Abu Dhabi Bond Sale Earns High Rating

Abu Dhabi’s upcoming $10bn bond programme, of which an initial tranche of at least $2bn-$3bn is on a road show in London and the US, received on Friday the third-highest rating from the three major credit rating agencies.

Bankers and analysts expect the bond sale by Abu Dhabi, the capital of the United Arab Emirates, to be used to help finance government-linked companies and provide the private sector with a benchmark sovereign yield curve.

Though cash-rich thanks to the country’s hydrocarbon wealth, the Abu Dhabi-based UAE central bank has seen its reserves depleted by fiscal measures to prop up the banking system and Dubai, its debt-laden neighbour.

Standard & Poor’s, Fitch Ratings and Moody’s Investor Services assigned the Abu Dhabi bond the third-highest rating available, AA or Aa2, reflecting the UAE capital’s financial strength.

Farouk Soussa, S&P credit analyst, said the bond is “supported by the government’s very strong asset position, which provides significant financial flexibility, the country’s high level of political stability and wealth, underpinned by its rich resource endowment”.

But Abu Dhabi is facing increasing financial commitments, while depressed oil prices are weighing on revenue and the global financial crisis buffets its sovereign wealth fund.
The Abu Dhabi Investment Authority has lost money on investments in financial institutions such as Citibank, but still holds an estimated $750bn according to Preqin, a data provider.

Abu Dhabi has injected $4.4bn of capital into five of its banks, and the central bank recently extended $10bn to Dubai to help it meet external debt commitments coming due this year.

The federal finance ministry has also deposited Dh50bn ($13.6bn) of a promised Dh70bn into local financial institutions, to help them weather the storm.

Bankers expect Abu Dhabi will have to step up its support of Dubai, which is groaning under the weight of about $80bn external sovereign-linked debt and a spluttering economy.
The bond will be backed by dividends from ADNOC, the national oil company, and income earned by its sovereign wealth fund.

The bond sale will also provide an important yield curve that companies in the UAE can use to price their own bond issuance, which is expected to rise now that the local stock markets are in the doldrums and banks are reluctant to lend directly.

By Robin Wigglesworth in Abu Dhabi
Published: March 27 2009 22:46 Last updated: March 27 2009 22:46