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1、Middle East UAE 14 December 2012 Emerging Market Corporates UAE Corporate Credits Deutsche Bank AG/London DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 072/04/2012. Market Update Research Team Viacheslav Shilin, MBA Research Analyst (+44) 20 754-79035 Tala Boulos Researc
2、h Analyst (+44) 20 754-53664 Credit Global Markets Research Emerging Markets Update on the UAE corporate credits and bond Top Picks In this report we share our views and outline the main conclusions following our recent meetings with banks, corporates and government bodies in both Dubai and Abu Dha
3、bi. We can broadly divide the universe of visited entities into banks, real estate and quasi-sovereign segments, which, in our view, continue to display quite different operating dynamics. We came back with a general impression of stable- to-improving macroeconomic condition in the country and the e
4、mirate of Dubai in particular, supported by the recent bottoming out of real estate prices, pick up in tourism and slowly recovering international trade volumes. In 4Q12 alone, USD7bn was issued by UAE companies. The bulk of the new supply was from the quasi-sovereign segment and as the issuers exis
5、ting curves were left relatively unscathed, this supports our view, reflected in the top picks, that the sector still offers selective value. Please refer to the section on page 3 for the full list of bond recommendations, rationale and risk factors discussion. Quasi-sovereigns: stand-alone fundamen
6、tal strength underpins Buys We believe the commercially viable quasi-sovereign entities in the UAE have continued to fair better throughout the cycle than the banking and real estate companies. Credits such as JAFZA, DP World and TAQA demonstrated their success through debt refinancing efforts, whil
7、e in the cases of DEWA and Mubadala the stable-to-growing capex and improving cash generation manifested into ongoing government commitments for their future development. We highlight the bonds of DPWDU 6.25% 17, TAQAUH 4.125% 17 and 3.625% 23, DEWAAE 6.375% 16 and 7.375% 20 as our top UAE Buy picks
8、. Stagnant banking sector; real estate stability from recurring revenues Banks, in our opinion, remain under pressure from the regulator to diversify away from their government exposures, which in many cases results in stale balance sheets when compared to the corporate peers. The asset quality cycl
9、e has bottomed in our view for Abu Dhabi financial institution supporting potential future lending growth; but this is far from the case for the Dubai peers. For the real estate sector, we are mostly constructive on the issuers that have been focusing on their recurring revenue portfolios to maintai
10、n cashflow stability such as JAFZA, Emaar and MAF. Recent announcements on new mega-projects in Dubai could become a concern; but these are at early stages. For the Abu Dhabi developers, where oversupply remains more of an issue than for the neighbouring Emirate, the potential merger between the lar
11、gest two developers Aldar and Sorouh could provide a solution to the still depressed market dynamics should it go ahead. Dubai Department of Finance: infrastructure development main focal point On the macro front, Dubai will continue to focus on the key sectors that made up the founding cornerstones
12、 of its economy: retail, transport, logistics and trade. In order to achieve this, the Emirate is pressing ahead with its main infrastructure development projects, which in turn cross-pollinate other sectors. Such flagship initiatives include a second metro line in Dubai (tourism), AED4.5bn expansio
13、n of Al Maktoum cargo airport in Jebel Ali (trade) and AED3bn p.a. road network upgrades (transport). The USD20bn bail-out funding provided by Abu Dhabi in 2009 is due in 2014 and is likely to be rolled-over, in our view. Contingent liabilities for DOF include Dubai World and Nakheel debt maturing i
14、n 2018. In terms of issuance plans, DOF anticipates raising USD1bn/yr to refinance and extend upcoming maturities; matching the duration of its projects. 14 December 2012 IG Multi Sector Emerging Market Corporates Page 2 Deutsche Bank AG/London Table of Contents Bond valuations, relative value and r
15、ecommendations . 3 UAE corporates update . 9 Abu Dhabi National Energy Company (TAQA). 9 Aldar Properties 9 Dubai Electricity which would provide sufficient room for the company to absorb any potential new funding requirements. We acknowledge the fact that the bonds of DP World remain amongst the ch
16、eapest IG paper 14 December 2012 IG Multi Sector Emerging Market Corporates Deutsche Bank AG/London Page 5 across the GCC universe. As such, the DPWDU 6.95% 37 notes have performed particularly well quarter-to-date, influenced by the hunt for yield amongst global investors. We believe there is limit
17、ed room for these bonds to tighten further and maintain our HOLD recommendation. At the same time, we believe that the trend of converging spread levels between DPWDU 6.25% 17 and DUGB 4.9% 17, with the former to outperform the latter, should be sustained as we expect the improving fundamental dynam
18、ics of DPW to outpace those of the underlying sovereign. We maintain our Buy recommendation on DPWDU 6.95% 17. Risks to our DPWDU recommendations include for the downside: escalation of geopolitics in MENA region, sharper-than-expected global economic slowdown, delays with the projects nearing compl
19、etion, spikes in leverage and liquidity metrics. To the upside: increase in the international trade flows, faster recovery of Dubais economy and real estate sector, improving investor sentiment towards Dubai-based government related entities. Figure 2: 6M Z-spread evolution of select UAE real estate
20、 corporate, bps 200 300 400 500 600 700 800 900 18-Jun-1223-Jul-1227-Aug-1201-Oct-1205-Nov-1210-Dec-12 JAFZSK 7 19EMAAR 8.5 16EMAAR 6.4 19 ALDAR 10.75 14DUBAI 4.75 14MAFUAE 5.85 17 MAFUAE 5.25 19 Source: Deutsche Bank 14 December 2012 IG Multi Sector Emerging Market Corporates Page 6 Deutsche Bank A
21、G/London Figure 3: 6M Z-spread evolution of select GCC banks, bp 100 150 200 250 300 350 18-Jun-1223-Jul-1227-Aug-1201-Oct-1205-Nov-1210-Dec-12 EIBUH 4.718 17EIBUH 4.147 18DIBUH 4.752 17 ADCB 4.071 16NBADUH 3.25 17QBNK 3.375 17 Source: Deutsche Bank Figure 4: 6M Z-spread evolution of select UAE Quas
22、i-Sovereign corporates, bp 100 150 200 250 300 350 400 450 500 18-Jun-1223-Jul-1227-Aug-1201-Oct-1205-Nov-1210-Dec-12 DEWAAE 6.375 16DEWAAE 7.375 20MUBAUH 3.75 16 MUBAUH 7.625 19MUBAUH 5.5 21DPWDU 6.25 17 TAQAUH 5.875 16TAQAUH 6.25 19TAQAUH 5.875 21 Source: Deutsche Bank 14 December 2012 IG Multi Se
23、ctor Emerging Market Corporates Deutsche Bank AG/London Page 7 Figure 5: Yield vs. Duration for UAE corporate and banks MUB 5.75 14 ALD 10.75 14 NBA 4.5 14 TAQ 4.75 14 ADC 4.75 14 NBA 4.25 15 DEW 8.5 15 ADI 3.745 15 INTP 3.125 15 INTP 1.75 15 MUB 3.75 16 SIB 4.715 16 EMI 5.125 16 FGB 3.797 16 EMA 8.
24、5 16 DEW 6.375 16 TAQ 5.875 16 UNB 3.875 16 ADI 3.78 16 EIB 4.718 17 FGB 4.046 17 TAM 5.154 17 MAF 5.85 17 INTP 3.75 17 TAQ 4.125 17 NBA 3.25 17 EBI 4.625 17 DIB 4.752 17 DPW 6.25 17 FGB 2.862 17 TAQ 6.165 17 EIB 4.147 18 TAQ 7.25 18 ADW 3.925 20 1.3 1.8 2.3 2.8 3.3 3.8 4.3 1.21.72.22.73.23.74.24.7
25、Yield, % Duration Yield, % Duration UAE (Short Duration)UAE (Short Duration) Source: Deutsche Bank Figure 6: Yield vs. Duration for UAE corporates and banks MUBAUH 7.625 19 DOLNRG 5.888 19 JAFZSK 7.0 19 MAFUAE 5.25 19 EMAAR 6.4 19 TAQAUH 6.25 19 DEWAAE 7.375 20 INTPET 5.0 20 MUBAUH 5.5 21 TAQAUH 5.8
26、75 21 DOLNRG 5.5 21 INTPET 5.5 22 TAQAUH 6.5 36 (13.0) DPWDU 6.85 37 (11.9) INTPET 6.875 41 (14.0) 2.3 2.8 3.3 3.8 4.3 4.8 5.3 4.95.45.96.46.97.47.9 Yield, % Duration Yield, % Duration UAE (Long Duration)UAE (Long Duration) Source: Deutsche Bank 14 December 2012 IG Multi Sector Emerging Market Corpo
27、rates Page 8 Deutsche Bank AG/London Figure 7: Yield vs. Duration EMEA Banking and Specialized Fin HG RSH 7.125 14 RSH 9.0 14 NBA 4.5 14 EUR 7.375 14 ADC 4.75 14 AFREXI 8.75 14 COM 5.0 14 GPB 6.25 14 VTB 6.465 15 BKM 6.699 15 NBA 4.25 15 BSF 4.25 15 SBE 5.499 15 AKBN 5.125 15 GPB 6.5 15 YKB 5.1875 1
28、5 BBK 4.5 15 ADI 3.745 15 SABBAB 3.0 15 QNB 3.125 15 DBK 5.5 15 ISCTR 5.1 16 SIB 4.715 16 VEB 5.125 16 AFREXI 5.75 16 FGB 3.797 16 KFI 5.875 16 EXC 5.375 16 UNB 3.875 16 ADC 4.071 16 ADI 3.78 16 EIB 4.718 17 FGB 4.046 17 TAM 5.154 17 SBE 4.95 17 YKB 6.75 17 VEB 5.375 17 QNB 3.375 17 DHB 3.5 17 SBE 5
29、.4 17 NBA 3.25 17 EBI 4.625 17 COM 3.375 17 VTB 6.0 17 VAK 5.75 17 RSH 6.299 17 GPB 5.625 17 ABL 8.125 17 (5.5) 1.3 1.8 2.3 2.8 3.3 3.8 4.3 0.91.41.92.42.93.43.9 Yield, % Duration Yield, % Duration EMEA Banking and Specialized Fin HG (excluding subordinated) (Short Duration)EMEA Banking and Speciali
30、zed Fin HG (excluding subordinated) (Short Duration) Source: Deutsche Bank Figure 8: Yield vs. Duration EMEA Banking and Specialized Fin HG BSF 2.947 17 DIB 4.752 17 HAL 4.875 17 GAR 4.0 17 FGB 2.862 17 QIB 2.5 17 QII 2.688 17 AKBN 3.875 17 ISCTR 3.875 17 VEB 5.45 17 GUL 3.25 17 RSH 5.298 17 EIB 4.1
31、47 18 QNB 2.125 18 VTB 6.315 18 AKBN 6.5 18 VTB 6.875 18 RSH 7.75 18 EXC 5.875 19 SBE 5.18 19 VEB 6.902 20 VTB 6.551 20 GAR 6.25 21 SBE 5.717 21 SBE 6.125 22 VEB 6.025 22 GAR 5.25 22 EUR 4.767 22 AKBN 5.0 22 DBK 4.125 22 VEB 6.8 25 2.3 2.8 3.3 3.8 4.3 4.8 3.94.95.96.97.98.9 Yield, % Duration Yield,
32、% Duration EMEA Banking and Specialized Fin HG (excluding subordinated) (Long Duration)EMEA Banking and Specialized Fin HG (excluding subordinated) (Long Duration) Source: Deutsche Bank 14 December 2012 IG Multi Sector Emerging Market Corporates Deutsche Bank AG/London Page 9 UAE corporates update A
33、bu Dhabi National Energy Company (TAQA) For our latest views on TAQA, including the main takeaways from our meeting with management, please see the report published on 15-Nov-12 entitled “TAQA: 3Q12: no big surprises; new supply to drive valuations” at the following link: http:/pull.db- Aldar Prope
34、rties ? New large scale development projects are not expected until 2014 once the company has concluded its deleveraging exercise and the domestic real estate dynamics display signs of improvement. Currently, Aldar is focusing on (i) fee based government projects, including infrastructure (Al Falah,
35、 Masdar City), (ii) retail and shopping malls (Yas Mall) and (iii) delivering residential units and clearing its inventory (372 residential units on its book to be sold and 180 to be leased). The hotels business is suffering from the continuing soft pricing environment (ADRs down 5-7% yoy), in parti
36、cular the high-end 5* hotels, as occupancy rates are still low (56% at 3Q12). ? Recurring revenues increased 8% yoy in 3Q12 to AED306m and are expected to total AED1.1bn by year-end (cAED500m recurring EBITDA). By 2015, recurring income could more than double to AED2.5bn, largely driven by Yas Mall
