Abu Dhabi sells $ 2 billion in bonds despite oil rebound


General view of the Abu Dhabi skyline, December 15, 2009. REUTERS / Ahmed Jadallah

Abu Dhabi on Tuesday sold $ 2 billion in seven-year bonds in its first foray into international debt markets this year, raising liquidity for state coffers despite a recent rebound in oil prices.

The oil-rich emirate sold the bonds at 45 basis points (bps) against US Treasuries. This was tightened from the initial forecast of 70 to 75 bps on Treasuries after the debt sale received more than $ 6.9 billion in orders.

The United Arab Emirates, where Abu Dhabi is the capital, have been hit hard by the COVID-19 pandemic and the drop in oil prices last year, but a rebound in global demand for crude as economies reopen reduced the urgency to borrow for budgetary purposes. .

“Seven years is the sweet spot in the market right now. Many issuers choose seven or 12 years because of the rate macros,” said Zeina Rizk, executive director of fixed income at Arqaam Capital, adding that some of the funds may end. increase in foreign currency reserves.

Citi (CN), First Abu Dhabi Bank (FAB.AD), HSBC (HSBA.L), JPMorgan (JPM.N) and Standard Chartered (STAN.L) are co-lead managers and associate bookkeepers for the operation, according to a document from one of the banks, seen by Reuters.

“This is more of a curve update type issue. They didn’t have a seven-year paper so the curve was being interpolated,” another fund manager said. .

Brent, which is trading above $ 68 on Tuesday, has more than tripled since last year’s oil crash when Brent fell below $ 20 a barrel.

Abu Dhabi is expected to post a budget deficit of around 43 billion dirhams ($ 11.7 billion) in 2021 compared to 37.2 billion dirhams last year, showed the preliminary prospectus for the new bond issue, reviewed by Reuters .

The budget, however, is based on an oil price assumption of about $ 46 per barrel compared to about $ 50 per barrel last year.

“This deficit should be financed mainly by loans,” says the prospectus.

Abu Dhabi has become a relatively frequent issuer of US dollar denominated debt in recent years, and exploited the market three times last year for a total of $ 15 billion.

At the end of 2020, it had $ 40 billion in bonds outstanding and $ 3.9 billion in loans outstanding. Outstanding bonds and loans totaled $ 29.4 billion at the end of 2019, according to the prospectus.

(1 USD = 3.6726 UAE dirham)

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