The Daily Update - Abu Dhabi DO!

The new issue market has been a lot more active over the past couple weeks. There have been a number of interesting ones, including the Kingdom of Jordan’s USD 1bn offering, launched yesterday at 496.6bps over Mid-Swaps. The 30-year 7.5% 2047 deal is rated B1/BB-. Using the best rating, i.e. BB- we calculate the current risk-adjusted expected return and yield at 17.16%, and the bond offers only one notch of credit cushion. As regular readers will know, we would not look to add this issue to our portfolios, even if it does offer very attractive expected returns. For one, Jordan is rated junk, second, we have assigned the country a NFA rating of only 1 star and lastly the bond offers very little in the way of spread cushion. Needless to say, however, the recently starved yield-chasers were out in force yesterday, as such the deal was over 4.3 times oversubscribed.

We would rather hold the new 30-year Abu Dhabi sovereign bond; part of a three tranche deal expected to launch today. Rumoured to be priced at a spread of 150bps over Treasuries, we calculate this Aa2 rated bond’s expected return and yield at ~20%, with just under 5 notches of cushion. This is the first long-dated bond that the Kingdom has issued and as such we expect to see significant demand for the deal. As the bond is rated investment grade by at least two rating agencies we expect it will be held across a number of indices. Not that that would influence us to hold such an issue, as we are not tied to any benchmarks, rather we have our own internal constraints which include limiting our investable universe to countries with NFA scorings of 3 and above. Abu Dhabi for example has a very high 7 star rating, and is investment grade; thus slots into our universe comfortably.

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