UAE raises $4bn through first federal sovereign bonds

The country plans to issue more bonds in 2022

The UAE, the Arab world’s second-largest economy, raised $4 billion through the issuance of multi-tranche sovereign bonds with part of the proceeds earmarked for financing infrastructure projects, according to the Ministry of Finance.

This is the first time the country has issued bonds at the federal level, as it seeks to raise fresh funding amid a global low-interest rate environment.

“The UAE issued these bonds to achieve the country's strategy to build the Treasury yield curve and start issuing in the future Emirati dirham-denominated bonds,” Younis Al Khoori, undersecretary at the Ministry of Finance, said on Wednesday.

“Some proceeds of the issuance will be used to provide financing to infrastructure projects according to the government’s relevant needs, while not exceeding 15 per cent of the direct and indirect public debt.”

The bond package, which is denominated in US dollars, included conventional medium and long-term 10 and 20-year tranches, as well as 40-year dual-listed Formosa bonds, the Ministry of Finance said.

Formosa bonds refer to debt issued in Taiwan by foreign borrowers in currencies other than the Taiwanese dollar. The total orders for the UAE’s debut bond deal topped $22.5bn.

“These results reaffirm the UAE’s sound government policies and comprehensive economic and social development path, which included devising a solid balance sheet for the union and a low level of government debt, while enhancing the skills of human talent and excelling in the efficient management of economic projects,” Mr Al Khoori said.

The latest development comes as Moody's Investors Service assigned a (P) Aa2 foreign currency senior unsecured rating to the UAE government’s global medium-term note programme last month, citing the country's high per capita income, large hydrocarbon reserves and domestic political stability.

Aa2 is the third-highest long-term credit rating that Moody's assigns to fixed-income securities like government bonds, denoting their low credit risk.

Moody’s said it expects “Abu Dhabi's balance sheet to remain among the strongest in the Gulf Cooperation Council (GCC) and the UAE's nominal GDP to recover to pre-pandemic levels over the next two to three years".

The country also plans to issue more dollar-denominated bonds in 2022 but the size was not disclosed.

“Definitely, there would be … issuances from the Ministry of Finance and the size and the time, we will look at it with our advisers and stakeholders,” Mr Al Khoori said.

Individual emirates are free to issue debt according to their own needs and priorities, he said. The UAE will also be looking at issuing bonds in the local currency.

The UAE’s economy has continued to recover from the impact of the coronavirus pandemic, helped by higher oil prices and a rebound in tourism and economic activity generated by the delayed Expo 2020 Dubai.

The country’s economy is expected to grow 3.1 per cent in 2021, according to the International Monetary Fund. That is higher than the Central Bank of the UAE's estimate, which projects the country’s economy will expand 2.1 per cent this year and 4.2 per cent in 2022.

Updated: October 13th 2021, 11:48 AM
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