United Arab Emirates issues first sovereign bonds

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The UAE, the second largest economy in the Arab world, has issued multi-branch sovereign bonds for the first time as a federation as the country seeks to raise new funding amid low interest rates globally .

The US dollar-denominated bond package includes conventional medium and long-term 10 and 20-year tranches, as well as 40-year dual-rated formosa bonds, the UAE’s finance ministry said in a statement.

Formosa bonds refer to debt issued in Taiwan by foreign borrowers in currencies other than the Taiwan dollar. The Finance Ministry, however, did not provide details on the total amount it plans to raise through the issuance.

“Throughout its development, the United Arab Emirates adopted a strong and comprehensive approach to economic and social development, which included building a strong credit profile, a strong balance sheet for the Union and a low level of debt. public, which has strengthened general economic stability, ”Sheikh Maktoum bin Mohammed, Vice Governor of Dubai and Deputy Prime Minister and Minister of Finance, said.

“In addition to its efforts to improve the efficiency and skills of human talents, the country has managed to achieve high financial solvency and reserves through its efficient management of economic projects. “

UAE sovereign bonds are expected to experience strong demand from global and regional investors, the statement said.

The Ministry of Finance hired a group of banks to lead the operation including Abu Dhabi Commercial Bank, BofA Securities, Citigroup Global Markets, Emirates NBD Capital, First Abu Dhabi Bank, HSBC, JP Morgan, Mashreq Bank and Standard Chartered.

The latest development comes as Moody’s Investors Service last month assigned a Foreign Currency Top (P) Aa2 rating to the UAE government’s global medium-term note program due to the country’s very high per capita income. , its large hydrocarbon reserves and its domestic political stability.

Aa2 is the third highest long-term credit rating Moody’s assigns to fixed income securities such as government bonds, indicating their very low credit risk.

Moody’s expects “Abu Dhabi’s record to remain among the strongest in the Gulf Cooperation Council (GCC) and that the nominal GDP of the United Arab Emirates will return to pre-pandemic levels in the two to four months. next three years “.

The net proceeds from the bond issuance will be used for general budgetary purposes, including financing infrastructure projects that would help attract more foreign direct investment to the country, according to Vijay Valecha, chief investment officer of the Dubai-based investment firm Century Financial.

The bond issuance “will also increase funding for different emirates,” he said.

“The UAE federal government bond issue comes at a time when global interest rates are lowest, and the UAE enjoys substantial credit strength to sell the bonds at prices attractive, ”said Mr. Valecha.

Covid-19 financing needs coupled with falling oil prices were reflected in increased GCC government emissions last year, which stood at $ 78.8 billion from $ 44.4 billion billion dollars in the first nine months of 2021, Junaid Ansari, senior vice president of investment strategy and research at Kamco, said Invest.

“This year, although the recent rise in oil prices reduces the overall need for bond issuance by GCC governments, we can expect to see issues aimed at securing lower rates,” Mr. Ansari.

The UAE’s economy continues to recover from the impact of the coronavirus pandemic and is expected to grow 3.1% in 2021, according to the International Monetary Fund. That’s higher than the estimate by the UAE Central Bank, which forecasts the country’s economy to grow 2.1 percent this year and 4.2 percent in 2022.

Rising oil prices, along with a rebound in tourism and economic activity generated by the postponement of Expo 2020, are helping the country’s economy recover from the downturn caused by the pandemic.

Brent, the global benchmark, was trading above $ 80 per barrel on Thursday, while West Texas Intermediate, the main gauge for U.S. oil, was trading above $ 76 per barrel. Both benchmarks have gained about 60 percent since the start of the year.

Update: October 7, 2021 11:50 a.m.



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