Abu Dhabi Defies Downturn to Raise $3b Through Bonds
ABU DHABI - Abu Dhabi has raised $3 billion through a bond issue, in what analysts called a demonstration of the emirate’s solid financial footing amid the current global meltdown.
The bonds, issued on Monday, were heavily oversubscribed, with a total order book of $11.8 billion. Despite challenging market conditions, Abu Dhabi’s new five-year bonds will pay the same coupon rate as those outstanding from the emirate’s last bond issue, in July 2007, before the financial crisis erupted.
“This heavy demand for the issue allowed us to price it … inside the initial price guidance, a testament to international and regional investors’ recognition of Abu Dhabi’s strong economic fundamentals, which underpin our sovereign credit profile,’’ said Hamad Al Hurr Al Suwaidi, the undersecretary of Abu Dhabi’s Department of Finance, in a statement released on Thursday.
The initial price guidance for the five-year bonds was 400 basis points over comparable US Treasuries; the initial guidance for the 10-year bonds was 420 basis points over US Treasuries. The coupon rate for the five-year tranche was 5.5 per cent, the same as for the five-year Eurobond that Abu Dhabi issued in 2007.
International investors bought 72 per cent of the five-year bonds and 90 per cent of the ten-year bonds, Al-Suwaidi said. He did not specify how many of the bonds will mature in five years and how many will mature in 10 years. Funds raised from their sale would help pay for projects envisaged in Abu Dhabi’s “2030 Economic Vision” document and also to support plans to diversify the emirate’s economy.
Analysts said the over-subscription of the bonds was evidence of widespread investor confidence in Abu Dhabi’s finances. “It will position Abu Dhabi and UAE as a whole as a strong player in the global economy,’’ said Marios Maratheftis, Standard Chartered Bank’s head of research for the Middle East, North Africa and Pakistan.
Maratheftis suggested that Abu Dhabi should consider issuing Dirham-denominated bonds in the future instead of the current dollar-denominated instruments. Dirham-denominated bonds would enable local companies to raise funds in local currency.
“That Abu Dhabi was able to go to the market with bonds and could successfully raise such amounts are positive indicators of the robustness of the economy,’’ said Dr Giyas Gokkent, the chief economist at the National Bank of Abu Dhabi.
With the successful sale of its latest bonds, Abu Dhabi has now raised $3 billion of its recently established $10 billion Global Medium-Term Note Programme. The programme aims to provide the emirate with greater flexibility in accessing international capital markets and help it achieve a more efficient funding structure.
“We also aim to expand the international investors’ knowledge of Abu Dhabi’s economy and development plans,” Al Suwaidi said.
Abu Dhabi was recently assigned long-term sovereign ratings of “AA” by Standard & Poors, “AA” by Fitch Ratings and “Aa2” by Moody’s Investors Services. These ratings make the emirate the highest-rated sovereign authority in the Middle East.
Citigroup, Deutsche Bank and J.P. Morgan were the joint lead managers and joint bookrunners for the bond issue.
The bonds, issued on Monday, were heavily oversubscribed, with a total order book of $11.8 billion. Despite challenging market conditions, Abu Dhabi’s new five-year bonds will pay the same coupon rate as those outstanding from the emirate’s last bond issue, in July 2007, before the financial crisis erupted.
“This heavy demand for the issue allowed us to price it … inside the initial price guidance, a testament to international and regional investors’ recognition of Abu Dhabi’s strong economic fundamentals, which underpin our sovereign credit profile,’’ said Hamad Al Hurr Al Suwaidi, the undersecretary of Abu Dhabi’s Department of Finance, in a statement released on Thursday.
The initial price guidance for the five-year bonds was 400 basis points over comparable US Treasuries; the initial guidance for the 10-year bonds was 420 basis points over US Treasuries. The coupon rate for the five-year tranche was 5.5 per cent, the same as for the five-year Eurobond that Abu Dhabi issued in 2007.
International investors bought 72 per cent of the five-year bonds and 90 per cent of the ten-year bonds, Al-Suwaidi said. He did not specify how many of the bonds will mature in five years and how many will mature in 10 years. Funds raised from their sale would help pay for projects envisaged in Abu Dhabi’s “2030 Economic Vision” document and also to support plans to diversify the emirate’s economy.
Analysts said the over-subscription of the bonds was evidence of widespread investor confidence in Abu Dhabi’s finances. “It will position Abu Dhabi and UAE as a whole as a strong player in the global economy,’’ said Marios Maratheftis, Standard Chartered Bank’s head of research for the Middle East, North Africa and Pakistan.
Maratheftis suggested that Abu Dhabi should consider issuing Dirham-denominated bonds in the future instead of the current dollar-denominated instruments. Dirham-denominated bonds would enable local companies to raise funds in local currency.
“That Abu Dhabi was able to go to the market with bonds and could successfully raise such amounts are positive indicators of the robustness of the economy,’’ said Dr Giyas Gokkent, the chief economist at the National Bank of Abu Dhabi.
With the successful sale of its latest bonds, Abu Dhabi has now raised $3 billion of its recently established $10 billion Global Medium-Term Note Programme. The programme aims to provide the emirate with greater flexibility in accessing international capital markets and help it achieve a more efficient funding structure.
“We also aim to expand the international investors’ knowledge of Abu Dhabi’s economy and development plans,” Al Suwaidi said.
Abu Dhabi was recently assigned long-term sovereign ratings of “AA” by Standard & Poors, “AA” by Fitch Ratings and “Aa2” by Moody’s Investors Services. These ratings make the emirate the highest-rated sovereign authority in the Middle East.
Citigroup, Deutsche Bank and J.P. Morgan were the joint lead managers and joint bookrunners for the bond issue.
quoted from: Khaleej Times
