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DUBAI: Abu Dhabi plans to sell US dollar bonds on Tuesday in its first foray in the international debt markets this year, raising cash for state coffers despite a recent rebound in oil prices.
The oil-rich emirate gave initial guidance of 70-75 basis points over US Treasuries for seven-year US dollar-denominated bonds expected to price later in the day. It did not say how much it intended to raise.
The UAE was hit hard by the COVID-19 pandemic and last year’s crash in oil prices, but a rebound in global crude demand as economies re-open has reduced the urgency to borrow for budget purposes.
“I’m hearing that the issue size is around $2 billion only,” said Zeina Rizk, executive fixed income director at Arqaam Capital, adding some of the funds might end up boosting foreign currency reserves.
Citi, First Abu Dhabi Bank, HSBC, JPMorgan and Standard Chartered are joint lead managers and joint bookrunners for the deal, according to a document from one of the banks, seen by Reuters.
“This is more of an updating-the-curve kind of issuance. They didn’t have a seven-year paper and hence the curve was being interpolated,” another fund manager said.
Brent crude, trading at over $68 on Tuesday, has more than tripled since oil’s crash last year, 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 against 37.2 billion dirhams last year, the preliminary prospectus for the new bond offering, reviewed by Reuters, showed.
The budget, however, is based on an oil price assumption of about $46 per barrel versus roughly $50 per barrel last year.
“This deficit is expected to be funded principally by borrowings,” the prospectus said.
Abu Dhabi has become a relatively frequent issuer of US dollar-denominated debt in recent years, and tapped the market three times last year for a total of $15 billion.
At the end of 2020, it had $40 billion in outstanding bonds and $3.9 billion in outstanding loans. Outstanding bonds and loans totaled $29.4 billion at the end of 2019, the prospectus showed.