ABU DHABI MOVING FORWARD ON SOVEREIGN BOND ISSUE

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001127

SIPDIS

SIPDIS

DEPT FOR NEA/ARP, EB/IFD/OMA
TREASURY FOR DAS SAEED, ROSE
NSC FOR NRAMCHAND

E.O. 12958: DECL: 07/05/2017
TAGS: EFIN EINV AE
SUBJECT: ABU DHABI MOVING FORWARD ON SOVEREIGN BOND ISSUE

REF: ABU DHABI 467

Classified By: Classified by Ambassador Michele J. Sison
for reasons 1.4 (b and d).


1. (C) Summary: Fitch and Standard & Poor's have both given
the Emirate of Abu Dhabi the highest sovereign rating (AA) in
the region. They have noted the emirate's strong financial
situation, but have expressed concern about regional
political risks and the general lack of fiscal transparency
in Abu Dhabi. Abu Dhabi officials have told us that they are
very happy with the ratings and plan to proceed with meeting
investors regarding a planned bond issuance as early as the
end of next week. The sovereign bond roll-out has been
delayed by a few days based on the advice of Abu Dhabi's
advisors that market conditions might not be optimal. The
fact that Abu Dhabi has obtained a sovereign rating and plans
to issue sovereign bonds is an important step toward
transparency. Although Abu Dhabi has no need to borrow
money, its actions should make it easier for its companies to
borrow from the international capital markets. End Summary.

Abu Dhabi Earns Highest Sovereign Rating in Region
-------------- --------------


2. (U) International rating agencies Fitch and Standard and
Poor's both awarded the Emirate of Abu Dhabi an AA sovereign
rating, which is the highest in the region. The rating is
one step above that of Kuwait and Qatar. Both rating
agencies considered it appropriate to issue the emirate a
sovereign rating, despite the fact that the rating reflects
an individual emirate rather than the country as a whole.
Fitch's press release notes that Abu Dhabi generates over
half of the UAE's GDP, funds over half of the federal budget
(including direct funding of defense and security services),
and that the ruler of Abu Dhabi has historically been the
UAE's president. For these reasons, "Fitch regards it
appropriate to treat Abu Dhabi as an essentially sovereign
entity."


3. (U) Both rating agencies highlighted the emirate's role as
an oil exporter and its substantial assets and current lack
of foreign debt. Both agencies also noted regional political
risk as weighing negatively on the rating. Fitch's press
release mentioned problems with transparency and deficiencies
in economic data. Fitch also noted that although the
government and executive authority were not subject to the
public and institutional checks and balances of most other
sovereigns in the AA category, "the potential for misrule is
constrained by respect for property rights, traditional codes
of behavior and sensitivity to the welfare of emirate
citizens..."

Abu Dhabi Moving Forward on Bond Issuance
--------------


4. (C) Yousef al Otaiba, International Affairs Director for
Abu Dhabi Crown Prince Mohammed bin Zayed, told Ambassador
that the leadership was "very happy with the ratings from
Fitch and S&P. Abu Dhabi Department of Finance Assistant
Director for Government Accounts Salah Al-Waswasi, agreed,
noting that Moody's, which had held its meetings one week
after the other two rating agencies, was expected to issue
its rating shortly. He speculated that the release of the
prior ratings might put some pressure on Moody's, which
already does an "unsolicited" rating on the UAE (though not
Abu Dhabi Emirate).


5. (C) Al-Waswasi told econchief that Abu Dhabi Emirate would
probably start its sovereign bond road show by the end of the
week of July 8 in the U.S. The Department of Finance had
originally planned its road show for the beginning of the
week, but delayed a few days on the advice of its advisors
(Deutsche Bank and Citibank). He also reiterated that Abu
Dhabi has still not publicly announced that it plans to issue
sovereign bonds.

Rating Agencies Meet With Ambassador
--------------


6. (C) At the request of the Abu Dhabi Crown Prince's office,
Ambassador, Econchief, and Treasury Regional Debt Advisor met
with Fitch, Standard and Poor's, and Moody's in June to
discuss economic and political issues that might have a
bearing on their rating actions. The rating agencies agreed
that Abu Dhabi's finances were very strong. They also
expressed surprise at the level of access and disclosure that

ABU DHABI 00001127 002 OF 002


they had been given. They all expressed some concern,
however, with the general lack of transparency in Abu Dhabi's
budget and were unsure how much they would be able to publish
to justify their ratings.


7. (C) Fitch and S&P both sent ratings teams headed by
Managing Directors. One S&P official noted that the mandate
to rate Abu Dhabi was "very important" to S&P. Moody's,
which already does an "unsolicited" rating of the UAE, sent a
more junior team headed by its Vice President-Senior Analyst,
Tristan Cooper, who covers the UAE. Cooper noted that Abu
Dhabi could not have a higher sovereign rating than that of
the UAE because that would imply that Abu Dhabi would allow
the rest of the emirates or the federal government to
default. (Note: Fitch's press release noted that it
believed that Abu Dhabi would exercise discretion in meeting
demands for assistance form other emirates and "treat its own
obligations as senior and would not imperil its own financial
and credit standing." End Note.)

Dubai Has Not Asked For Rating
--------------


8. (C) Both S&P and Moody's analysts confirmed that the
Emirate of Dubai had not approached them to conduct a rating
assessment. Cooper opined that Dubai and the other emirates
would receive a lower rating than Abu Dhabi.

Comment
--------------


9. (C) Abu Dhabi's decision to obtain credit ratings and to
issue sovereign bonds are important steps for the emirate.
Rating agencies and investors are likely to push more
transparency and information than the emirate has
traditionally provided. Although we have not yet seen the
ratings reports, we will be interested in seeing how much
data was provided on Abu Dhabi's significant external assets
and on its budget. A sovereign bond for the Emirate of Abu
Dhabi should also help facilitate the efforts of its
companies as they seek to borrow from international financial
markets. Given the pace of development foreseen over the
next few years, these companies will need to access these
sources of funding. End Comment.

SISON