DUBAI

Abu Dhabi’s $10 billion (Dh36.73 billion) dollar bonds were oversubscribed three times, having received bids of $30 billion and tighter pricing, sources familiar with the deal said on Tuesday, riding high on robust liquidity post the successful $12.5 billion bond issue in Saudi Arabia last week.

Abu Dhabi, which enjoys the strongest credit rating in the region, came to the bond market after a gap of 16 months to exploit the pent-up demand from yield hungry investors ahead of an expected rate hike from the US Federal Reserve in December.

“The timing is good. They are making use of the liquidity available in the market after real drought in the past three to four months. The market is increasingly getting convinced of a US rate hike in December, so the issuers want to lock in cheaper rates,” Anita Yadav, Head of Fixed Income Research, Senior Director — Wholesale Banking at Emirates NBD, told Gulf News.

The final pricing was 20 basis points tighter compared to the initial guidance, indicating robust response from yield hungry investors. The $3 billion tranche for a five-year tenor was priced at 65 basis points plus US treasury, and $4 billion tranche for 10 years was priced 85 basis points over and above US treasury.

The $3 billion tranche of the 30-year bond, which is the highest tenor bond issued by the capital so far, was priced at 130 basis points plus US treasury, sources said.

“The long tenor bonds got support from international players. It was essentially tapped by insurance and pension funds. For shorter tenor, there was some pent-up demand within the region because they have come back after a long time,” said Abdul Kadir Hussain, Head of Fixed Income Asset Management, Arqaam Capital.

“This size of demand makes a lot of sense to us: the issuer has a very strong balance sheet and the economy is one of the strongest in the region. Thus while the yields offered on the bonds are modest, strong investor demand is clear present,” said Koon Chow, Emerging Markets Macro and FX strategist at UBP.

A spokesperson at the Department of Finance in Abu Dhabi when contacted, said they had no comments.

Outlook

Emirates NBD expects the second half to match the bond issues done in the first half of this year, which was at a record $43 billion.

“Looking at pipeline, we expect $3-$10 billion more bond issues between now and December,” Yadav said. On a year to date basis, the GCC has issued dollar bonds worth $75 billion compared to $72 billion in 2016.

Analysts say the investor appetite for GCC dollar bonds will remain strong.

“The demand for dollar bonds remains high in the region, driven by relatively still low interest rates, the hunt for higher yields and demand for duration by the insurance or pension companies. Improving liquidity in the banking sector also supported bid tone,” Yadav said.

This has resulted in GCC bonds delivering a strong performance with year to date returns of 5.5 per cent.

Aarthi Chandrasekaran, vice-president at Shuaa Capital agreed. “Thanks to the looming possibility of low interest rates environment (10 year US Treasury yields touched yearly lows of 2.02 per cent) in the near future, GCC issuances will likely lure investors, given the better yield and superior credit quality,” she said.