Abu Dhabi in record bond issue

dubai — Abu Dhabi, which has one of the best credit ratings in the region, on Sunday announced it has successfully priced a $7 billion bond offering that was 6.3 times oversubscribed with an order book of around $45 billion, demonstrating strong investor confidence in the emirate’s credit strength and resilience. The multi-tranche international transaction comprised a $2 billion five-year tranche, a $2 billion 10-year tranche, and a $3 billion 30-year tranche, the Abu Dhabi Department of Finance said in a statement.

“The offering is part of Abu Dhabi’s medium-term strategy that aims to optimise the capital structure of the emirate, tapping into diverse funding sources whilst maintaining the current credit ratings,” said the statement.

With orders coming from over 100 new accounts and the order book of approximately $45 billion, the issuance was more than 6.3 times oversubscribed, marking a record for Abu Dhabi.

The transactions offered attractive spreads, which were four times higher than January 2020 Mohieddine Kronfol, Chief investment officer at Franklin Templeton

The Department of Finance said the exceptionally strong demand underlines the continued trust in the emirate’s fiscal strength and resilient balance sheet, which is underpinned by modest levels of debt and a solid asset base, including two of the world’s largest sovereign wealth funds.

Jassim Mohammed Buatabh Al Zaabi, chairman of the Abu Dhabi Department of Finance, said the success of the issuance, “particularly amidst the global uncertainties caused by the Covid-19 pandemic and the oil price decline, is testament to the continued confidence placed in our aptitude to generate sustainable economic growth.”

In September 2019, Abu Dhabi issued its previous international bonds to raise $10 billion for budgetary purposes and garnered almost $20 billion in demand. Despite a challenging global economic environment, for the year to date, Abu Dhabi remains the tightest priced sovereign from the Mena region.

Rated AA by S&P and Fitch and Aa2 by Moody’s, Abu Dhabi’s finances are backed by one of the world’s largest sovereign net foreign asset positions and low levels of debt. “The 30-year bonds were particularly well received by international investors, who accounted for 98 per cent of the final geographical allocation in this tranche, showcasing trust in Abu Dhabi’s ability to deliver sustained, long-term economic growth,” Al Zaabi said.

The tranches priced at 220 basis points over US Treasuries for five-year bonds, 240 basis points over the same benchmark for 10year bonds, and 271.1 basis points over US Treasuries for 30year notes.

Al Zaabi said Abu Dhabi’s robust credit fundamentals and strong credit ratings with stable outlooks have enabled it to attract remarkable demand from a diverse pool of investors from the international debt capital markets.

“The debt profile of Abu Dhabi continues to be prudent, underscored by low direct Government debt. As a result, we have substantial fiscal flexibility and the capacity to add debt. On that basis, we seized the opportunity to capitalize on the current available market window. Our debt management strategy is a vital component of Abu Dhabi’s economic development and supports the

Abu Dhabi Economic Vision 2030,” said Al Zaabi.

BofA Securities, Citi, First Abu Dhabi Bank, HSBC, J.P. Morgan, and Standard Chartered Bank were joint lead managers and Joint Bookrunners.

Mohieddine Kronfol, chief investment officer, Global Sukuk and Mena Fixed Income, at Franklin Templeton, said the recent Qatar and Abu Dhabi bond deals were very successful and confirm the region’s access to markets will remain open. “The transactions offered attractive spreads, which were four times higher than January 2020, and more than three standard deviations from long term average yields,”.

Raising GCC’s annual bond issuance estimate to $105 billion from $90 billion earlier this year, Kronfol said the region’s bond markets have been resilient in the midst of the coronavirus outbreak and lower oil price environment. “We see enormous opportunity to buy GCC debt, we started buying a couple of weeks ago and will continue to do so. The GCC continues to be a lower beta and high-quality region.” According to Arqaam Capital, while the geopolitical risk premium is there, it’s certainly “not as significant as it should be. There’s more issuance to come. Saudi Arabia, Egypt, Qatar, and Oman all need to come to market this year to refinance debt and fund deficits of varying sizes.

Moody’s expects GCC sukuk issuance to remain stable at around $180 billion this year after a 36 per cent rise in 2019 to $179 billion.