Mashreq Bank taps banks for AT1 bond issuance

Our friends at Mashreq are set to issue benchmark-sized, USD-denominated additional tier 1 (AT1) bonds after hiring banks to advise on the issuance, Reuters reports, citing an arranging document it saw. The bonds will be perpetual and non-callable for 5.5 years, meaning Mashreq can’t redeem them in that period except by paying a penalty.

Benchmark-sized? A “benchmark sized” issuance is usually at a minimum valued at USD 500 mn.

What’s next: Investor meetings start today, according to the newswire.

Uh, Enterprise, what are AT1 bonds? They’re a common way banks raise core tier-one capital without diluting shareholders by raising equity. Additional tier one certificates (or just “AT1 certificates”) are a form of subordinated debt — they rank behind other types of bank debt in case of liquidation. That makes them riskier than senior debt, but still prioritizes them above equity holders. AT1 certificates are “perpetual” in that they have no fixed maturity date. They pay interest in much the same way as a bond does, but usually can be converted into equity in some circumstances — that’s why they’re often called CoCos in the industry, for “contingent convertibles.”

CoCos are common in the banking world — HSBC and Deutsche Bank use them and Standard Chartered announced a USD 1 bn CoCo in February of this year, as did Saudi’s Alinma Bank with a USD 1 bn issuance.

The timing is good for Mashreq: Ratings agency Moody’s has upgraded Mashreq’s long-term deposit and senior unsecured ratings to A3, up from Baa1, assigning it a stable outlook, the lender said in a statement. The bank cited its “operational resilience” as well as improvements in credit fundamentals, asset quality, profitability, and robust funding and liquidity profiles for the upgrade.

ADVISORS- Mashreq has appointed Abu Dhabi Commercial Bank, Al Ahli Bank of Kuwait’s DIFC branch, BofA Securities, Citi, Emirates NBD Capital, FAB, Kamco Investment Company, Mashreq, and Mizuho as joint lead managers and joint bookrunners.

Also worth knowing about this morning:

• The International Monetary Fund sees China’s economy growing 5% this year, up from its previous forecast of 4.6% growth for the world’s second largest economy. However, the Fund warned that growth would slow to 4.5% next year, and to 3.3% by 2029 due to “an aging population and slower expansion in productivity.” (Reuters)

• All 82 economists in a Reuters poll see the European Central Bank cutting interest rates in June, with a majority also forecasting further cuts in September and December.

MARKETS THIS MORNING-

A global bond selloff yesterday saw investors dump equities as jitters set in, with stocks in the US, UK, and Europe closing the day in the red. Asian markets are playing catch-up this morning, with all major benchmarks in negative territory (led by the Nikkei’s nearly 1.7% dip at dispatch time). US and European stock futures are down sharply this morning after yesterday’s selldown and Salesforce’s downbeat forecast. Revenue at the software giant fell short of Wall Street expectations for the first time since 2006.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.3% yesterday on turnover of SAR 6.2 bn. The index is down 2.3% YTD.

In the green: SNB (+5.8%), Medgulf (+5.0%) and Anaam Holding (+4.6%).

In the red: Zoujaj (-4.3%), Al Babtain (-3.8%) and Spimaco (-3.6%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.3% yesterday on turnover of SAR 32.1 mn. The index is up 7.2% YTD.

In the green: Knowledgenet (+16.0%), Burgerizzr (+8.7%) and Nofoth (+7.2%).

In the red: Miral (-10.0%), Osool and Bakheet (-9.5%) and Al Modawat (-7.2%)

CORPORATE ACTIONS-

Renewables giant Acwa Power wrapped up its fractional shares sale, raising some SAR 2.5 mn in proceeds, it said in a disclosure to Tadawul. The proceeds from the sale were distributed to eligible shareholders.

The board of Almunajem Foods has approved distributing dividends of SAR 75 mn at SAR 1.25 per share for H1 2024, it said in a disclosure to Tadawul.

The Capital Market Authority has cleared Nomu-listed Academy of Learning to increase its capital by 50% to SAR 90 mn, according to a statement. The capital increase will see the transfer of SAR 30 mn in retained earnings to the company’s capital.