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Middle East

CASE STUDY: Abu Dhabi Reopens GCC Markets

The Emirate returned to the international capital markets with a highly sought after Eurobond, the first time the sub-sovereign has tapped the international capital markets after a long hiatus. The issuance marks the beginning of increased debt issuance activity in the Middle East.

May 20, 2016 // 8:03AM

Background

The sovereign last tapped the bond markets in 2009 when it issued $3bn, comprising a $1.5bn 5-year and a $1.5bn 10-year tranche.

Abu Dhabi’s return to the international capital markets after a 7 year absence comes as the emirate’s finances have been under increasing pressure as a result of low oil prices.

Transaction Breakdown

Abu Dhabi’s most recent offering differs greatly from its last issuance. The bond was much larger, amounting to US$5bn.

This was split evenly between two tranches of US$2.5bn each, albeit with two different tenors of 5 and 10 years each, maturing in 2021 and 2016 respectively.

The 5-year tranche issued with a spread of 85bp over similar US Treasuries, with a yield of 2.125%. The 10-year tranche issued with a spread of 125bp over similar US Treasuries, with a yield of 3.125%.

The emirate’s bond priced much tighter than many other issuances that have emerged from the GCC.

“The issuer's credit quality and excellent job on the roadshow, the timing of the transaction and pricing and the book building strategy adopted by the syndicates were all factors that led to such tight pricing,” said Iman Abdel Khalek, Director and Head of MENA Debt Capital Markets at Citigroup, one of the joint lead managers on the transaction.

Abu Dhabi remains highly rated, despite the recent spate of downgrades in the Middle East. The emirate itself is rated AA by Standard & Poor’s, and its senior unsecured bonds were awarded a AA rating by Fitch.

The fact that the emirate is a well-known and well respected name, and its scarcity on the international capital markets, further contributed to the tight pricing that it was able to achieve.

The Emirate’s and the bond’s popularity led to a wide investor base. “The investor base was well diversified across the US, Europe, Asia and the MENA region, and included fund managers, central banks, other banks, insurance companies amongst others,” Khalek added.

Middle East

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