Abu Dhabi to Take Billions From ADIA for Debt, Fitch Says

(Bloomberg) -- Abu Dhabi Investment Authority’s assets will probably shrink by billions of dollars by the end of this year as the emirate’s government taps its sovereign-wealth fund to bridge a deficit brought on by low petroleum prices, Fitch Ratings Ltd. said.

Assets will drop to $475 billion at the end of this year, from an estimated $502 billion at the end of 2014, Fitch said in a report, adding that it expects them to rise again in 2017. The government may also issue local and foreign currency bonds to finance its deficit this year and next, according to the ratings company. Abu Dhabi’s department of finance has “intensified” talks with the central bank and commercial banks on a local debt sale, it said.

Governments from Moscow to Oslo have tapped reserve funds built up during the days of high oil prices to help sustain spending during a slump in crude caused by oversupply and China’s economic slowdown. Saudi Arabia, the world’s largest oil exporter, has taken unprecedented steps to counter the drop in revenue and has raised the possibility of selling a stake in government-owned entities, including state oil giant Aramco.

Abu Dhabi’s government relies on oil dividends that come through state-owned Abu Dhabi National Oil Co., or Adnoc, for much of its revenue. ADIA, as the sovereign wealth fund is known, is set up to have liquid and semi-liquid assets that the government can tap as needed. The fund has seen government withdrawals "infrequently and usually during periods of extreme or prolonged weakness in commodity prices,” according to the fund’s annual report.

“We expect ADIA assets to rise again in 2017, when the Adnoc dividend should be sufficient to cover the budget deficit," Fitch said in the report. ADIA declined to comment.

Issue Bonds

A liquidity improvement in local banks towards the end of last year may have been a sign that the government injected cash from foreign-asset sales, said Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG.

"I don’t believe that the local sovereign wealth funds have any particular need to liquidate major hard assets at this stage, given the unfavorable valuation environment," Bantis said by phone. "Most likely, the latest liquidity injection came from sale of short-term liquid holdings”.


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