Last week the Emirate of Abu Dhabi raised USD3bn from a tap issue of a recent (April) USD7bn multi-tranche bond issue. The spreads on the tap issue give a good feel for the recovery rally across investment grade credit markets. To illustrate, the tap issuance came at spreads of T+135bps on the 2025 issue versus T+220bps at issue in April, the 2030 tap issue came at a spread of T+150bps vs T+240bps for the April issue, the 2050 bond tap was priced at 3.25% versus the original issue price of 4.1%.
Despite the recent good performance, bonds from the Abu Dhabi Government continue to offer valuation upside on our models. For example, Abu Dhabi 3.125% April 2030 trades at a yield of 2.2% and is ~2.6 credit notches cheap for a bond rated AA by both S&P and Fitch.
However, given the recent market moves we see more upside in quasi-sovereigns such as Abu Dhabi Crude Oil Pipeline (ADCOP). ADCOP is indirectly owned by the Abu Dhabi government through its 100% ownership of ADNOC and ADNOC Infrastructure. ADCOP owns a 405km pipeline running from Habshan in Abu Dhabi to Fujairah Port transporting a significant portion of ADNOC’s (Abu Dhabi National Oil Company, the state-owned integrated oil company managing ~95% of the UAE’s proven oil reserves) exports. Abu Dhabi Crude Oil Pipeline 4.6% 2047, rated AA by both S&P and Fitch, trades at a yield of 3.5% and is ~4 credit notches cheap on our models. This compares to Abu Dhabi Government 4.6% 2047 (AA rated) which trades at a yield of 3.2% and is ~2.4 credit notches cheap according to our models.