Sharjah is keen to expand its investor base
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 told Reuters on Monday.
"It will be U.S. 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 $500 million. Sharjah appointed HSBC, Kuwait Finance House, National Bank of Abu Dhabi, Sharjah Islamic Bank and Standard Chartered to arrange the roadshows.
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. In January, the emirate obtained sovereign credit ratings from international agencies.
Moody's Investors Service assigned on Monday a provisional rating of A3 to the proposed sukuk issue. 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.
Sharjah's government debt is low but rising, Moody's said without giving details. At the same time, the emirate's debt repayment ability is constrained by a narrow revenue base as it lacks a value-added tax, sales tax or income taxes, it noted.
In January, Moody's projected Sharjah's government debt-to- gross domestic product ratio would stay below 10 percent in 2014, adding that wider public sector debt was at a manageable level of 18.2 percent in 2012. The Sharjah government has recorded small fiscal deficits of around 1-2 percent of GDP on average since 2008.
With a population of under 1 million, Sharjah is developing its tourism and manufacturing industries; it accounts for only a little over 5 percent of the UAE economy.
Bond issues in the Gulf have attracted strong demand this year from international investors because of instability in other emerging markets and the region's healthy economy.
The last sovereign debt issue from the UAE came from the unrated emirate of Dubai, which sold $750 million of 15-year sukuk in April, drawing $2.3 billion of investor demand.