Abu Dhabi says to fund wider 2016 deficit mainly via bond issues

Abu Dhabi expects to post a wider budget deficit of Dhs 36.9bn ($10.1bn) in 2016 because of low oil prices, and plans to cover the gap mainly with international bond issues, a prospectus for a bond sale by the emirate showed.

Abu Dhabi, the largest and wealthiest member of the United Arab Emirates, has been meeting investors since Tuesday for a potential benchmark-sized United States dollar bond issue, which would mark its return to international debt markets after an absence of seven years.

The government is likely to issue bonds as early as this week with tenors of five, 10 and/or 30 years, two potential investors said, on condition of anonymity. Benchmark size means at least $500m.

Last year, Abu Dhabi posted a budget deficit of Dhs 32.4bn, or 3.9 per cent of its gross domestic product, the government said in the prospectus, which was filed on the London Stock Exchange. The gap was funded from cash reserves, it said.

“The budgeted deficit in 2016 is expected to be financed principally by the issue of Notes under the Programme,” the prospectus said, referring to the international bond issuance programme.

It will also be covered using the government’s existing cash balances, the prospectus said, without giving a figure for the size of the balances.

The prospectus noted that Abu Dhabi’s sovereign wealth fund, the Abu Dhabi Investment Authority, could be directed to pay dividends to the government to help cover any deficit. But it did not say whether this was likely to be done in 2016.

There is no domestic bond market in the United Arab Emirates or any of its members, but Abu Dhabi’s government is considering setting one up, mainly in order to help develop the banking sector, the prospectus added.