Sukuk offers firepower for Tabreed's next growth phase, CEO says

District cooling company tapped debt capital markets for $500m last month

Abu Dhabi, United Arab Emirates, January 7, 2020.  
STORY BRIEF:  Tabreed media tour of  YAS Sustainable Cooling Plant 01.
--  Exterior of the Yas o1 Plant.
Victor Besa / The National
Section:  BZ
Reporter:   Fareed Rahman
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The $500 million sukuk raised by Tabreed last month will “fuel the next batch of growth” the Abu Dhabi-based district cooling company is planning as opposed to repaying existing liabilities, its chief executive said.

"This is for the future," Bader Al Lamki told The National in an interview on Monday. "The board has given us the approval to raise up to $1 billion but at this stage we have raised $500 million and we think that is sufficient for the next phase of growth we have in mind."

Tabreed secured $500m through the issue of seven-year, US dollar-denominated Islamic bonds, paying a 2.5 per cent coupon. The offer was about five times’ oversubscribed an initial offer size of $400m.

The $500m sukuk issue indicates the company “is preparing its arsenal to tackle more growth opportunities as they present themselves, to capitalise on the very cheap funding it is able to secure in 2020”, EFG Hermes analysts said in a note last week. “In our view, Tabreed may look at other targets in the UAE, or the rest of the GCC.”

Tabreed, in which French utility Engie and Mubadala Investment Company own significant stakes, currently operates 83 district cooling plants, delivering more than 1.35 million refrigeration tons of cooling to districts in the UAE, Saudi Arabia, Bahrain, Oman and Qatar, with one plant under construction in the Indian state of Andhra Pradesh.

Earlier this year, it paid Emaar Properties Dh2.48bn for an 80 per cent stake in the world’s biggest district cooling scheme in Downtown Dubai, but this was funded by a five-year syndicated loan arranged by HSBC in September.

“The investment objective is two-fold. One is to strengthen our standing in the countries that we operate within already … to seek further growth from these geographies,” Mr Al Lamki said.

The other objective is “looking at further markets where it makes sense on an opportunistic basis”, he added.

Tabreed will target countries with high-density populations where there are more opportunities to build scale, such as Egypt, India and Saudi Arabia, he said.

The company recently opened an office in Mumbai to scout for opportunities in India, and Egypt, the most populous country in the Middle East and North Africa, has been a longstanding target.

“Egypt is a market that we see has the right ingredients for us to explore investment opportunities,” Mr Al Lamki said.

“The fundamentals for doing business in Egypt exist ... its increasing population, new mega-projects under development including the New Cairo City and others. It has the right building blocks.

“We are now getting to more serious business development activity and I am sure the right opportunity will manifest itself at the right time. We tend to work with partners as well so we are also looking at partnerships on the ground. I am optimistic,” he said.

Tabreed posted a 13 per cent increase in third quarter net profit of Dh146m as revenue grew 20 per cent to Dh548m, and has fared reasonably well through the pandemic as more people worked from home due to movement restrictions.

"Demand from homes surged”, Mr Al Lamki said.

The company’s agreements are with major landlords as opposed to end-users, and most of these have 25- or 30-year deals, allowing for more flexibility over payments.

“Our commitment was to ensure that we provide them with a service of the highest quality in a way that is not interrupted. The understanding that we have is that we have a longstanding partnership with them,” he said.

Tabreed’s third quarter accounts showed a reduction of implied receivables days on hand, a measure of how long it takes for customers to pay, EFG Hermes analysts said following last week’s quarterly results.

“We believe this also indicates that Tabreed does not have any major collection issues post a massive capacity acquisition and weak operating environment for many of its clients during the Covid-19 pandemic,” they said.