Utico sounds banks for a $500mn Sukuk

Published: 20 May 2020 - noon
By: Baset Asaba

Utico, the Middle East’s leading full service utility and the only private water and power company in the UAE,has said it is working with financial institutions and banks to raise a benchmark sized Islamic bond and tap the capital markets.

In a statement, Richard Menezes, CEO of Utico said that the company has sounded out to several financial institutions including Citi for the Sukuk issuance.

“The response has been positive. We intend to move quickly and ensure that we complete the process in next 3-4 months,” Mr. Menezes said.

“These are times when the governments are doing a lot for the people, even when the oil prices are down, ensuring common good and we feel that with further capitalization, Utico too will be able to contribute more to the UAE and the region,” he said.

Utico has the lowest Debt to Equity gearing of 0.5 in the industry while its largest competitor in the region is leveraged about 8 or 9 times, compared to the industry average of 3 times. Any highly leveraged company in uncertain times is a ticking time bomb.

Mr. Menezes said raising money to increase debt is not Utico’s core focus but to ensure sustainability, improve its services and restructure itself to position for new opportunities like Dubai’s Hassyan project and some other opportunities in Oman and Saudi Arabia.

Utico is the only Full services private utility in the UAE connected to 4 Emirates of 6 in the UAE. The company’s capacity is increasing with footprint and overseas interest, and expansion on the way. Sovereign entities of Saudi Arabia, Bahrain, Brunei and Oman are already investors and shareholders.

Utico is also a developer, O&M and EPC company, other than providing various value added services. It is acting now to grow its Development and O&M business outside the 4 Emirates. It is now bidding for projects in the UAE, Saudi and Oman opportunities.

To meet the current market conditions where opportunity and risks are both available in abundance, Utico is keen to position itself properly with restructuring its assets and corporate growth mix and seek capital market interest for a US$500m benchmark sized Sukuk using its stable cash flows and dividend paying history.

This is to take the company’s growth forward, restructure and position itself for the new market and opportunities.

The company will use the proceeds for corporate purposes. It is seeking a 10-year note for US$500m with US$350 firm and US$150 option. Utico will use the money to pay off some of its debts and restructure its portfolio and position itself for organic and inorganic growth.

“Utico has made continuous profits every single year for 15 years and has an excellent asset base and low gearing. We are the only private full services utility company in the region and hence Utico’s first entry into public capital markets will be an opportune time for investors to invest in a sustainable and profitable company,” he said.

The company is also at base capacity metrics and has end-to-end lowest Non revenue water (loss or leakage of water) in the Middle East of approximately 2% versus industry average of 10% and other utilities in the region of even 30%, confirming that Utico is the most sustainable utility, and have the lowest risk among its peers.

“In these times, Non revenue water (NRW) is a key metric rather than production cost alone since any leaked/Non revenue water itself is capacity and money being wasted every minute. It is not sustainable nor Green. However, having legacy assets changed is very capital intensive and needs decades to improve. Utico feels that its unique proposition and position will set the true price and value of water at the least cost end to end,” Mr. Menezes said.

Utico has also been the most successful private utility supplying water to farmers, even free for produce, to increase farming, and thereby raise food security. This program to farmers has increased food production by almost 400% in RAK from about 300 farms currently. It intends to extend this service and model even further in the UAE and Oman.

“We have excellent assets, cash and stable dividend pay-outs history which should be attractive to investors in this low returns, high risk market. Today investors are seeking sustainable companies making a difference in the world with its own expertise, experience and who are on the verge of a breakthrough. We will also announce a path breaking invention next year that will change the desalination industry completely,” Mr. Menezes said.

He said that the pandemic has created an opportunity for companies like Utico to serve the population even more sustainably and make a difference. “We intend to do that with this capital raise as a benchmark and ensure that all our investors along with our customers, and the emirates and countries we serve, will benefit directly from our unique offerings, experience and expertise,” he added.

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