UAE Sells $2 Billion in Bonds to Finance Deficit

Abu Dhabi on Tuesday sold $2 billion in seven-year bonds in its first entry into the international debt markets this year, raising cash for the state's treasury despite the recent recovery in oil prices.

The United Arab Emirates (UAE) sold the bonds at 45 basis points above US Treasuries, tightened from the initial directive of 70-75 basis points on Treasury notes after it sale received more than $ 6.9 billion in requests.

“7 years is the best place in the market now.” Zina Rizk, executive director of fixed income at Arqaam Capital, said, “Many issuers choose 7 or 12 years because of the high interest rates,” adding that some funds may ultimately boost foreign currency reserves.Brent crude, which was trading at more than $68 on Tuesday, has more than tripled since the oil crash in 2020, when Brent crude fell below $20 a barrel.

Abu Dhabi is expected to record a budget deficit of 43 billion dirhams or $11.7 billion in 2021, compared to 37.2 billion dirhams last year, the preliminary prospectus of the new bond offering, Reuters said.

Hence, it is expected that this deficit will be financed mainly by borrowing.

Abu Dhabi has become a relatively frequent source of US dollar-denominated debt in recent years, and made issues three times last year for a total of $15 billion.

In 2020, the UAE had $40 billion in issued bonds and $3.9 billion in outstanding loans, from $29.4 billion in total in 2019.

The UAE has been hit hard by the COVID-19 pandemic and the collapse of oil prices last year, but the rebound in global demand for crude oil as economies reopen has reduced the urgency of borrowing for budgetary purposes.