The Government of the Emirate of Sharjah has mandated banks for a debut 12-year US dollar sustainable benchmark bond after publishing a sustainable financing framework and securing a second party opinion from S&P Global Ratings.
Sharjah is one of the seven United Arab Emirates, and the deal is a further sign that ESG-labelled issuance is picking up in the Middle East before the UN’s COP28 climate meeting in Dubai later this year.
Dubai Islamic Bank, the UAE’s largest Islamic bank and the world’s second-largest, is currently raising its second sustainable sukuk, and more issuers are working on ESG frameworks and policies as momentum builds around the region’s ESG agenda and transition plans to diversify away from oil and gas.
Several regional sovereigns including Saudi Arabia are close to finalising ESG-labelled frameworks and deals that will define how they will achieve national net zero targets and help the "huge pipeline" of Middle Eastern quasi-sovereign, corporate and financial institutions that are queuing up to issue, according to an ESG banker.
Sharjah’s sustainable financing framework will fund ESG policies formulated under the UAE’s environmental and social objectives, including the UAE’s 2050 net zero target, its Centennial 2071 programme, and the sustainable development goals of the UN’s 2030 Agenda.
HSBC has been mandated as sole global co-ordinator and ESG structuring agent for the deal, plus joint lead manager and bookrunner along with Abu Dhabi Commercial Bank, Citigroup, GIB, IMI-Intesa Sanpaolo, Invest Bank and SMBC Nikko as joint lead managers and bookrunners.
The Sharjah Finance Department is planning to launch a US dollar-denominated benchmark fixed-rate 144A Reg S senior unsecured inaugural sustainable bond with a mix of green and social projects under the country’s global MTN programme after a 1.5 week roadshow in Europe and the US.
The emirate (Ba1/BBB–) has a conventional March 2033 bond bid at 222bp over Treasuries, or a yield of 5.8%, according to Tradeweb. S&P lifted its outlook on Sharjah's credit ratings to stable from negative in January, but noted its high debt interest payments.
"We expect Sharjah's overall fiscal position to gradually stabilise over the period to 2026," S&P said, adding that the emirate's interest costs have risen in addition to an increasing government debt burden.
Flexible framework
The emirate’s sustainable financing framework will allow it to issue bonds or loans with green or social labels as well as sustainability bonds. S&P confirmed alignment with the International Capital Market Association’s bond principles and theloan principles published by the three loan associations.
The emirate is the third largest behind Abu Dhabi and Dubai and has been ruled by the Al Qasimi dynasty since the 18th century. Sharjah has its own local government that makes some political and financial decisions, while federal authorities retain responsibility for foreign affairs, defence and education.
Sharjah’s framework has 14 eligible categories – eight environmental and six social – and a look-back period of two years before issuance. S&P said that the extensive list included some categories that may have less benefit than others which could potentially constrain the impact of Sharjah’s sustainable financing.
Environmental projects include renewable energy, clean transportation, and energy efficiency, pollution prevention and control and the sustainable management and efficient use of natural resources, while eligible social projects include improving the empowerment and economic inclusion of under-served people and funding affordable housing.
S&P also noted that the target populations in some social categories seem narrow compared to the country’s total 1.8m inhabitants, and that not all project categories have clearly defined thresholds or market-based taxonomies, particularly relating to climate change adaptation.