DUBAI: The Gulf Arab emirate of Sharjah will arrange investor meetings this week and next in Asia, the Middle East and Europe ahead of a potential debut issue of sovereign sukuk, the director of its debt management office said yesterday.
Sharjah, the third largest of seven United Arab Emirates, is keen to expand its investor base; although it is growing robustly, it lacks the big oil reserves of Abu Dhabi or the commercial glamour of neighbouring Dubai.
“It will be US dollar, ijara structure. It is going to be benchmark-sized,” Tom Koczwara said, adding that the exact size and tenor would be determined later.
Benchmark size is usually understood to be upwards of $500m. The ijara structure is a leasing arrangement commonly used by Islamic bonds.
Sharjah appointed HSBC, Kuwait Finance House , National Bank of Abu Dhabi, Sharjah Islamic Bank and Standard Chartered to arrange the roadshows. The access to international markets will help Sharjah diversify its funding base, reduce costs and extend its debt maturity profile, the emirate said in a presentation for investors.
“The government plans to continue to use borrowing to fund priority capital investment, particularly where it generates a financial and/or economic return,” it said.
“Although the government aims to reduce the overall deficit over the coming years, there will continue to be a gross financing requirement as a result of the remaining deficit and maturing existing debt.”
Some $1.3bn worth of government debt will mature between 2014 and 2019 and $133m after 2019, the presentation showed. Some 74 percent of the debt is in UAE dirhams while the rest is in US dollars.
Sharjah’s gross government debt rose to 6.8 percent of gross domestic product last year from 5.9 percent in 2012. Total public sector net debt stood at 16.8 percent of GDP in 2013.
In January, when the emirate obtained sovereign credit ratings from international agencies, Moody’s Investors Service projected Sharjah’s government debt-to-GDP ratio would stay below 10 percent in 2014.
Moody’s assigned yesterday a provisional rating of A3 to the proposed sukuk issue, noting that the emirate’s debt repayment ability was constrained by a narrow revenue base as it lacks a value-added tax, sales tax or income taxes. Standard & Poor’s rates Sharjah’s government debt at A.
“Moody’s A3 government bond rating and stable outlook on Sharjah is primarily supported by the emirate’s very strong fiscal and government debt position, which benefits from the emirate’s membership in the United Arab Emirates,” Steffen Dyck, Moody’s lead sovereign analyst for Sharjah, said in a statement.