Abu Dhabi returns to debt markets with $5bn bond sale

Abu Dhabi, on Tuesday launched a $5bn three-part bonds as it returned to the debt markets for the fist time in three years, fixed income news service IFR said.

The emirate sold $1.75bn in five-year bonds at 35 basis points (bps) over US Treasuries (UST), a $1.5bn 10-year tranche at 45 bps over UST and $1.75bn in 30-year paper at 90 bps over the same benchmark, IFR said.

Abu Dhabi on the bond market

Abu Dhabi, which holds more than 90 per cent of the UAE‘s oil reserves, had $37.8bn in outstanding bonds as of December 31 2023 and $6.8bn in loans from local banks, according to an investor presentation seen by Reuters.

Government debt as a percentage of nominal GDP stood at an estimated 15.7 per cent at the end of 2023.

Justin Alexander, director at Khalij Economics, said the latest debt sale was unlikely to reflect a need for domestic financing, given Abu Dhabi’s strong fiscal position, although a $3bn bond matures in September.

“More likely this is about staying connected to the bond market after a three-year absence,” Alexander, also Gulf analyst at GlobalSource Partners, said, adding it could provide indirect financing for external investments by the emirate’s sovereign wealth funds such as ADQ.

Government-related entities had $113bn in borrowings at the end of last year, the investor presentation said.

Abu Dhabi last tapped debt markets with a $2bn, seven-year bond in May 2021 followed by a further $3bn two-part issue the following September.

Like other oil exporters in the region, it has accelerated efforts to diversify non-oil sectors such as tourism, logistics, manufacturing and industry, as part of a transition strategy to secure future economic growth.

Abu Dhabi Commercial Bank, Citi, First Abu Dhabi Bank, HSBC, JPMorgan Securities, Morgan Stanley, and Standard Chartered are joint lead managers on the bond issue.

The emirate is rated “Aa2” by Moody’s and “AA” by both S&P and Fitch Ratings.