UAE markets its first federal bond to global investors

The United Arab Emirates is marketing its first federal bond, a step several years in the making as the Gulf nation seeks to finance infrastructure projects and investments by its sovereign wealth fund.

The securities, which are denominated in dollars, will mature in 10 and 20 years, according to a person familiar with the matter, who’s not authorised to speak publicly and asked not to be identified. The UAE is also offering a 40-year dual-listed Formosa bond – debt issued in Taiwan and denominated in a currency other than the New Taiwan Dollar.

While the UAE has never issued a federal bond, several of its seven emirates including Abu Dhabi, Dubai and Sharjah, have tapped the market for years. In the region and globally, governments have been taking advantage of low borrowing costs before the US Federal Reserve starts tapering its pandemic stimulus.

Abu Dhabi Commercial Bank, BofA Securities, Citigroup, Emirates NBD Capital, First Abu Dhabi Bank, HSBC Holdings, JPMorgan Chase & Co., Mashreqbank and Standard Chartered Bank are managing the UAE bond sale. The nation’s debt is rated Aa2, the third-highest investment grade, by Moody’s Investors Service and one step lower at AA- by Fitch Ratings.

The UAE passed a law in October 2018 allowing the federal government to issue sovereign debt for the first time. Emirates Development Bank, a lender wholly owned by the federal government, in June mandated banks for an international bond sale under the new law.

A federal bond sale would make it easier for investors to value debt issued by the country’s sovereign and corporate borrowers. The federal government is set to be fully backed by Abu Dhabi – the UAE’s capital  – if needed, according to Moody’s. It said the government may issue bonds denominated in various currencies from time to time under its global medium-term note programme to help fund projects and investments by Emirates Investment Authority.