Sharjah issues $500m sovereign sukuk

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The Government of Sharjah has issued a US$500 million (AED 1.8b) Islamic bond this week with a 5-year maturity, which is the first sovereign sukuk to be issued globally this year. Bank of Sharjah, Barclays, Commerzbank, Dubai Islamic Bank, HSBC and Sharjah Islamic Bank acted as lead arrangers for the issue.

Final pricing for the bond, according to a document from lead arrangers, was set at a spread of 250 basis points (bps) over midswaps (a benchmark for calculating bids). Moody’s Investors Service assigned a provisional rating of (P)A3 to Sharjah’s US dollar sukuk in advance of the issue, similar to the rating assigned by the agency to the Government of Sharjah’s debut sovereign sukuk in 2014. The government’s 2014 sukuk was issued with a value of US$750 million (AED 275b) and a longer maturity of 10 years.

The launch of both the 2014 and 2016 sovereign sukuks have now been met by high demand from investors, unscoring the finance sector’s confidence in Sharjah’s economy, strong fiscal management and government debt position. According to Moody’s the second planned sukuk reflects the Sharjah government’s increased focus on market funding and a re-profiling of the government’s debt burden, which has resulted in lower financing costs.

Sharjah has a wide range of government programmes in place to help develop the economy and has launched a broad range of initiatives to encourage inward investment and make it easier for investors to establish businesses. The government allocated 45 percent of last year’s record AED 17.7 billion (US$ 4.8 b) budget to the emirate’s economic development.

As the only economy in the Middle East region with no single sector contributing to more than 20 percent of its GDP, Sharjah has fared well in the face of regional economic pressures brought about by lower oil prices. Both Moody’s Investors Service and Standard and Poor’s give Sharjah an A-class economic rating with a stable outlook.

Global rating agency Standard and Poor’s has forecast fewer sukuk issuances this year, possibly decreasing up to 20 percent in value compared to 2015, as a result of economic pressures on economies in the GCC and Malaysia.

Sources: Reuters, various