good three or four points over
Majid Al Futtaim."
MAF, rated BBB/BBB, last month issued a $500 million, 7.125
percent perpetual non-call five note at par. On Thursday, that
note was trading at 98.5 to yield 7.5 percent, according to
"I don't agree that investors looked at MAF. That's a much
bigger and rated company. There are no real obvious peers for
(GEMS), so in that sense it was a true price discovery process,"
a lead banker said.
"When we went to market we said clearly the deal size would
be $200 million to $300 million, so the deal was in line
While there are no official allocation statistics, a large
part of the buying was from the Gulf region, but Asian, London
and Swiss accounts also participated.
By investor type, it was a good mix of asset managers,
private banks and local banks, the lead banker said.
The profit rate on the mudaraba steps up by 500 basis points
if the notes are not called. There was a 50 cents private bank
GEMS is run by Sunny Varkey, owner and chairman of the
group. Buyout firm Abraaj bought a 25 percent stake in 2007, but
restructured the holding into a loan instrument in 2011, Abraaj
said at the time. That loan has now been taken out.
The business thrives on a desperately underserved market for
education in the UAE and many Emiratis have money to spend.
Abu Dhabi Islamic Bank, Credit Suisse and Morgan
Stanley were the bookrunners.