• The UAE’s Tabreed is to buy back AED1bn ($272m) of convertible bonds from Mubadala
  • Buyback to be funded by Tabreed’s 2014 refinancing
  • It will reduce Tabreed’s financing costs by AED31m a year

Shareholders of the UAE’s National Central Cooling Company (Tabreed) have decided to buy back 28 per cent of the mandatory convertible bonds (MCBs) held by Mubadala Development Company, Abu Dhabi’s government investment vehicle.

Shareholders owning 55 per cent of shares voted to buy 854 million bonds at a cost of AED1bn ($272m).

The funds for the buyback will come from the banks that participated in the 2014 refinancing of AED2.6bn of debt facilities from 2011.

The 2014 debt facilities feature three tranches: a AED692m senior-term loan (Facility A); a AED1.5bn senior loan (Facility B); and a AED450m revolving credit facility.

The arranging lenders were Abu Dhabi Commercial Bank, First Gulf Bank and Mashreq Bank.

Historically low interest rates mean companies have been able to refinance debt at a lower cost. Tabreed is saving AED9m a year.

The bond buyback will bring savings of another AED31m a year, and result in dividends rising from AED0.094 to AED0.12 a share.

Mubadala’s remaining bonds have a 4 per cent coupon rate until 2019.

London-based HSBC provided financial advice to Tabreed for the deal.

In June 2014, Mubadala converted AED134m of its Tabreed MCBs into shares at AED1.69 a share, the price agreed at issuance. Tabreed issued 79.4 million new shares to Mubadala, increasing Tabreed’s issued shares to approximately 738.5 million.

These additional MCBs were issued to Mubadala in 2013 instead of a cash dividend for 2012. Mubadala’s decision to accept its dividend in the form of bonds rather than cash allowed Tabreed to distribute a cash dividend to other shareholders for 2012.

In 2011, Mubadala bailed out Tabreed with an AED3.1bn investment. It comprised AED1.7bn in subordinated MCBs and up to AED1.4bn in a subordinated loan facility.

Thanks to this support, Mubadala owns a 33 per cent stake in Tabreed, and a higher equity interest.

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