Sharjah hires banks for 30-year Formosa bonds to tap investors

Sharjah, the third-largest emirate of the United Arab Emirates, has hired banks to arrange the issuance of US dollar-denominated 30-year Formosa bonds, a document showed late on Monday.

Sharjah has hired Citi, Emirates NBD Capital, HSBC, Invest Bank, JPMorgan and Standard Chartered to arrange an investor call on Monday, to be followed by the issuance, subject to market conditions, the document from one of the banks arranging the deal showed.

It would be Sharjah’s first Formosa, first long-dated and first conventional benchmark bond, said a source close to the deal. Benchmark generally means at least $500 million.

The government issued a conventional Panda bond - yuan-denominated debt issued by foreign borrowers - in 2018, but the size was about 2 billion yuan ($286 million), the source said.

The emirate’s longest maturity in the public market so far is 10 years.

“The 30 years duration and the Formosa market would allow Sharjah to tap a new investor base,” the source said.

Formosa bonds are sold in Taiwan by foreign borrowers and are denominated in currencies other than the Taiwanese dollar.

The Formosa bonds would be listed on Euronext Dublin, Nasdaq Dubai and Taipei Exchange, the document said.

Sharjah also listed a $200 million sukuk on Nasdaq Dubai in March, taking the total value of sukuk listed in Dubai to $67.06 billion, according to WAM report. Sharjah made two major sukuk listing on the exchange last year.

It included a $1 billion sukuk in April 2019, and another $750 million sukuk listing in October.

As for the overall sukuk listing on Nasdaq Dubai, in 2020 alone there has been $2.9 billionn listed on the exchange.

The single-biggest sukuk listing this year was the $2 billion listed by Saudi Arabia-headquartered lender Islamic Development Bank on the exchange in March.

In 2019, there was a total $14.15 billion of sukuk listed on the exchange, an 18 per cent year-on-year increase from $11.99 billion in 2018.

A total of 44 per cent of Nasdaq Dubai’s sukuk listings by value are from UAE issuers, with 56 per cent from overseas issuers.

Sharjah Islamic Bank recently listed $500 million Sukuk on Nasdaq Dubai. The capital raised will support SIB’s activities and strategic development to cater to its customers in corporate, investment and retail banking.

Nasdaq Dubai said in a statement that the five-year Sukuk was subscribed 7.2 times by regional and international investors with 150 investors showing their interest. “It brings the total value of SIB Sukuk listings on Nasdaq Dubai to $2 billion following listings of $500 million each in 2016, 2018 and 2019,” it added.

Mohammed Abdulla, Chief Executive Officer of SIB said, “The very positive response from the market to our latest Sukuk reflects investors’ strong belief in SIB’s strategy as we develop our activities across all our areas of business for a wide range of businesses and individuals. Our listing on the region’s international exchange supports our visibility regionally and globally and reflects the leading role played by UAE financial institutions in collaborating to develop the Sharia’a-compliant Sukuk markets.” SIB’s Sukuk brings the total value of Sukuk listed in Dubai to $69.29 billion, underlining the emirate’s status as one of the largest Sukuk listing centres in the world by value.

Moody’s Investors Service has assigned recently a provisional rating of Baa2 to the Government of Sharjah’s Global Medium Term Note (GMTN) Programme.

The Baa2 rating on the emirate’s proposed GMTN programme mirrors the Government of Sharjah’s long-term issuer rating (Baa2), with a stable outlook.

“The stable outlook on the issuer rating is supported by Sharjah’s relatively diversified economy, low external vulnerability risks and a credible currency peg afforded by membership in the federation of the UAE, ample funding sources, and high-income levels contributing to shock absorption capacity.” It is also indicating a degree of resiliency at the current rating level despite pressures on creditworthiness globally associated with the coronavirus shock, according to Moody’s.

The report further noted that the stable outlook takes into account the relatively low probability of a significant improvement in fiscal strength.

The Sharjah Finance Department recently established a framework worth Dhs4 billion to enhance liquidity for the banking system in the emirate. The move aims to provide additional financial assistance to all businesses impacted by the outbreak of COVID-19.

“Issued as 12 month dirham-denominated paper in several tranches, the Sharjah Liquidity Support Mechanism, SLSM, Sukuk represents the first rated short term local currency tradeable instrument in the UAE, which can be used for liquidity management by banks,” SDF said in a statement. “This paper has a short term investment grade rating of A-2 by Standard & Poor’s rating agency,” it added.

Waleed Al Sayegh, Director-General of Sharjah Finance Department said, “The authorities in Sharjah and across the region are taking the required measures to provide maximum assistance to all businesses dealing with the impact of the outbreak. This service will allow banks to use the Sukuk as security to access liquidity facilities at the UAE Central Bank, by following the required guidelines.”

Agencies