The United Arab Emirates was assigned the fourth-highest investment grade at Fitch Ratings as the Gulf nation prepares to issue a federal bond for the first time.
The company ranked the sovereign AA- with a stable outlook. It cited moderate consolidated public debt levels, a solid external asset position, and the likelihood of support from the nation’s capital Abu Dhabi if needed. Moody’s Investors Service rates the UAE at Aa2, its third-highest investment grade.
“The UAE’s fiscal and external balance sheets benefit from Abu Dhabi’s large sovereign net foreign assets,” the agency said on Wednesday. “However, although Abu Dhabi is committed to the financial stability and health of the UAE, it demonstrated in 2009-10 that support is selective.”
Abu Dhabi is rated one level above the UAE at Fitch, which now sees the federation’s budget shortfall widening to 3.8% of gross domestic product in 2020 from a surplus of 3.8% in 2019.
“This whole exercise is driven much less by some urgent financing need and need to finance a deficit,” Jan Friederich, a Hong Kong-based senior director for sovereign ratings at Fitch, said in an interview on Bloomberg TV on Thursday. “Instead, it is much more about developing a yield curve that allows government-related entities and the private sector to issue easily in domestic markets.”
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