Standard & Poor's Ratings Services said today that it has assigned a preliminary 'BBB+' issue rating on sukuk trust certificates to be issued on May 27, 2011, by SIB Sukuk Company II Ltd., a special purpose company (SPC) with Sharjah Islamic Bank (SIB; BBB+/Stable/A-2) as the obligor and managing agent.
The 'BBB+' rating on the sukuk trust certificates is based on the 'BBB+' long-term counterparty credit rating on SIB. The rating on the five-year $400 million trust certificates reflects the irrevocable undertaking to purchase the assets held by the issuer at the redemption date of the sukuk at a predefined price. This obligation of SIB pertaining to sukuk redemption will also rank pari passu with all other senior unsecured obligations of SIB. This is the key rating factor. In addition, in the event that the returns generated by the sukuk assets (and investments complementing the assets) are insufficient on any periodic distribution date to fund the periodic distribution amount due, the managing agent shall use any amounts standing to the credit of the reserve account and, if insufficient funds are available in the reserve account, the managing agent may make a Sharia-compliant liquidity facility available to SIB Sukuk Company II Ltd. (the trustee) in the amount of the shortfall.
We understand there is technically no legally-binding obligation for SIB to provide such liquidity for Sharia-compliant reasons. That said, we take comfort from the fact that SIB is irrevocably committed to buy the underlying assets at nominal price at redemption, and by the fact that not extending such a facility would trigger a default and have a dramatic impact on the bank's business.
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