Yemen's $500m sukuk will be hard to sell, say analysts

High unemployment, dwindling oil reserves and political volatility in Yemen mean most investors will likely give the sukuk a wide berth, say analysts with Gulf investors the only likely takers.

Gulf investors are likely to account for the only international interest in an Islamic bond issue by Yemen, the poorest country in the Middle East.

High unemployment, dwindling oil reserves and political volatility in the country mean most investors will probably give the sukuk a wide berth, analysts say.

Yemen plans to sell US$500 million (Dh1.83 billion) of local currency Islamic paper for the first time from the first quarter, the country's deputy finance minister, Jalal Yaqoub, told Bloomberg.

John Sfakianakis, the chief economist at Banque Saudi Fransi in Riyadh, said: "There are frontier markets and then there is Yemen. It is on the outer stratosphere of emerging markets."

For many years Yemen has remained off the radar of most foreign investors because of security concerns.

As a result, it had to tap into financial support from the IMF last year. But the country is desperate to finance a budget deficit that is running at about 8 per cent of GDP.

Yemen is keen to fund many infrastructure projects such as roads, energy and education facilities.

The country also wants to gain a foothold within the Islamic finance industry and galvanise its banks. The issue has so far been held up as officials lay the technical groundwork for the sale.

Dr Sfakianakis said: "There will be some migrants in the Gulf well-placed in business circles who empathise with Yemen's predicament and are interested."

Some GCC central banks familiar with the country's political situation may also invest, he said.

Oil represents 60 per cent of government revenue and 90 per cent of exports, the IMF says, but oil reserves are forecast to run dry within a decade.

A reduction in oil prices during the financial crisis aggravated Yemen's existing problems such as high unemployment, poverty and water shortages.

The country is reliant on international donors and was the largest recipient of foreign aid from the UAE in 2009, with more than Dh2.8bn in assistance.