Dubai: The UAE government is to issue its first ever federal government bond, according to banking industry sources. Although the size and tenure of the debut issue is not clear, bankers indicated that there will be a dual tranche dollar denominated issuance that will mature in 10 years and 20 years, respectively.
A Bloomberg report on Monday said, there will also be a 40-year dual listed Formosa bond - debt issued in Taiwan and denominated in a currency other than the New Taiwan Dollar. At the Federal level, this is the first UAE government bond issuance although individual emirates have their own government bond programmes. The federal government bond issuance follow the UAE government’s 2018 law permitting the federal government to begin issuing sovereign debt.
Abu Dhabi Commercial Bank, BofA Securities, Citigroup Inc., Emirates NBD Capital, First Abu Dhabi Bank, HSBC Holdings Plc, JPMorgan Chase & Co., Mashreqbank and Standard Chartered Bank are managing the UAE bond sale.
Why is federal government selling bonds?
The UAE has been planning the issuance of federal government bonds for the past several years. A federal government bond programme will create a benchmark for other government, semi-government, and corporate issuers in the country.
Bankers said the UAE’s federal government bond issuance comes at a time when global interest rates are the lowest and the UAE enjoys substantial credit strength to sell the bonds at attractive pricing. Rating agency Moody’s said quoting the transaction document that the payment obligations associated with notes issued under the programme will be direct, unsecured obligations of the UAE Government and rank pari passu with all its other unsecured and unsubordinated obligations.
Notes representing drawdowns from the programme may be denominated in variouscurrencies and consist of different maturities. The Government intends to use the net proceeds from each issuance for general budgetary purposes in compliance with its public debt strategy, including the financing of infrastructure projects and investment by the Emirates Investment Authority, according to Moody’s.
Moody's has assigned a foreign currency senior unsecured programme rating of (P)Aa2 to the Government’s global medium-term note programme. It had affirmed the Aa2 long-term issuer rating of the Government in May with a stable outlook, while Fitch Ratings had assigned a Long-Term Foreign Currency Issuer Default Rating at 'AA-’ with a stable outlook. The UAE's rating is supported by unconditional support from Abu Dhabi.
The stable outlook reflects broadly balanced risks, consistent with the stable outlook on the Abu Dhabi’s sovereign rating. World leading progress in vaccinations support the UAE’s economic recovery, limiting the impact of the pandemic on its credit metrics.