Abu Dhabi National Energy Co is talking to banks to obtain loan facilities of up to $1.3 billion (Dh4.77 billion) which would refinance maturing debt after the Abu Dhabi government declined to approve a planned bond sale in October, sources close to the matter said.
TAQA, a state-controlled oil explorer and power supplier, had planned to issue an international bond to refinance an outstanding $500 million bond that was due in October, a company official said in August. But the refinancing did not go ahead and the company instead used an existing revolving debt facility to pay down that bond.
Abu Dhabi’s debt management office (DMO) did not approve TAQA’s planned new bond issue because other government-related entities “whose need for issuance is greater” intended to issue bonds this year, said one source directly involved in the matter.
A banker close to the situation said the DMO chose not to approve TAQA’s bond because it wanted to give priority to the Abu Dhabi government, which issued a $10 billion bond in October, and it did not want to overcrowd the market with other Abu Dhabi issuers.
In addition to the sovereign, Abu Dhabi state fund Mubadala Investment Co issued a $1.5 billion bond in April this year, while Abu Dhabi National Oil Co (ADNOC) issued its debut public bond last month, a $3 billion debt sale for subsidiary Abu Dhabi Crude Oil Pipeline.
“I don’t think there are DMO concerns about TAQA per se. I think the DMO wanted to make sure there’s a proper spread-out of risk in the market,” the banker said.
TAQA faces another looming debt maturity in January 2018, when a $750 million bond is due, so it is now discussing medium- to long-term loan financing with banks to avoid any impact on its long-term liquidity, said the sources.
TAQA said in an emailed statement to Reuters that in early September, it decided not to pursue the option of issuing bonds “because the company was presented with alternative, keenly-priced financing options. TAQA chose to utilise the revolving credit facility to repay the bond while those options were being evaluated.” The company added: “We still retain flexibility regarding refinancing in the coming months, including the option to access capital markets. During the first nine months of this year, TAQA reduced total debt by Dh2.6 billion ($708 million) and we remain committed to reducing our debt levels further in the coming year.” TAQA, majority-owned by the government’s Abu Dhabi Water and Electricity Authority, had total debt of Dh69.6 billion as of Sept. 30.
Like other energy companies globally, TAQA has been under pressure over the past few years because of lower oil prices.
In April this year, Standard & Poor’s downgraded the company by one notch to A-minus citing “potential risks to our current assessment that TAQA has an extremely high likelihood of receiving support from the Abu Dhabi government”.
The agency also revised the outlook for the company to negative from stable, to reflect “the risk of a multiple-notch downgrade if we revise down our assessment of the likelihood of government support”.