"Greater Amman Municipality": Islamic Sukuk reduce debt costs and provide financial resources
Savings will be directed towards implementing strategic projects
Amman4 min read
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Deputy City Manager for Financial Affairs at the Greater Amman Municipality, Dr. Ibrahim Al-Zyoud, said that the move towards issuing Islamic Sukuk comes within the Municipality's plan to enhance financial efficiency and sustainability by shifting from traditional borrowing instruments to Islamic Sukuk, which contributes to reducing debt costs and providing the financial resources necessary to implement strategic projects.
The Council of Ministers decided in its session held the day before yesterday, Sunday, chaired by Prime Minister Dr. Jafar Hassan, to approve the Greater Amman Municipality's issuance of Islamic financing Sukuk worth 400 million Jordanian Dinars in the form of an Ijarah Muntahia Bittamleek (lease-to-own) contract, with an annual return rate of 5.5 percent for a period of 5 years.
In statements to (Al-Rai), Al-Zyoud pointed out that the issuance of Islamic Sukuk worth 400 million Dinars represents a shift in the strategy of public debt management and local financing, as this issuance is the first of its kind for municipalities and public institutions in the Kingdom.
He explained that the importance of the issuance lies in diversifying funding sources and attracting a new segment of investors, in addition to providing an innovative financial model that enables service and municipal institutions to benefit from Islamic finance instruments to cover their development obligations, away from traditional borrowing tools.
Al-Zyoud indicated that this step comes to restructure the Municipality's financial obligations by replacing existing high-cost financing with Islamic Sukuk financing, the principal of which is repaid in full at maturity after 5 years, with periodic returns paid. He noted that this developed financial structure contributes to reducing financing costs and interest, which helps alleviate the debt service burden, improves cash flows and the Municipality's financial position, and ensures financial sustainability in the medium and long term.
He confirmed that the proceeds of the issuance will be directed towards paying off part of the existing debt, and that the savings from debt service will be directed to support and complete a package of capital and development projects approved in the Municipality's plan, most notably the development of the public transport system, traffic solutions, infrastructure modernization, and digital transformation and environmental projects. This will also reflect on raising the efficiency of direct municipal services provided to citizens and residents in the capital and accelerating the pace of completing vital projects.
Regarding the economic results of the issuance, Al-Zyoud said that the issuance contributes to stimulating economic sectors linked to capital projects, enhancing confidence in the financial market, and providing an attractive environment for strategic investment. He pointed out that the Greater Amman Municipality adheres to the highest standards of governance and transparency by reducing existing debt service and using the savings from debt service for projects and purposes specified by the Securities Commission, with the financing subject to oversight and auditing in accordance with the provisions of Islamic Sharia and government accounting standards.
He pointed out that the issuance represents a shift in the financial strategy of public institutions by diversifying funding sources, expanding the investor base, and allowing participation for Islamic banks and a wide segment of investors. This will reduce debt service costs, improve the financial solvency of the Greater Amman Municipality, and enhance its ability to manage its obligations.
Regarding the possibility of replicating the experience, Al-Zyoud said that the Sukuk issuance constitutes a guiding model for municipal work and confirms the possibility of employing Islamic finance instruments in public financing, allowing major municipalities and other service institutions to finance infrastructure projects at lower costs and higher efficiency.
The Municipality established an Islamic Sukuk company to finance its projects in accordance with the provisions of the Islamic Finance Sukuk Law and its governing legislation. The company has completed the preparation of the issuance documents and obtained the necessary approvals from the Securities Commission, including the approval of the prospectus by the Board of Commissioners and the Central Sharia Supervisory Board.
The Central Bank of Jordan will manage the issuance in the market, which is directed at banks, insurance companies, institutions, and savings, investment, and pension funds. The Sukuk will be tradable on the Amman Stock Exchange, in accordance with the approved terms, conditions, and regulatory arrangements.
Details of the issuance are expected to be announced in coordination between the Greater Amman Municipality and the Central Bank of Jordan in the coming days.
