Dubai: The emirate of Sharjah has hired HSBC to set up a US dollar sukuk programme as the government looks at borrowing to reduce its budget deficit, sources familiar with the matter said on Wednesday.
A first issuance under the newly set sukuk programme is expected in the fourth quarter of 2017, one of the sources said.
HSBC declined to comment. The government of Sharjah did not respond to requests for immediate comment.
Sharjah is not new to the debt capital market, having issued a $750 million 10-year sukuk in 2014 and a $500 million five-year sukuk in January last year.
The bond due in 2024 had a 3.764 per cent profit rate and was yielding about 3.1 per cent on Wednesday, while the bond due in 2021 was issued with a 3.839 per cent profit rate and had a 2.74 per cent yield, Thomson Reuters data showed.
But those issues were on a standalone basis, while this is the first time that the emirate aims to establish an international borrowing programme.
Sharjah is rated BBB+ by Standard & Poor's. The agency affirmed its credit rating and outlook last month, citing Sharjah' social and political stability, and the emirate's low external risks derived from its membership in the United Arab Emirates.
The rating however is constrained by the emirate's limited monetary flexibility, due to the fact that the UAE dirham is pegged to the US dollar, and the underdeveloped domestic bond market, S&P said.
S&P also mentioned a "material increase" in government debt since 2013 and slower than expected fiscal consolidation.
However, S&P's stable outlook reflects expectations that Sharjah will reduce its budget deficit in the next two years. The deficit is expected to fall to 1.9 per cent of GDP in 2017 from nearly 3 per cent of GDP in 2016, the ratings agency said in a statement.