Abu Dhabi shifts to private debt to navigate war-driven market volatility

Abu Dhabi raised USD 2.5 bn in recent weeks from private debt placements, as the Iran war disrupted public bond issuance across the Gulf, according to Bloomberg. The emirate raised USD 500 mn on Thursday through the reopening of its 2034 USD bond, following a broader USD 2 bn dual-tranche tap earlier in the week across its 2034 and 2029 maturities.

ADVISORS- The issuances were arranged by Standard Chartered.

The shift comes as issuers seek to bypass public markets’ pricing volatility and widening spreads. With public markets all but shut as regional markets price at a war premium following the outbreak of the conflict with Iran, issues are now having to resort to private markets. “With financial market volatility, widening spreads, and no pricing in of rate cuts, private debt issuance allows selecting pricing and yields away from public market swings,” MENA Economist Hamzeh Al Gaood told EnterpriseAM.

This was expected: “With exports halted for those economies and weakened air traffic, we expected to see new issuances instead of depleting reserves — an approach followed in past years,” Al Gaood told us.

Where spreads have been at: Qatar’s 2034 bonds are currently trading at a yield near 4.4%, while comparable Abu Dhabi paper yields about 4.6% — both slightly below earlier peaks seen in March, but still higher than usual.

Zooming out

Qatar has been equally active, issuing USD 3 bn via a private placement arranged by JPMorgan Chase, while Qatar National Bank completed a separate USD 1.75 bn private bond sale in March.

It’s also not just sovereigns: Gulf issuers have raised about USD 7.76 bn in USD-denominated private placements since the conflict began on February 28 — that includes significant activity from lenders such as First Abu Dhabi Bank, our friends at Mashreq, and Emirates NBD, according to the data. Emirates NBD raised some USD 325 mn, while Mashreq and FAB raised smaller amounts, with the former reportedly raising USD 80 mn and the latter USD 100 mn.

What’s next: Once geopolitical conditions stabilize, a return to public markets is widely expected. “There’s a lot of cash on the sidelines, and people do not want to miss the rally. Once markets fully reopen, I think we’ll see primary issuance resume quite quickly,” Bloomberg quoted Zeina Rizk, co-head of fixed income at Amwal Capital Partners.