Abu Dhabi seeks $10bn international investment

Move will increase emirate's debt to 10% of GDP but still leaves it financially strong.
Abu Dhabi seeks $10bn international investment
By Joanna Hartley
Sat 28 Mar 2009 08:39 AM

Abu Dhabi is looking to borrow as much as $10bn from international investors, increasing the emirate’s debt 10 fold, as part of diversification plans, it was reported on Friday.

The move would increase Abu Dhabi’s debt to 10 percent of its GDP, which would be supported by the emirate's strong asset position, analysts said.

Despite the increase in debt Abu Dhbai would remain “one of the strongest net external creditors,” according to Fitch Ratings, which assigned a ranking of AA, the third-highest investment-grade category to the emirate.

Equivalent ratings were also issued by Standard & Poor’s (S&P) and Moody’s, according to Bloomberg news agency.

The emirate’s ratings are “supported by the government’s very strong asset position, which provides significant financial flexibility,” S&P credit analyst Farouk Soussa said in a statement.

“Abu Dhabi has an awful lot of money and I think they would prefer to ring- fence it - do the borrowing without necessarily drawing down on the sovereign wealth fund,” added Paul McNamara, who helps manage $1.2bn of emerging-market debt at Augustus Asset Managers Ltd in London.

Abu Dhabi plans to issue bonds – the equivalent of borrowing money from investors – both to raise money when oil revenues are dipping and to establish a benchmark from which other bonds can be priced.

Last month, the government of neighbouring emirate Dubai, issued a $20bn bond scheme, of which the UAE Central Bank bought $10bn that will be used to assist companies that have been caught up in the economic slowdown.

Fitch also estimated that Abu Dhabi’s revenues will shrink to less than half of 2008 levels after crude oil fell 64 percent from a record high of $147.27 a barrel in July last year. The MSCI GCC Index of equities in the Persian Gulf region has declined 57 percent in the last year, compared with a 43 percent drop in the MSCI World Index.

“Abu Dhabi is thinking that given what has happened globally in the past year, it makes sense to be properly diversified,” added Raphael Kassin, a money manager at Zurich- based Credit Suisse Group AG who helps oversee about $1bn in emerging-market debt. “This is more of a precautionary move to be more diversified and as a result more protected. No doubt Abu Dhabi is among the top three countries in the world in terms of creditworthiness,” he added.

The Abu Dhabi Investment Authority, with $750bn in assets, is the world’s largest sovereign wealth fund, according to London-based research firm Preqin.

It estimates that the government-owned funds had $3.22 trillion in investments at the end of 2008.

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