ABU DHABI PLANS BOND ISSUANCE

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 000467

SIPDIS

SIPDIS

DEPT FOR NEA/ARP, EEEB/IFD/OMA
TREASURY FOR DAS SAEED, ROSE

E.O. 12958: DECL: 03/19/2017
TAGS: EFIN EINV AE
SUBJECT: ABU DHABI PLANS BOND ISSUANCE

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


1. (C) On March 4, Abu Dhabi Department of Finance Under
Secretary (and Executive Council member) Hamad Al-Hurr

SIPDIS
Al-Suwaidi told econchief and Treasury Regional Debt Advisor
that the Emirate of Abu Dhabi was approaching investment
banks about issuing dollar denominated bonds for general
revenue. He explained that the emirate planned to issue $2
billion in bonds, split evenly between five and ten year
maturities. This would be the first in a planned annual
series of bond issuances. Al-Suwaidi commented that the time
for Abu Dhabi to start diversifying its funding sources was
when it clearly did not need the funds. The bond issuance
would also provide Abu Dhabi's various state-owned
enterprises a benchmark for their borrowing. Abu Dhabi would
plan to issue the bonds under Europe's regulation S and/or
the U.S. rule 144a, which would allow the bonds to be
marketed to qualified institutional buyers in the U.S. The
advantage would be that it would avoid SEC registration and
have a relatively low level of disclosure.


2. (C) Al-Suwaidi said that the emirate will be working with
the various rating agencies to obtain the best rating
possible. His position was that given Abu Dhabi's ownership
of the national oil company ADNOC and significant foreign
investments managed by ADIA, he expected that Abu Dhabi would
receive a higher sovereign rating than its neighbors.
Al-Suwaidi also said that the Department of Finance had
explained to the executive council that obtaining a rating
from the international rating agencies would require the
emirate to increase its fiscal transparency, although he did
not think that it would be more than Abu Dhabi already
provided the International Monetary Fund. In any case, the
Executive Council instructed the Finance Department to return
to it for a final decision if rating agencies pushed for
transparency, beyond a certain level or the rating was lower
than anticipated.


3. (C) Abu Dhabi did not plan to announce its decision to
issue bonds in advance (as Dubai recently did). Al-Suwaidi
noted that he thought Dubai's public pledge to seek a rating
had been unwise, and that Dubai might delay any bond issue.
He said that he had heard from some investment banks that the
Emirate of Dubai might actually be considered less
creditworthy than some of its better-known parastatals. If
Dubai's bonds were to get a lower credit rating than some of
its companies, this could harm the companies borrowing
opportunities.


4. (C) In response to a question from emboffs, Al-Suwaidi
said that Abu Dhabi did not currently plan to issue
dirham-denominated bonds. Given the UAE's massive investment
expenditures, he noted, Abu Dhabi did not want to take any
liquidity out of the economy. In response to a comment that,
given high oil prices, liquidity did not seem to be a
problem, he noted that real liquidity was relatively low.
During the 2006 stock market collapse, he added, the Emirate
of Abu Dhabi was concerned about the lack of action by the
Central Bank to ensure that the market correction did not
have a negative impact on the real economy. The Abu Dhabi
Finance Department took the step of depositing funds into Abu
Dhabi Government-owned banks (National Bank of Abu Dhabi and
Abu Dhabi Commercial Bank) to provide them support. (Note:
Although we had heard that the Emirate of Abu Dhabi had
authorized its pension fund to buy into the market, this is
the first time we had heard of direct fiscal support for
banks. Given strong economic growth in 2006, and generally
healthy bank profits, it does not appear that the stock
market correction had a large impact on the overall economy.
End Note.)


5. (SBU) Al-Suwaidi (also the Chairman of the Board of
Directors of the Abu Dhabi National Energy Company - majority
owned by the Emirate of Abu Dhabi) introduced emboffs to the
CEO of Taqa, Peter Barker Homek, who explained that Taqa
planned to issue $5-$10 billion in bonds over the next 6-12
months in a "multiplicity of currencies," although it did not
plan to issue dirham bonds.


6. (C) Comment: this is a significant first step for Abu
Dhabi, despite the relatively small size of the planned
issuance. If Abu Dhabi follows-through on its plans, it will
create a sovereign benchmark for its parastatals and
public/private partnerships. Given the massive projected
spending on projects over the next few years, these companies
are likely to want to tap the bond markets for funds. In
addition, requesting a rating from the international rating
agencies is likely to demonstrate the emirate's interest in
increasing fiscal transparency (however slightly). End

ABU DHABI 00000467 002 OF 002


comment.
SISON