Abu Dhabi sells $5bn bonds with first 50-year note for a Gulf nation

The bond issue was nearly five times oversubscribed and the three-year note was priced at the lowest rate for a Gulf sovereign

FG81FD View of new business district at Abu Dhabi Global Market square (ADGM) on Al Maryah Island in Abu Dhabi United Arab Emirates. Alamy
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The Emirate of Abu Dhabi completed a $5 billion bond offering that included both the lowest yield achieved and the longest-note issued by a Gulf government.

The offer, which was 4.8-times' oversubscribed, included a $2bn, three-year tranche priced at just 0.83 per cent - a historic low yield for a bond issued by a Gulf sovereign. It also included a 10-year tranche priced at 1.732 per cent and a 50-year note priced at 2.7 per cent.

"The success of this bond issuance, in the midst of the Covid-19 global crisis, demonstrates the robust credit fundamentals and more broadly the strength of Abu Dhabi's economy," Jassem Al Zaabi, chairman of the Abu Dhabi Department of Finance, said.

“The 50-year tranche is a first for not just Abu Dhabi but also for the GCC, and a reflection of formidable investor confidence in our economy, credit strength and long-term outlook.”

The order book for the bond peaked at $24bn, with orders coming from 60 new investors.

Bond yields around the world have been plummeting as governments and central banks have embarked on more than $11 trillion worth of monetary and fiscal stimulus to mitigate the economic effects of Covid-19, which is set to push the world's economy into its deepest recession since the Great Depression.

Bond issuers have looked to take advantage of historically low interest rates. The amount of investment-grade bonds issued this year has already topped last year's total of $1.3tn and could reach $1.9tn by the end of this year, Monica Erickson, head of investment-grade corporates at Doubleline Group told Bloomberg last month.

Abu Dhabi has taken advantage of the competitive pricing environment and as the only AA-rated sovereign issuer in the Gulf was able achieve historic low yields. It is the second time the emirate has tapped bond markets so far this year, following a $7bn issue in April that was more than six times oversubscribed, with 90 per cent of orders coming from outside the Middle East.

"We have the flexibility to act swiftly when a window of opportunity arises. We saw an opportunity to capitalise on favourable funding conditions and the outcome is incredibly positive," Mr Al Zaabi said in an interview with The National.

The proceeds of the bond issuance will allow Abu Dhabi to continue investing in its non-oil sector as the emirate looks to diversify its sources of funding and optimise the deployment of government resources, the emirate's Department of Finance said in a statement.

Citi, Deutsche Bank, First Abu Dhabi Bank, Morgan Stanley, and Standard Chartered were joint lead managers and joint bookrunners for the bond issue.