Unprecedented Demand for The UAE’s Multi-Tranche Sovereign Bond Package

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The UAE Government, represented by the Ministry of Finance (MoF), has successfully closed its offering of a U.S. dollar-denominated multi-tranche sovereign bond package, which is comprised of medium and long-term tranches: a 10-year tranche, a 20-year tranche, in addition to a 40-year dual-listed Formosa tranche with a total value of USD 4 billion.

The announcement was made during a virtual media briefing held by the Ministry of Finance, where His Excellency Younis Haji Al Khoori, Undersecretary of Ministry of Finance previewed the results of the subscription to the country’s sovereign bonds.

These bonds were priced on October 6, 2021, and will be settled on October 19, 2021, with their tranches distributed as follows:

  • The 10-year tranche bonds were sold at USD 1 billion at a spread of 70bps over US Treasuries.
  • The 20-year tranche bonds were sold at USD 1 billion at a spread of 105bps over US Treasuries, creating a new standard for bond issuers, especially since the United Arab Emirates is the first-ever sovereign to do a US dollar benchmark issuance in the 20-year tenor in the GCC.
  • The 40-year Formosa tranche USD 2 billion 3.250 per cent. The Formosa bond is debt sold in Taiwan by foreign borrowers and denominated in currencies other than the Taiwanese dollar. The 40-year Formosa tranche achieved the highest ever distribution into Asia for a long-dated US dollar benchmark issuance by a sovereign, with over 70% of the bonds placed with Asian investors.

His Excellency Younis Haji Al Khoori pointed out the successful subscription of the three tranches, which achieved the lowest-ever yield for a debut sovereign from the GCC – a testament to the credit strengths of the UAE. His Excellency said: “The government bond tranches offered raised USD 4 billion, while global books peaked at USD 22.5 billion, representing a 5.6x oversubscription. The orderbook momentum increased the deal size to USD 4 billion from the initial target of USD 3 billion.”

His Excellency Younis Haji Al Khoori clarified the purpose of issuing the bonds when he stated: “The UAE issued these bonds to contribute to the development of the bond market and find investment alternatives for investors.”

His Excellency noted that the high demand of investors for these bonds reaffirms the UAE’s strong credit rate, and its ability to overcome all crises, foremost of which is the repercussions of the COVID-19 pandemic. The International Monetary Fund forecasts the UAE’s economy to grow by 3.1 per cent in 2021, and the Central Bank of the UAE estimates a 4.2 per cent growth in 2022.”

The bonds captured the demand of international and regional investors. Global books peaked at over USD 22.5 billion (excluding JLM interest), representing a 5.6 per cent oversubscription.

His Excellency Al Khoori added: “The Ministry of Finance adopted a two-pronged investor engagement strategy whereby it conducted a non-deal roadshow a few weeks back to introduce the credit to key international investors and then followed that up with investor calls following the mandate announcement to discuss and answer their questions. The focused investor engagement strategy was highly successful and helped secure significant early indications of interest, with Taiwanese investors in particular coming in with strong demand for the 40-year Formosa tranche, ahead of formally opening the orderbook.”

The geographic allocation of the 10-year tranche bonds was distributed as follows: 39% for investors from the Middle East; 21% for American investors; 20% for Asian investors; 12% for investors from the UK; and 8% for European investors. The geographic allocation for the 20-year tranche bonds was distributed as follows: 43% for American investors; 26% for investors from the Middle East; 18% for investors from the UK; 9% for European investors; and 4% for Asian investors. The geographic allocation of the 40-year dual-listed Formosa tranche was distributed as follows: 71% for Asian investors; 10% for investors from the UK; 9% for American investors; 5% for European investors; and 5% for investors from the Middle East.

The final 10-year tranche bonds allocation by type was distributed as follows: 35% for banks and private banks; 33% for fund managers; 20% for pension funds and central banks; and 12% for insurance. The final 20-year tranche bonds allocation by type was distributed as follows: 66% for fund managers; 21% for banks and private banks; 12% for insurance; and 1% for pension funds and central banks. As for the 40-year dual-listed Formosa tranche bond, it was distributed as follows: 59% for insurance; 23% for fund managers; 16% for pension funds and central banks; and 2% for banks and private banks. The dual-listed Formosa tranche bond will be issued in Nasdaq Dubai, the London Stock Exchange (LSE), Abu Dhabi Securities Exchange and Taipei Exchange. Nasdaq Dubai is expected to confirm the listing on the issue date, while the listing on the Abu Dhabi Securities Exchange (ADX) may follow after the issue date.

The Ministry of Finance authorised Abu Dhabi Commercial Bank PJSC, BofA Securities, Citigroup Global Markets Limited, Emirates NBD Capital, First Abu Dhabi Bank PJSC, HSBC Bank plc, J.P. Morgan Securities plc, Mashreqbank psc, and Standard Chartered Bank to be Lead Managers and Bookrunners to arrange subscription sessions with international investors.

The Ministry of Finance had appointed ‘Clifford Chance’ as the legal advisor to the UAE and ‘Latham & Watkins, LLP’ as the legal advisor to the lead managers.

The subscription of the UAE’s sovereign bonds was issued in accordance to Rule 144A under the Securities Act of the United States.

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