Abu Dhabi: Abu Dhabi, capital of one of the world's richest states, is rapidly emerging as the debt capital of the region, producing a flurry of multi-billion dollar bond sales.

Abu Dhabi's government was the first this year to tap the international debt markets in April, which established a fresh yield curve to ease pricing, and triggered a flood of issuance from state-linked entities. The emirate and its companies have issued more than $12 billion (Dh44 billion) of bonds in 2009, and bankers say billions more are in the pipeline.

Thus far, investor appetite seems undeterred by the size and frequency of bond sales coming out of the emirate.

Overall, various sovereign and quasi-sovereign issues attracted orders of $56 billion, according to Standard Chartered, which has acted as bookrunner for three issues so far. HSBC Amanah said on Thursday that it had closed Abu Dhabi's first Islamic bond, a $1-billion issue for the Tourism Development and Investment Company that attracted orders of almost $7 billion.

"There are clearly investors out there that want Middle East credit exposure," says Chavan Bhogaita, head of credit research at National Bank of Abu Dhabi (NBAD). "Demand still outstrips supply, judging by the recent oversubscriptions."

The majority of the issues were taken up by institutional investors such as asset managers and pension funds in the US, Eur-ope and Asia, according to Standard Chartered — a signal of growing international interest, bankers say.

The yield spreads have also narrowed on all Abu Dhabi-linked bonds, implying healthy secondary demand for the emirate's credit among bond traders. The credit default swaps on Abu Dhabi debt — an important measure of credit-worthiness — have improved markedly lately, after trading at a considerable premium to comparable neighbours such as Qatar.

Given its abundant financial resources, Abu Dhabi's recent debt splurge may appear odd. However, the credit crunch has exposed a worrying reliance on bank lending in the region, and Abu Dhabi wants to promote a debt capital market to diversify its potential funding base, says Jeremy Parrish, head of Standard Chartered in Abu Dhabi.

A bond market could boost the emirate's efforts to become a regional fin-ancial hub while forcing state companies to raise capital internationally — rather than rely on government largesse — will act as a check on ostentatious projects, bankers say.

"Forcing people to go to the market to raise money is a really good way to weed out less brilliant ideas," says Richard Oliver at HSBC in Abu Dhabi.