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Bankers from Abu Dhabi are doing the rounds in London this week, drumming up support for a $2 billion government bond issue. Their main aim: create a benchmark from which to kickstart the city state's flagging corporate debt markets.
"Abu Dhabi doesn't need money, Abu Dhabi has money," says Philipp Lotter, a senior vice-president for corporate finance at Moody's in Dubai.
The Abu Dhabi government may not want for cash, but companies in the oil-rich city certainly do. The plan is for the wealthy government to use its gold-plated A2 credit rating to borrow money cheaply, in the hope that cash-strapped corporates can be dragged along in its slipstream.
The numbers paint a vivid picture.
Yields on bonds issued by Aldar Properties, a state-backed developer in Abu Dhabi, are trading at almost 1000 basis points (10 percentage points) above London Interbank Offered Rate. By contrast, an Abu Dhabi government bond is trading at just 200 points above Libor. By issuing more bonds and creating a yield curve, officials hope some of the state's magic dust will rub off on local issues and narrow the spreads for corporate borrowers.
This matters, because Abu Dhabi is planning some $200 billion of major projects over the coming five years. Most will be carried out by public/private companies such as Aldar.
"It makes a lot of sense," says Lotter. "It creates a benchmark for all kinds of borrowers - private sector, quasi-government, not just in Abu Dhabi but other emirates such as Dubai." Abu Dhabi has hired Citigroup, Deutsche Bank and JP Morgan Chase to sell the idea to international investors.
* Dubai, with a population of just 1.5 million, will deliver 28,000 new homes this year. To put that in context, the UK will build just 70,000 over the coming 12 months, according to the National Housing Federation.
Little wonder analysts at the bank EFG-Hermes in Dubai say residential property prices will fall another 20% - even after losing a third of their value since the peak last summer. EFG says the population of Dubai may shrink 17% this year, as expats leave amid the economic slowdown.
* Dubai's economy took another $6 million hit on Saturday night. American thoroughbred Well Armed was a surprise winner of the Dubai World Cup, with owner Eoin Harty taking the richest prize in horseracing back to the US. Godolphin Racing, owned by ruler of Dubai Sheikh Mohammed, has not won since 2006.
