Sharjah has no plans for new sukuk issue

Sharjah’s Government has no immediate plans to issue new sukuk, says the director of its debt management office.

“We will keep this as an option, but right now we don’t have the budgetary need or financial capacity for it,” said Tom Koczwara, a director of the emirate’s finance department, at the London Sukuk Summit on Wednesday.

Sharjah’s US$750 million sukuk issue last year, its first, deepened local capital markets, he said.

“The private market has become much more benign. Investors see that there’s a benchmark, and even though it is only a single data point, companies can extrapolate a hypothetical yield curve,” said Mr Koczwara.

Sharjah’s sukuk with a 10-year tenor drew more than 200 investors with orders worth $7.85 billion. The sukuk was more than 10 times oversubscribed.

Prior to its sukuk issue, Sharjah had financed its spending through informal bank facilities.

Its sukuk was given an A3 credit rating, an investment grade four notches above junk, from the credit ratings agency Moody’s last year.

Sharjah’s economy, with a significant small- and medium-sized manufacturing sector, is more diversified than other emirates and Arabian Gulf states, according to Moody’s.

It is a net oil importer, which means that the slump in oil prices to about $63 a barrel from about $110 a barrel in the middle of last year should have a limited impact on Sharjah’s economy.

The emirate’s relatively stable fiscal position means it is unlikely to face an urgent short-term need for new financing.

Sharjah is expected to run a small budget deficit of 2.2 per cent of GDP, according to Moody’s, after the emirate raised its budgeted spending this year to Dh17.7bn, 12 per cent above the Dh15.4bn spent last year.

The emirate has outstanding debt of just under 10 per cent of GDP – below other emirates’ average of 26.2 per cent – which is low by global standards.

But Moody’s said the Sharjah Electricity and Water Authority’s financial health could significantly affect this year’s budget deficit.

The authority holds as much debt as Sharjah’s Government and required financial aid from the state last year as energy costs rose.

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