The emirate of Sharjah attracted massive demand at its first international debt sale on Wednesday, drawing investor orders worth more than ten times the $750 million issue.
The strong interest in the issue of ten-year Islamic bonds reflected both investors’ hunger for new Gulf issuers, and the view that oil-rich Abu Dhabi, the biggest of the seven members of the United Arab Emirates, will support the others if needed.
“The demand is a reflection of the likely scarcity value of the deal, and the strong proven economic and political backstop provided by Abu Dhabi/UAE federal authorities for the various emirates,” said Raza Agha, emerging market sovereign debt analyst at VTB Capital in London.
About $7.85 billion of orders poured in for the sukuk ijara from 250 investors, as pricing was tightened to 110 basis points over midswaps. The issue priced at a profit rate of 3.764 per cent.
With a population of under one million, Sharjah’s $22 billion economy accounts for only a little over five per cent of total UAE output. Although it is developing its tourism and manufacturing industries, it lacks the large oil resources of Abu Dhabi and the commercial glamour of neighbouring Dubai.
But it benefits from being part of the UAE in two major ways. Abu Dhabi has shown it will do what it takes to support other members of the UAE, which was founded only in 1971, both economically and politically – in 2009 it provided over $10 billion to aid Dubai during that emirate’s financial crisis.
Also, money from booming economies in the prosperous south of the UAE is increasingly spilling into the north; as real estate prices in Dubai surge, some people are moving to Sharjah, pushing up prices there too.
Demand for the Sharjah sukuk was so heavy that it priced inside the Dubai government’s $750 million, January 2023 sukuk , which was trading at a Z-spread of 139 bps on Wednesday – despite very bullish market sentiment towards Dubai because of its economic boom.
The fact that Dubai does not have a credit rating limits interest in its bonds among some investors. But the Sharjah bond, rated A3 by Moody’s Investors Service, also compared well with Abu Dhabi bonds.
The Sharjah issue priced in line with the 2023 bonds of one of Abu Dhabi’s top state-owned firms, Abu Dhabi National Energy Co (TAQA), which are also rated A3. Those bonds were trading at a Z-spread of 109 bps on Wednesday.
Half of the Sharjah issue was allocated to investors from the Middle East, while British-based investors took 20 percent, the rest of Europe 11 percent and Asia 14 percent, the emirate’s government said.
“The issuance will provide a benchmark for any transactions undertaken by Sharjah entities in both the wider public sector and the private sector,” the Sharjah Finance Department said.
“It will also enhance the efforts of the UAE authorities to develop the local financial markets.”
Sharjah had appointed HSBC, Kuwait Finance House, National Bank of Abu Dhabi, Sharjah Islamic Bank and Standard Chartered to arrange the sukuk sale.