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.

Tags: