The UAE’s fixed income market was buoyed in 2012 by a series of early repayments of existing facilities, together with signifi- cant progress in a number of the larger restructuring opera- tions in the country.
DP World repaid a US$3 billion credit facility out of its cash resources, six months ahead of schedule, while DIFC Invest- ments repaid a US$1.25 billion sukuk in June after arranging a fresh US$1.035 billion facility. JAFZA also repaid a US$2.04 billion sukuk five months early, via a new US$1.2 Sharia- compliant loan, a new US$650 million sukuk and the compa- ny’s internal cash resources. Such moves saw an increase in pricing across a number of the country’s bonds, and a narrowing of credit default swap (CDS) spreads.
Of particular note was the restructuring of US$2.2 billion of debt by Drydocks World, which became the first company to take advantage of a special insolvency regime created in 2009 for Dubai World companies. Drydocks took advantage of the insolvency regime’s protection in April, after its attempts to restructure its debt were blocked by a US-based hedge fund.
Dubai International Capital clinched an agreement to restructure US$2.5 billion of debt, while Dubai Group and Al Jaber Group inched towards restructuring US$10 billion and US$1.91 billion of debt respectively.
In the light of such progress and record-low borrowing costs, appetite for new issues has been high. A dual tranche US$2 billion bond issued by TAQA of Abu Dhabi in December 2012 was particularly well received; a US$ 750 million five-year tranche with a coupon of 2.5 per cent attracted US$9 billion worth of orders, while the remaining US$1.2 billion ten-year tranche with a 3.625 per cent coupon attracted orders worth US$11 billion. Emirates NBD issued a US$1 billion, five-year bond at a coupon of 4.625 per cent in March 2013, attracting US$3 billion worth of bids.
DP World repaid a
US$
3
bncredit facility out of its cash resources, six months ahead of schedule.
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Key Sectors
Oil and Gas
Hydrocarbons are an integral part of the UAE economy. That is not surprising since the country has the world’s seventh- largest proven oil and gas reserves. According to BP’s Statis-
tical Review of World Energy 2012, the UAE’s 97.8 billion
barrels of proven oil reserves will offer a steady flow for another 80 years at current production rates, with an assumed 70 per cent overall recovery. The sustainable oil production average for the first quarter of 2013 was 2.7 million barrels per day (mbpd), up from 2.5 million bpd in 2011, according to the International Energy Agency (IEA). This makes the UAE the world’s fifth-largest producer, with 3.8 per cent of global production, up from 3.2 per cent in 2010.
The UAE’s gas production has also grown steadily over the past five years, rising from 1.7 trillion cubic feet (cf) in 2006 to 1.8 trillion cf in 2011. This represents 1.6 per cent of global gas supply, though reserves account for 3.2 per cent of the world total. In the past, associated gas was largely a byproduct of oil and, given its high levels of sulphur dioxide and other impu- rities, this sour gas was difficult to process. However, strongly growing domestic demand for gas is prompting enormous investment to boost both production and import capacity. The rapidly expanding electricity grid relies on natural gas for around 80 per cent of its feedstock, industrial demand is
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rising too, while some 30 per cent of the UAE’s gross gas production is re-injected into oil fields. As a result, the Government is focusing on finding technological solutions to developing its sour gas deposits, while improving import capacity.
As both the oil price and oil output have risen, the share of oil and gas in the economy has grown from just 26 per cent of GDP in 2009 to 42 per cent in 2012. Indeed hydrocarbon revenues reached a record high in 2012 at around
US$125 billion (Dh458 billion), according to the Institute for International Finance. Oil and gas have also spawned a major associated petrochemicals industry along with energy-inten- sive industries like fertilisers and aluminium that rely on gas feedstock.
The bulk of the UAE’s hydrocarbon activity is in the Emirate of Abu Dhabi, where the sector accounted for 58.5 per cent of GDP in 2011. Several multi-billion dollar projects are under way to increase oil and gas production, transport as well as downstream refining capacity. Abu Dhabi holds around 95 per cent of the UAE’s crude and more than 92 per cent of gas reserves, but the other emirates benefit from the revenues
through the federal budget, as well as through development grants from Abu Dhabi and through employment opportunities, supporting diversification efforts. Oil and gas revenues account for over 80 per cent of government revenues. Other emirates are also active in services to the oil and gas industry, including exports and storage.
Since 1962, when Abu Dhabi became the first of the emirates to begin exporting oil, the UAE’s hydrocarbon sector has developed into one of the world’s best. Huge discoveries and a decision to continue partnership with international oil companies (including BP, Shell, Total, Exxon- Mobil and the Japan Oil Development Company) under long- term production-sharing agreements transformed the sector quickly. The biggest such concession, accounting for over half of UAE oil production, comes up for renewal in January 2014. Signed in 1939 for 75 years, it covers the onshore fields, including the three giant fields of Asab, Bab and Bu Hasa. Bids from the main existing foreign shareholders, along with oil companies from Japan, Korea, China, Norway, Russia and the US, for a stake in the new concession are under review and a
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According to Suhail bin Mohammed Faraj Al Mazroui, Minister of Energy, the UAE’s aim is to increase production capacity from the current level of around 2.9 mbpd to 3.5 mbpd, with the aim of contributing to the stability of global markets. Abu Dhabi has set 3.5 mbpd as its own target for production and, along with international partners, is investing US$40 billion (Dh147 billion) into crude, natural gas, petro- chemical and refinery projects from 2010 until 2014.
Although the country is continuing to explore for new fields, the main focus is to extend the lifespan and capacity of existing oil fields. It is doing this partly by a combination of advanced and traditional techniques, including enhanced oil recovery (EOR), water-flooding and lateral and horizontal drilling. It is also completing full field development projects for existing fields, many of which are huge in global terms, to extend their production plateaus, while developing previously discovered, but smaller, fields, such as Bida al-Qemzan, which came into production in early 2013 but was first discovered nearly 50 years ago.
Another key project, completed in 2012, was the 370 kilo- metre oil pipeline that links Habshan, in the Western (Al Gharbia) Region of Abu Dhabi, and Fujairah. The first oil ship- ment left the port of Fujairah in July 2012. The US$3 billion pipeline was financed by the International Petroleum Invest- ment Company (IPIC), owned by the Abu Dhabi Government.
Das Island is key to Abu Dhabi’s oil and gas production.