Abu Dhabi business leaders will gather in London today to gauge support among potential investors for infrastructure projects expected to reach more than US$100 billion (Dh367.29bn). Bankers and analysts expect much of the finance needed to deliver future major projects to come from international bond markets, which have shown strong appetite for the emirate's debt.
The meeting comes as corporations across the emirate prepare investor road shows and local credit markets start looking up. "The bond markets are well and truly open, especially for Abu Dhabi names," said Shayne Nelson, the regional chief executive of Standard Chartered in the Middle East and North Africa. Despite the contraction of global credit markets this year, Abu Dhabi has managed to find buyers for its debt - with about $6.75bn raised from bonds issued by the sovereign and government-related entities that form part of Abu Dhabi Inc.
Analysts expect the emirate to attract further investments through this route, and the event in London is expected to provide a window into how successful that strategy is likely to be. While bank lending remains in the doldrums, bond sales could help Abu Dhabi to fund new transport, electricity, telecommunications and other key development schemes, in addition to developing a new capital district.
Abu Dhabi accounted for the bulk of the bonds sold in the UAE in the first nine months of this year, according to Thomson Reuters data. "It seems likely there will be more [bonds issued] before the end of the year because of the number of projects announced or under way in Abu Dhabi," said Dr Giyas Gokkent, the chief economist and head of research of the asset management group at National Bank of Abu Dhabi.
The emirate's Tourism Development and Investment Company, which is developing one of these projects, the Saadiyat Island cultural resort, this week sold a $1bn, five-year sukuk, the largest such issuing in the GCC this year. It is all part of Abu Dhabi Economic Vision 2030, a plan to triple the population, diversify industry and evolve into a leading cultural destination. In contrast to neighbouring Dubai, which has had to borrow heavily to develop its economy, Abu Dhabi has accumulated less debt by sustaining its growth through revenues from its vast oil reserves.
Dubai's debt burden stands at between $80bn and $90bn, according to Standard & Poor's (S&P), with $50bn in repayments owed over the next three years - or some 70 per cent of the emirate's GDP. Despite rising income from oil sales, which topped $75 a barrel last week, the capital is increasingly seeking to improve the efficiency of its funding structure by adding debt to its mix of finance. "Abu Dhabi Inc has taken a strategic decision to optimise its capital structure and make effective use of its liabilities," said Farouk Soussa, the head of government ratings at S&P in Dubai.
In effect, this means taking advantage of thawing conditions within international markets to borrow, allowing it to save its reserves to channel into its international investment arms such as Abu Dhabi Investment Authority (ADIA), which managed $328bn at the end of last year. "Over the medium term, Abu Dhabi expects to earn more placing its cash with ADIA than what it is charged on its borrowings," said Mr Soussa. "It therefore makes sense from the Government's point of view to take on some debt rather than fund all its investments with cash."
The warm reception received by the recent debt offerings from the emirate has opened the doors for government-related entities to tap markets to launch their own programmes. In May, Mubadala Development, the Government's strategic investment arm, launched a $1.25bn bond with a five-year maturity and a 10-year $500 million bond. Next up was TDIC, which sold a $1bn five-year note in July. "There is increasing appetite among US, Asian, European and regional investors, and Abu Dhabi has benefited from this global demand as it's a high-quality issuer, its bonds are dollar-denominated and its yields are very attractive compared to other 'AA' issuers," said Ibrahim Bitar, the executive director of capital markets at Arqaam Capital.
One attraction for investors is the improvement in the emirate's sovereign debt risk. It witnessed the largest easing of sovereign debt risk in the world during the third quarter of this year, according to data tracked by Credit Market Analysis (CMA). Abu Dhabi's five-year credit default swap (CDS) spread fell 60 per cent between July 1 and the end of last month, according to CMA. @Email:tarnold@thenational.ae