37、(accounting for c30% of total recurring revenues). Retail is the only under-supplied real estate sub sector in Abu Dhabi and the company envisions the leasing demand to remain high. Indeed, Yas is now 60% pre-leased, 85% targeted by Jun-13; while Al Falah Village Centres is at 74%. ? The merger eval
38、uation exercise with Sorouh is still ongoing and Aldars management team informed us that 90% of the due diligence has been completed. As a result, certain assets (e.g. hotels) valuations have been adjusted downward and impairment/write-off charges taken in 3Q12 (total provisions of AED932m). At this
39、 stage it is still unclear what the final shareholding structure of the potential merged entity would be, but given that Sorouhs state ownership is lower and less concentrated than that of Aldar (direct and indirect 7% vs. 60% respectively), the new larger company would likely see a dilution in the
40、government stake compared to Aldars current one. ? Aldar is open to tapping the capital markets to increase the tenor of its liabilities, but we believe this is not a near-term possibility and would depend on the merger outcome with Sorouh. Furthermore, a refinancing of its 2014 bond is not consider
41、ed commercially viable by the company given that the net cost of funding would be the same. The company is targeting to reduce its debt by AED10bn by the end of 2014, which implies total debt would be AED4-5bn from AED14.4bn at 3Q12 and would lower the Debt to Equity ratio to 40-45%. Aldar is still
42、to receive a total AED12bn of cash from the government asset sale agreements (relating mostly to Al Raha Beach) of which AED2.6bn is due end 2013 and AED7.3bn in 1Q15 as well as recognise AED2.6bn of revenues on contracted unit and land sales (over next 12 months). Capex spending until end-2014 is e
43、xpected to total AED5-6bn. ? In terms of the overall real estate market in Abu Dhabi, the company estimates that 15- 18,000 units are still to be completed and come on-stream by 2015. The government is dealing with this oversupply of properties by implementing a new law requiring expats that work fo
44、r AD government-owned entities to live in the Emirate, otherwise their visas would not be renewed. The expectation is that 10,000 households would be moving to Abu Dhabi from Dubai (where prices have corrected more) by the end of 2013. 14 December 2012 IG Multi Sector Emerging Market Corporates Page
45、 10 Deutsche Bank AG/London Dubai Electricity though the focus would remain, as has been the case since the crisis, on building recurring revenue streams through its leasing portfolio and management businesses. The Remraam project for example, which comprises of 4,500 units, was mostly pre-sold befo
46、re the crisis, would be delivered over the next 12 months allowing the company to recognize the revenues only now. Within its leasing portfolio, DPG has 25,000 units at 95% occupancy rate. For 2011, rental income grew by 2.4% yoy and accounted for 20% of group total sales (up from 13% in FY10). For
47、this year, the growth in this source of recurring revenues has been stronger, according to management, supported by property management fees. Emirates International Telecommunications (EIT) ? EIT was established to help diversify DHCOGs portfolio through domestic and international investments into t
48、elecom companies including countries such as the UAE (Du 19.5% stake and Axiom 26%), Tunisia (Tunisie Telecom 35%), Malta (GO plc 60%), 14 December 2012 IG Multi Sector Emerging Market Corporates Page 12 Deutsche Bank AG/London UK (Interoute 30%) and Greece (Forthnet 41%). Management is looking to partially exit these assets, subject to pricing, as was the case with Axiom earlier in the year when DHCOG reduced its holding from 40%. Dividends are being regularly paid by Du, Axiom and Tunisie Telecom. Overall, EIT represents 8% of total group sales. Emirates NBD ? Following the