DUBAI- Abu Dhabi's state fund Mubadala has hired banks for a potential three-tranche bond issue consisting of six-year and 10-year conventional bonds and 30-year dual-listed Formosa bonds, sources said on Monday.

Mubadala has hired Banca IMI, BNP Paribas, BofA Securities, First Abu Dhabi Bank, HSBC, Natixis and Societe Generale to arrange investor calls on Monday, to be followed by the issuance, subject to market conditions, the sources said.

One banking source said Mubadala was looking to raise $3 billion to $4 billion and that it made sense for the state fund to raise extra liquidity now ahead of a potential worsening of conditions in international markets later this year.

A second banking source said Mubadala would launch the deal on Tuesday and would probably increase the size to $5 billion to $6 billion as order books grow during the deal's execution.

The extra cash could give Mubadala more firepower to buy stakes in companies later this year when many are expected to seek liquidity due to the economic crisis, the first source said.

"We're continually looking for ways to optimise our capital structure, as part of how we manage the overall portfolio," a Mubadala spokesman said.

"Our amount of debt is currently relatively conservative, and with a strong credit rating and solid balance sheet, we want to build upon the good liquidity position we have to take advantage of future investment opportunities across the portfolio as they arise," he said.

Sources told Reuters last week that Mubadala could issue bonds as soon as this week.

Bahrain sold $2 billion in dual-tranche bonds last week, the first sub-investment grade issue in the Gulf since a massive sell-off of debt in the wake of a crash in oil prices and the spread of the new coronavirus.

It was a further sign of revival in the region's battered debt market following large deals by Qatar, Abu Dhabi and Saudi Arabia last month that ended the public issuance drought that lasted from late February to early April.

Dollar bonds issued by Gulf states rallied on Monday. One fund manager said this was because of higher oil prices and the U.S. Federal Reserve buying high-yield bonds, which has led to spreads compressing.

A fixed-income strategist said: "Investors seem to have gotten their confidence back following Bahrain's successful bond issuance last week. Debt investors also appear to have taken Saudi Arabia's VAT decision as a positive step towards bolstering the kingdom's finances."

Saudi Arabia said on Monday it will triple its value-added tax rate. 

(Reporting by Davide Barbuscia and Yousef Saba; Editing by David Clarke) ((Yousef.Saba@thomsonreuters.com; +971562166204))