Aabar to raise Dh1.5bn in issue

Aabar Investments will raise Dh1.5 billion (US$408.3 million) by issuing convertible bonds to its parent company, the International Petroleum Investment Company (IPIC). The board of Aabar, an Abu Dhabi Government-controlled investment vehicle, yesterday agreed to issue the bonds to IPIC at a conversion price of Dh2.50.

That implies Aabar, the largest shareholder in Germany's luxury car maker Daimler, could issue up to 600 million new shares if it were to convert the bond fully. The size of the issue is far smaller than the maximum amount first mentioned by Aabar last month. At the time, it said it planned to sell as much as Dh7.35bn of convertible debt for general corporate purposes. Since then, Aabar and the developer Arabtec have called off a planned Dh6.3bn deal that would have seen Aabar take a majority stake in Arabtec.

The conversion rate of Dh2.50 has been maintained since the convertible bond was first announced last month, although Aabar has lost about one sixth of its value since then. Money raised through the convertible bond could go towards two loans Aabar took out to buy its Daimler stake, analysts suggest. One loan, worth several billion dirhams, is due this year. Global fears over Greece have sent many markets into a tailspin in recent days but the Gulf region has so far been spared of the worst, said Mohieddine Kronfol, a managing director at Algebra Capital.

"Obviously things have not been good but it has been relatively better than in other parts of the world," Mr Kronfol said. "That is a nice change after 18 months [of local market turmoil] but it is still early days." Prices for sovereign bonds in the region have shed between 1 and 2 per cent, he said, while bonds with weaker ratings credits lost about 5 per cent since worries about a Greek default swept global markets last week. Bond interest rates rise when prices fall.

The deal between Aabar and IPIC is a private placement, which means the bond is fully subscribed, or purchased, by IPIC. As such, it is considered somewhat insulated from publicly traded bonds and their pricing. IPIC already owns 71 per cent of Aabar after converting Dh6.68bn of convertible bonds last year. IPIC uses Aabar for its non-oil investments. Because it is a private placement the exact terms and conditions of the deal, notably the maturity date, are yet to be decided between the two parties, Aabar said.

Aabar has spent at least Dh25bn on a string of high-profile investments. In addition to stakes in Daimler and Richard Branson's space travel venture Virgin Galactic, Aabar last year bought part of Tesla Motors, an electric car company, and teamed up with Daimler to buy three quarters of the former Brawn GP Formula One team, which was then renamed Mercedes GP. Last year, Aabar posted a Dh2bn profit and increased its assets by more than 11-fold to Dh37.3bn.