DUBAI, Jan 5 The emirate of Sharjah is planning to raise funds through a dollar-denominated Islamic bond, sources aware of the matter said on Tuesday, in what could be the first sovereign sukuk issuance from the Gulf region this year.
The sources said the issue would be of "benchmark size", traditionally understood to mean in excess of $500 million.
Six local and international banks have been mandated to arrange the sukuk including HSBC, which is leading the transaction, two of the sources said, speaking on condition of anonymity as the information isn't public.
The sovereign is aiming to issue the sukuk in the first quarter of the year and could announce investor meetings for the deal as early as this month, the sources added.
However, the diplomatic spat between Saudi Arabia and Iran could disrupt the timing of the issuance if it hits confidence among international investors.
An official at the department of finance in Sharjah, the third largest emirate of seven in the United Arab Emirates (UAE), declined to comment.
A successful offering could help Sharjah narrow its budget deficit and pave the way for other Gulf issuers to access the bond market.
As well as banks - seeking cash as local liquidity is squeezed - and companies, Gulf sovereigns are expected to make rare forays into international debt markets this year to cover budget shortfalls, including Qatar, Kuwait and Saudi Arabia.
Sharjah has coped comparatively well with low oil prices thanks to its diversified economy, according to credit ratings agency Standard & Poor's (S&P), which rates it as A.
In November, S&P said it expected Sharjah's government deficit to narrow towards 1 percent of GDP in 2018 from a peak of 2.7 percent in 2014. It added the calculations were made without access to Sharjah's GDP data, which is not made public.
Total expenditures in Sharjah's 2015 budget were forecast to be around 17.7 billion dirhams ($4.8 billion).
Sharjah's government budget is small relative to GDP, largely because the UAE federal budget covers a large share of public services in the emirate.
Any sukuk issue would be only its second ever offering after it sold a $750 million 10-year Islamic bond in 2014. The deal attracted significant interest from investors, who pledged orders worth 10 times its final size.
(Reuters / 05 January 2016)---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com