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DUBAI - The United Arab Emirates locked in $4 billion with its debt capital markets debut on Wednesday, after orders for its three-tranche bond deal topped $22.5 billion, bank documents showed.
Issuers in the Gulf have continued to tap debt markets despite recent volatility, seeking to lock in cheap funds before the U.S. Federal Reserve is expected to begin tapering its bond-buying programme this year.
The UAE federal government had never issued bonds before but several of the seven emirates have, most notably the capital Abu Dhabi and commerce hub Dubai.
The UAE inaugural bonds comprised tranches of 10, 20 and 40 years.
The finance ministry sold $1 billion in the 10-year portion at 70 basis points (bps) over U.S. Treasuries (UST), $1 billion in 20-year bonds at 105 bps over UST and $2 billion in 40-year notes at 3.25%, documents from banks on the deal showed.
The 40-year tranche are Formosa bonds, debt sold in Taiwan by foreign borrowers and denominated in currencies other than the Taiwanese dollar.
Sources close to the deal had said the finance ministry was expected to raise between $3 billion and $3.5 billion, but the deal size was increased following the strong demand.
"Their first objective was tightest pricing and second was printing longer end. They got both," one of the sources said.
Issuing more in the 40-year tranche secures cheap, long-term funding for the UAE government, the source added.
Demand skewed to the 10-year tranche, the spread on which corresponds to a yield of roughly 2.215% - roughly in line with Abu Dhabi government bonds with a similar duration.
The UAE will use the bond proceeds to finance cabinet-approved infrastructure projects and to back investments by the Emirates Investment Authority, the UAE's only federal sovereign wealth fund.
Abu Dhabi Commercial Bank, BofA Securities, Citi, Emirates NBD Capital, First Abu Dhabi Bank, HSBC, JPMorgan, Mashreqbank and Standard Chartered arranged the debt sale.
(Reporting by Davide Barbuscia and Yousef Saba; Editing by Clarence Fernandez, Kim Coghill and David Gregorio) ((Yousef.Saba@thomsonreuters.com; +971562166204; https://twitter.com/YousefSaba))