Abu Dhabi has again tapped the international capital markets with its first bond sale in 7 years. The proceeds of the dollar denominated issuance will be used to close a budget deficit caused by low oil prices.
The emirate raised US$5bn through a two tranche bond in two equal sized offerings of US$2.5bn, each with tenors of 5 and 10 years respectively. The 5 year paper was priced at 85bp over similarly dated US Treasuries, to yield 2.125%, whilst the 10 year notes were priced at 125bp over similar US Treasuries, yielding 3.125%.
The pricing of the bond is much tighter than many previous offerings from other GCC issuers. “The stability of the emirate was key to the tight pricing that was achieved,” said Ahmed Taha, Associate Director of Debt Capital Markets at Standard Chartered.
Taha stated that the scarcity of the emirate on the international capital markets, as well as the fact that it is considered more favourable than other names in the GCC, contributed to the tight pricing it was able to achieve. Abu Dhabi’s senior unsecured notes were rated AA by Fitch. The emirate itself also holds an AA rating from Standard & Poor’s.
Throughout the GCC, the loan markets have historically been more popular than the bond markets. However, Taha noted that Abu Dhabi issued a bond due to the size of the transaction and because it enabled the emirate to access funding from the US and Europe.
He added that issuing a bond provided diversity, as a loan would likely have come from local banks, which due to tightened domestic liquidity would make it more costly.
The lead managers on the transaction were JP Morgan, Bank of America Merrill Lynch and Citigroup.