Sovereign Sukuk – Emirate of Sharjah US$750m Sukuk
Government of Sharjah Returns to International Sukuk Market with Benchmark 10.5 Year Reg S US$750m Murabaha/Ijara Sukuk
The Government of Sharjah, through its Finance Department, returned to the international Sukuk market with a benchmark senior unsecured Reg S 10.5-year US$750 million Sukuk Murabaha/Ijara issuance on 15th September 2023 maturing on 19th March 2034.
The Sukuk certificates were issued by Sharjah Sukuk Programme Limited, an exempted limited liability company incorporated in the Cayman Islands, on behalf of the obligor, the Government of Sharjah, under its unlimited Trust Certificate Issuance Programme established on 8th September 2023. The Programme was arranged by HSBC and Standard Chartered Bank, which together with Abu Dhabi Islamic Bank, Dubai Islamic Bank and Sharjah Islamic Bank also acted as Dealers.
Sharjah mandated Standard Chartered Bank to act as global coordinator to the transaction, who together with Dubai Islamic Bank, Sharjah Islamic Bank, Abu Dhabi Commercial Bank, Bank ABC, Emirates NBD Capital, GIB Capital and HSBC, acted as joint lead managers and bookrunners and were mandated to arrange a series of investor calls and meetings with accounts in London, Europe, Asia, the Middle East and US Offshore accounts.
The Government of Sharjah is a regular issuer of Sukuk in the international market. This latest transaction is the third consecutive annual fixed rate benchmark US$750 million issuance by the Government of Sharjah since 2021, having issued similar offerings in 2021, 2022 and 2023.
Sharjah launched the 10.5 year US$750 million offering on 16th September 2023 maturing in March 2034. Sharjah had given initial price guidance of around a spread of 220 basis points (bps) over US Treasuries, but this tightened to 180 bps as the order book topped US$3.4 billion due to heavy investor demand for the papers from diverse investor accounts in the Middle East, UK, Europe and Asia. The transaction was over four times over-subscribed. This translates into a profit rate of 6.092% per annum payable semi-annually in arrears on each periodic distribution date.
The Trust assets, according to the Final Terms, comprises 85.98% Ijara assets and 14.02% Murabaha assets.
The 8-year US$750 million Sukuk issued in April 2022 in contrast was priced at a profit rate of 3.886% per annum payable semi-annually in arrears on each periodic distribution date. Similarly, the US$1 billion Sukuk issued in 2021 was priced at a profit of 2.942% per annum.
According to the base prospectus, the UAE’s economy is significantly affected by volatility in international oil prices and its economy has in the past been and is likely in the future to continue to be, adversely affected by lengthy periods of low oil prices. Sharjah is not a large oil producer (with the mining and quarrying sector, which includes crude oil and natural gas, accounting for 2.7% of Sharjah’s nominal GDP in 2021) and it enjoys a relatively diverse economy. However, Sharjah’s economy is highly integrated with the other Emirates in the UAE through trade, currency, a common banking system and fully open markets.
Therefore, any effect of oil price volatility may have a consequent effect on Sharjah. The UAE’s economy, in particular Abu Dhabi and to a lesser extent Dubai, is significantly impacted by international oil prices. The mining and quarrying sector, which includes crude oil and natural gas, accounted for approximately 27.7% of the UAE’s constant GDP in 2021 as compared to 28.7% in 2020, 25.0% in 2019, 26.0% in 2018 and 20.5% in 2017.
Indeed, the IMF in its latest update on the UAE in October 2023 observed: “The outlook remains subject to heightened global uncertainty. A decline in oil demand and reduced global trade and tourism from slower global growth, higher-for-longer interest rates, tighter financial conditions, or geopolitical developments would weigh on growth and pressure fiscal and external balances. However, higher oil prices and healthy fiscal buffers help mitigate risks, while reform efforts pose upside risks to growth.”
Following the OPEC+ production cuts, hydrocarbon GDP growth is expected to slow in 2023, but to accelerate next year with the UAE’s 2024 OPEC+ production quota increase. Overall real GDP is expected to grow around 3.5% this year. Average inflation will remain contained at around 3% in 2023, down from 4.8% in 2022.
The Sukuk certificates were admitted for listing on the Official List and to trading on the regulated market of Euronext Dublin, on the DFSA Official List and to the Nasdaq Dubai in July 2021. Sharjah has been assigned a long- and short-term foreign and local currency sovereign credit rating of BBB- and A-3 by S&P with a negative outlook and a long-term issuer rating of Ba1 by Moody’s with a stable outlook.
Th US$750 million Sukuk certificates were listed by the Government of Sharjah on Nasdaq Dubai on 19th September 2023. With the addition of this latest Sukuk, the overall value of Sukuk listings in Dubai, according to the bourse, has reached US$81 billion, with US$79 billion listed on Nasdaq Dubai alone. This latest Sukuk adds to the Government of Sharjah’s portfolio of Nasdaq Dubai-listed Sukuk totalling US$5.9 billion under the Sharjah Sukuk Programme Ltd. From January to September 2023, 12 Sukuks with a total value of US$8.32 billion were successfully listed on Nasdaq Dubai. This growth underscores the exchange’s pivotal role as the leading platform for Sukuk listings and reaffirms its importance in the global financial market, said Nasdaq Dubai.