Singapore: Moody’s Investors Service has assigned a definitive rating of A3 to the US dollar Trust Certificates issued by Sharjah Sukuk Limited, a special purpose vehicle established in the Cayman Islands by the Government of Sharjah.
Moody’s says that the credit strength of the emirate is primarily supported by its very strong fiscal and government debt position. Aided by a competitive manufacturing sector, Sharjah’s credit strength is also supported by the relatively higher degree of economic diversification. Moody’s also notes the benefits conferred by Sharjah’s role in the UAE federation. However, given the small size of the emirate’s economy and its economic linkages with the rest of the UAE, Sharjah is exposed to macroeconomic volatility.
Moody’s observed that Sharjah’s government debt is low but rising. Government revenues rely on receipts from the oil and gas sector, customs duties, and proceeds from land sales, but with only limited hydrocarbon reserves and projected declines in oil production.
Furthermore, Moody’s notes the risk that the Sharjah government’s balance sheet could be negatively affected by any widening of fiscal deficits and a material deterioration in the financials of Sharjah’s government-related issuers.
In Moody’s view, Sharjah’s government finances benefit significantly from the emirate’s membership in the federation of the UAE. In particular, Moody’s notes further credit-positive prospects relating to the successful completion of the government’s current Public Finance Modernization Programme — including deficit reduction and stabilization of the government debt ratio.
The A3 rating assigned to the $750 million (Dh2.75 billion) Trust Certificates due 2024 is at the same level as the long-term local-currency and foreign-currency issuer ratings of the Government of Sharjah.
