Abu Dhabi issues $10bln multi-tranche bonds

Abu Dhabi, in its first international offering in two years, has issued $10 billion multi-tranche bond that received overwhelming global investor response, reflecting the strong investor confidence in the emirate's solid credit fundamentals.

On Sunday, the Abu Dhabi Securities Exchange listed the bonds.

Successfully priced on September 23, 2019, the three-part transaction comprised $3 billion due in 2024, which priced 2.125 per cent or 65bps over US Treasuries; $3 billion due in 2029, which priced at 2.5 per cent, 85bps over US Treasuries; and $4 billion due in 2049, which priced at 3.125 per cent or 110bps over US Treasuries, the Department of Finance Abu Dhabi said on Sunday.

"The bonds were well received in the international debt capital markets, with the order book peaking at over $25 billion with orders coming from over 650 unique accounts," it said.

Jassem Mohamed Bu Ataba Al Zaabi, chairman of the Department of Finance Abu Dhabi, said the success of the issuance is a testament of investor confidence in the Abu Dhabi emirate's economic and political stability and the strong credit story. "We are pleased to witness the achievement of the lowest ever coupons by the Government of Emirate of Abu Dhabi since the debut issuance in 2007," said Al Zaabi.

"The Government of Abu Dhabi Emirate has managed to achieve the tightest 5-, 10-, and 30-year coupon for a GCC conventional bond. This reflects investors' high confidence in the emirate's wise leadership, continuous focused growth strategy as well as its high buffers," said Al Zaabi.

The bond sale marks the largest 30-year tranche by the Abu Dhabi Government and achieved the tightest ever spreads by a Mena sovereign across the tenors and lowest coupon on 10 and 30-years Eurobond achieved by a Mena issuer since Abu Dhabi's first ever issuance in 2007.

Analysts said the Abu Dhabi sovereign - which boasts a rating of Aa2 from Moody's Investors Service Inc. and AA from S&P Global Ratings - didn't need to offer an extra premium to its yield curve to attract investors.

They said the emirate is taking advantage of investor demand for high-quality debt amid concern about the US-China trade war and slowing global growth. Its credit rating is among the strongest in the Middle East and Africa, and the cost to insure its debt against default is the lowest in the region.

"With a fortress-like balance sheet, they can afford to come to market at minimal or no concession," Patrick Wacker, a fund manager for emerging-market fixed income at UOB Asset Management Ltd in Singapore, who bought the bonds to diversify his investments. "We like the sovereigns' very strong fundamentals."

"The success of the multi-tranche bond issued by Abu Dhabi bears testimony to the confidence the international debt markets have about the stability and growth strategy of the emirate. This is a major step towards finding alternatives to oil revenues and diversifying UAE's economy. The fact that more than three-fourths (3/4) of the takers are non-Mena investors, attributes to the international investor confidence in the Government of Abu Dhabi's impressive track record and credit fundamentals," said Raju Menon, chairman and managing partner of Kreston Menon.

"The dollar-denominated bonds will be more attractive to the international investors and given the track record of Abu Dhabi bonds' performances, no wonder the issue was oversubscribed. Considering the non-oil economic growth strategy, the bond performance will be very attractive in the secondary market," said Sajith Kumar P.K, chief executive and managing director at IBMC Financial Professionals Group.

The final geographical allocation for the bonds stood at 78 per cent from international investors, and 22 per cent from Middle East investors.

BNP Paribas, Citigroup, First Abu Dhabi Bank, HSBC, J.P. Morgan and MUFG were Joint Lead Managers and Joint Book-runners, and Abu Dhabi Commercial Bank P.J.S.C. and SMBC Nikko were co-lead managers for the offering.