The United Arab Emirates federal government expects to raise between $3 billion and $3.5 billion from its debut bond sale. According to sources close to the deal, this first bond sale by the federal government in UAE’s 50-year history will comprise three tranches denominated in dollars.
The finance ministry is said to have hired a group of banks to lead the deal. These banks comprise the Abu Dhabi Commercial Bank, Emirates NBD Capital, First Abu Dhabi Bank, HSBC, BofA Securities, Citi, JPMorgan, Mashreq Bank and Standard Chartered. As per the banks leading the deal, the finance ministry plans to issue a debut sale of senior unsecured bonds with 10, 20, and 40 years of maturities, however, be subject to market conditions.
Documents from banks that handled the issuance presented that the Finance Ministry sold the first tranche, $1 billion in 10-year bonds with 70 basis points above the yield of US treasuries. The second tranche is a 20-year bond with a gain of 105 basis points (bps) over US Treasuries. The third tranche is a 40-year bond worth two billion dollars, with a return of 3.25%. The 40-year portion will be Formosa bonds. They are debt securities sold in Taiwan by foreign borrowers and denominated in currencies other than the Taiwanese dollar.
Some leading Investments firms in Dubai also mentioned that although the debut bond sale is expected to raise between $3-$3.5 billion, the deal size has significantly increased following its strong demand.
Ratings For The Debut Bond Sale
It’s important to note that the federal government has never issued bonds before, although several of the seven emirates it comprises. Among the emirates that issue bonds Abu Dhabi and the commerce hub Dubai notably stands out as the most stable.
The issuance is likely to land roughly in 10bps wider than Abu Dhabi, given that it’s a debut, and there are also expectations of a new issuance premium. The Moody’s has assigned the UAE bonds an Aa2 rating, in line with Abu Dhabi’s. The rating is supported by the assumed full-backing from the government of Abu Dhabi and its strong balance sheet status. On the other hand, Fitch Ratings rates the bonds an AA-(minus), which indicates the likelihood of support from Abu Dhabi (AA/Stable) in the event of a need.
The Proceeds
The proceeds from the debut bond sale will be utilised for “domestic budgetary purposes in compliance with the Public Debt Strategy”. These include financing cabinet-approved infrastructure projects up to a maximum of 15% of the UAE’s direct and indirect outstanding public debts that are not denominated in dirhams. The “Public debt strategy” aims to build a market for federal government debt securities denominated in UAE dirhams and to revitalise the country’s financial and banking sector. The proceeds will also be used to back the investments trends initiated by the Emirates Investment Authority.
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