Taqa and Emal bonds sales show Abu Dhabi's broadening funding mixture

Abu Dhabi's biggest utility and an aluminum smelter are raising as much as US$2 billion by selling bonds they will repay with cash from projects being financed, evidence of the emirate's effort to broaden its funding sources.

Abu Dhabi National Energy Co, known as Taqa, said it plans to complete the sale this quarter of an $800 million project bond for its Shuweihat S2 power plant. The Taqa unit would now pay about 3.5 per cent on 10-year project bonds, Amol Shitole, a credit analyst with SJS in Bangalore, India, said. That compares with an average corporate bond yield of 3.37 per cent yesterday, a Middle East regional HSBC/Nasdaq Dubai index shows.

Emirates Aluminium, or Emal, may sell a project bond as early as this quarter, according to Mubadala Development, a partner in the venture. Emal needs money to expand a smelter, while Taqa is refinancing its Shuweihat power station in Abu Dhabi. Both state-run companies are contributing to Abu Dhabi's effort to diversify financing options beyond bank loans and corporate bonds to attract a wider range of investors.

"Project bonds add to the repertoire of financial instruments and help create deeper financial markets," Jarmo Kotilaine, chief economist for economic planning and development at Bahrain's Economic Development Board, said. "They increase the flexibility in financing for governments and issuers."

The 3.5 per cent that Mr Shitole of SJS estimates Taqa's Shuweihat project might pay for bonds exceeds the 2.64 per cent yield on the Bank of America Merrill Lynch Global Utility Index yesterday.

The UAE's only project bonds to date are $2.55bn in securities that Dolphin Energy issued in 2009 and 2012 to refinance debt on a pipeline supplying natural gas from Qatar to the UAE and Oman. Dolphin Energy is 51 per cent owned by Mubadala, an Abu Dhabi state investor, with Total and Occidental Petroleum holding the rest. The UAE contains 6 per cent of global oil reserves, most of them in Abu Dhabi.

Emal, a partnership between Mubadala and Dubai Aluminium, plans to raise as much as $1.25bn in its first sale. Mr Shitole, the SJS analyst, said it could pay 3.5 per cent to 3.75 per cent for a 10-year project bond. Emal is making final arrangements to finance its smelter expansion, a Mubadala official said, asking not to be identified due to company policy.

"There are not many project bonds in the market," Mr Shitole said. "To start a new market for lending is the reason Abu Dhabi is seeking to sell these bonds. If you look at current rates, it really makes sense to go."

* Bloomberg News