Following the issuance of USD 10bn in April and May, Abu Dhabi’s government returned to the debt market with a further USD 5bn three-tranche offering yesterday. The wealthy GCC Emirate issued: USD 2bn of 3-year notes at a spread of 65bps over USTs, a USD 1.5bn 10-year bond at 105bps over, and interestingly a 50-year bond at a yield of 2.7%, or 130.6bps over. The latter is the longest maturing issue of any government within the Gulf region. We calculate that this bond offers an attractive expected return and yield around 18.5% and 2.3 notches of credit cushion.
Rated Aa2/AA, Abu Dhabi is the highest rated issuer in the region, therefore the new issues were well absorbed by the market. As with many other recent sovereign issuers, the Emirate’s government is making the most of low borrowing costs to cushion its finances as a result of the pandemic and recent oil price woes. The Emirate’s sizeable net asset position is more than sufficient to weather the current oil prices in the medium term. Moody’s most recent review stated that Abu Dhabi’s “credit profile is supported by its strong balance sheet, with sovereign wealth fund assets far exceeding total government liabilities, which mitigate the vulnerability of government revenue to temporary declines in oil prices, such as the one caused by the coronavirus pandemic.”
Although we did not participate in the new issuance, as regular readers will know, we favour Abu Dhabi sovereign bonds across our strategies and continue to maintain high conviction positions.