Local Business

Sharjah launches $500m 5-year sukuk

Filed on January 21, 2016

Niranjan Gidwani

The deal will help Sharjah narrow its budget deficit and also pave the way for other regional borrowers to complete deals.

The Emirate of Sharjah priced a $500 million five-year Islamic bond issue on Wednesday, a document from the lead arrangers showed, launching the first sovereign sukuk from the Gulf region this year.

The deal will help Sharjah narrow its budget deficit and also pave the way for other regional borrowers to complete deals after a lull of nearly three months as Gulf financial markets wobbled under pressure from increased geopolitical risk and oil prices slumping to a 12-year low.

Governments in the Gulf Arab oil exporting countries look set to borrow from the international bond market at a record pace this year as they cover budget deficits created by low oil prices.

In the uncertain atmosphere, the five-year sukuk drew orders north of $950 million, a comfortable amount but much smaller than the $7.85 billion the emirate attracted for a $750 million, 10-year sukuk in September 2014.

The shrinking orderbook reflects foreign investors' increasing nervousness about the impact of lower crude prices on the economy and local market appetite.

"The demand suggests they got the price right. It was a solid starting point to the year in an environment where others have struggled to gather courage to launch a deal," said one investor in the sukuk.

The deal was priced at a spread of 250 basis points over midswaps, the document showed, at around the same level as the initial price thoughts set on Tuesday.

Adjusting for the tenor extension, the current transaction paid a new issue premium of between 35 and 40 bps, several investors and bankers said. The bond performed well in the secondary market with bid/offer quotes of 100.15 to 100.35.

New issue premium is the amount paid above the trading levels of existing comparable bonds of a similar tenure to encourage investors to sell the old bonds and buy into the new deal.

Sharjah's existing 3.764 per cent 2024 sukuk which raised $750 million in September 2014, realigned to the pricing of the new issue. - Reuters

It was trading at around 237 bps over z-spread before the deal got printed on Wednesday, and moved up to 267 bps at 12.50 GMT, according to Thomson Reuters data.

Sharjah also chose to abandon plans to issue a 10-year sukuk due to the pricing demanded by investors, said the sources.

The deal for the emirate, rated A3 by Moody's and A by Standard & Poor's, was arranged by Bank of Sharjah, Barclays, Commerzbank, Dubai Islamic Bank, HSBC and Sharjah Islamic Bank. - Reuters

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