Capital in market for $20bn

Debt Management Office set for bond issues as the 'policy of choice' for benchmarking.

ABU DHABI // The Abu Dhabi Government and its related companies could be looking to raise more than US$20 billion (Dh73.47bn) this year, an adviser to some of the emirate's largest companies says. The newly created Debt Management Office within the Department of Finance is planning a roadshow to prepare the way for new bonds from the Abu Dhabi Government and its companies, say people who have been briefed on the plans. The office is working with JPMorgan, Citibank and Standard Chartered.

Terence Allen, the managing director of Allied Investment Partners (AIP), said Abu Dhabi and its companies may need to raise "in excess of $20bn" this year. "There are a substantial number of projects," Mr Allen said. "Therefore, perhaps the Government's resources may not be adequate enough to cover those because of other commitments." AIP helped the Abu Dhabi Tourism Development and Investment Company (TDIC) to raise $1bn with an Islamic bond, or sukuk, last year and is a financial adviser to other government and private-sector companies. The Government's support for Dubai would probably increase this year, adding to its obligations, he said.

Dubai has raised $20bn from injections by the Abu Dhabi Government and the Central Bank as it grappled with maturing obligations and the restructuring of its largest conglomerate, Dubai World. Abu Dhabi would also probably seek new types of funding this year, he said. "I believe there will be an increased appetite for private placements," Mr Allen said. "You may well see some government-to-government trade deals which will result in extra funding being available to Abu Dhabi."

With its large petrochemical revenues and savings, analysts said that Abu Dhabi had the choice of whether to seek funding from outside or use its wealth to fund its projects. In the past several years, it has chosen to issue more debt to instil a "private-sector ethos" in its companies, said Tristan Cooper, the senior analyst for sovereign risk at Moody's Investors Service in Dubai. "Abu Dhabi does not need to raise any money at all," Mr Cooper said. "It could finance all its envisaged projects with its abundant oil revenues and fiscal savings.

"Debt issuance is a policy of choice. It has chosen to issue debt in recent years, mainly through its government-owned companies, as a way of encouraging market transparency and financial responsibility." Mr Cooper said the Debt Management Office would oversee debt issuances across the Government and its entities to avoid a "rapid debt build-up that may, in the longer term, spook investors". For example, the Abu Dhabi National Energy Company (Taqa), which owns power stations and oil and gas wells around the world, has built up $16bn in debt over the past three years.

The Government, together with its fully owned companies and other Abu Dhabi businesses, have a total debt of $67bn, according to data from Fitch Ratings. "The government seems to be aware of this risk and is currently developing a consolidated debt management apparatus to oversee the public-sector debt issuance," Mr Cooper said. The Debt Management Office was set up late last year, with similar offices also being established by the Dubai Government and federal Ministry of Finance. Saeed al Mazrouie, the head of the office, declined to comment.

The office will play several roles. It will issue debt on behalf of Abu Dhabi and co-ordinate with state-owned companies such as Mubadala Development and the TDIC as they seek to raise their own borrowings. It will also serve as an investor relations office for the emirate. After the Dubai debt issues emerged last year, several of Abu Dhabi's strategic companies were placed on watch for a ratings downgrade, and the credit default swap spreads for the capital have diverged from other sovereign bonds with strong ratings.

The cost of insuring $10,000 worth of Abu Dhabi Government debt has risen to $147.23, which is higher than Qatar's $102.51, according to Bloomberg data. The cost of insuring $10,000 of Dubai Government's debt was $600.99 yesterday. In discussions with banks and ratings agencies, the Debt Management Office will seek to better define the relationship between the Government and its state enterprises, and give more information about the Government's total liabilities and obligations, with the "ultimate goal of lowering the cost of funding", a source said.

Richard Fox, the head of Middle East and Africa sovereign ratings for Fitch Ratings, said the Debt Management Office was a positive move because it helped "tell the story of Abu Dhabi" to investors. "What they want to do is get the Abu Dhabi name better known in the market." [e-mail]