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More UAE dollar bonds expected next year

Reuters/Dubai
Filed on October 13, 2021
Individual emirates will remain free to issue debt according to their own needs and priorities. — File photo

High demand for debut bonds reaffirms UAE’s credit strength: Al Khoori

The overwhelming investor demand for UAE Government’s debut bonds reaffirms the UAE’s strong credit rating, and its ability to overcome all crises, in particular, the repercussions of the Covid-19 pandemic, the Ministry of Finance said.

Younis Haji Al Khoori, the undersecretary of the Ministry of Finance, said the three bond tranches raised $4 billion, while global books peaked at $22.5 billion, representing a 5.6 times oversubscription. “The order-book momentum increased the deal size to $4 billion from the initial target of $3 billion.”

During a virtual media briefing held by the Ministry of Finance, Al Khoori said the bonds would contribute to the development of the bond market and find investment alternatives for investors.

“The high demand of investors for these bonds reaffirms the UAE’s strong credit rating, and its ability to overcome all crises, foremost of which is the repercussions of the Covid-19 pandemic,” he said.

The International Monetary Fund forecasts the UAE’s economy to grow by 3.1 per cent in 2021, and the Central Bank of the UAE estimates a 4.2 per cent growth in 2022.”

The dollar-denominated multi-tranche sovereign bond package, comprised of medium and long-term tranches, including a 10-year tranche, a 20-year tranche, in addition to a 40-year dual-listed Formosa tranche.

These bonds were priced on October 6, 2021, and will be settled on October 19, 2021, with their tranches distributed as follows:

The 10-year tranche bonds were sold at $1 billion at a spread of 70bps over US Treasuries. The 20-year tranche bonds were sold at $1 billion at a spread of 105bps over US Treasuries, creating a new standard for bond issuers, especially since the UAE is the first-ever sovereign to do a US dollar benchmark issuance in the 20-year tenor in the GCC.

The 40-year Formosa tranche $2 billion 3.250 per cent. The Formosa bond is debt sold in Taiwan by foreign borrowers and denominated in currencies other than the Taiwanese dollar. The 40-year Formosa tranche achieved the highest ever distribution into Asia for a long-dated US dollar benchmark issuance by a sovereign, with over 70 per cent of the bonds placed with Asian investors.

Al Khoori said the successful subscription of the three tranches, which achieved the lowest-ever yield for a debut sovereign from the GCC, is a testament to the credit strengths of the UAE.

He said the Ministry of Finance adopted a two-pronged investor engagement strategy whereby it conducted a non-deal roadshow a few weeks back to introduce the credit to key international investors and then followed that up with investor calls following the mandate announcement to discuss and answer their questions.

“The focused investor engagement strategy was highly successful and helped secure significant early indications of interest, with Taiwanese investors, in particular, coming in with strong demand for the 40-year Formosa tranche, ahead of formally opening the order-book,” he said.

Reuters adds: Younis Al Khoori said the UAE federal government will be in the market next year for more dollar bond issuances and is working on plans to issue local currency debt.

Individual emirates will remain free to issue debt according to their own needs and priorities, he said. Local currency bonds will be issued “in due time” and no specific date has yet been set for the next dollar issuance, Khoori said.

“The issuances that started this year; we will be continuing the same net year. Then the dirham denominated will follow as the plan and strategy is agreed with the central bank,” said Khoori, adding that the readiness of the market would also be assessed.

Khoori said up to 15 per cent of the proceeds raised from that issue can be used for capital expenditure projects.

— issacjohn@khaleejtimes.com





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