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The UAE will soon raise up to $3.5 billion in federal bonds- Here’s why

The UAE is expected to begin marketing its first bond as a federation as soon as this week, a multi-billion dollar deal estimated to be no less than $3-$3.5 billion

Rating agency Moody's assigned the UAE a provisional Aa2 rating for its new global medium-term note The 10-year notes were offered with initial price guidance of about 105 basis points over US Treasuries The federal government has no debt, and aggregate debt of individual emirates is under 30% of UAE's GDP

The UAE is expected to begin marketing its first bond as a federation as soon as this week, a multi-billion dollar deal estimated to be no less than $3-$3.5 billion, Reuters reported.

The UAE federal government has never issued bonds before, although individually, several of the seven emirates that it comprises have.

Banks advising the government on the fundraising exercise include Citi, HSBC, First Abu Dhabi Bank, JPMorgan, Standard Chartered and BofA Securities, according to Reuters.

Rating agency Moody’s assigned the UAE a provisional Aa2 rating for its new global medium-term note program which the UAE is widely expected to also use to issue bonds denominated in dirhams.

In January, Dubai’s ruler and UAE’s Prime Minister Sheikh Mohammed bin Rashid al-Maktoum announced the UAE cabinet approved a public debt strategy aimed at developing the market for local currency bonds.

The UAE is joining the rush of emerging-market borrowers tapping investors before the Federal Reserve starts winding down its pandemic stimulus. 

The securities will mature in 10 and 20 years, Bloomberg reported.

The UAE is also offering a 40-year dual-listed Formosa bond, debt issued in Taiwan and denominated in a currency other than the New Taiwan Dollar.

The 10-year notes were offered with initial price guidance of about 105 basis points over US Treasuries, the 20-year at about 135 bps over the same benchmark, and the 40-year at about 3.6%, according to Nasdaq.

The UAE is seeking to finance infrastructure projects and investments by its sovereign wealth fund, the Emirates Investment Authority.

The proceeds will also be used for “domestic budgetary purposes in compliance with the Public Debt Strategy,” an offering circular seen by Reuters showed.

The UAE is set to invest $3.2 bn in development projects by 2023 with the Ministry of Energy and Infrastructure saying it aims to implement 129 projects as part of a 5-year plan.

Abu Dhabi contributed $2.53 billion and Dubai provided 329 million to 2020’s $13.62 bn revenues, expected to rise to $14.44 bn this year, an investor presentation reviewed by Reuters showed.

The federal government has no debt, while the aggregate debt of the individual emirates is under 30% of the country’s GDP, according to Reuters.