Islamic Finance 

MAF Sukuk Ltd.’s $600 Million Green Sukuk Rated ’BBB’

| 14 May, 2019

DUBAI (S&P Global Ratings) May 13, 2019--S&P Global Ratings today assigned its 'BBB' issue rating to the $600 million unsecured trust certificates issued by MAF Sukuk  Ltd.

MAF Sukuk  is a special-purpose vehicle  (SPV) that is incorporated in the Cayman Islands, with one outstanding sukuk series under the program. It is affiliated with Dubai-based property firm Majid Al Futtaim Holding LLC (MAFH; BBB/Stable/A-2), which guarantees the company's transactions.

The rating on the trust certificates reflects the rating on MAFH because the transaction fulfills the  five conditions of our criteria for rating sukuk (see "Methodology For Rating Sukuk," published Jan. 19, 2015, on RatingsDirect). The issuance is via a Wakala contract that comprises two components: a Murabaha contract (48.07%) and a sale-and-purchase agreement for real estate assets (51.93%).

The terms and conditions require a minimum of 34% of the sukuk proceeds be invested in a Wakala portfolio of assets, which include income-generating real estate assets or other Sharia-compliant tangible assets. A maximum of 66% of the proceeds can be used to purchase a commodity Murabaha investment to be sold to Majid Al Futtaim Properties (MAFP), MAFH's properties business unit, for a deferred sale price that includes the cost price of the commodities, a nominal profit, and,  if applicable, any commodity tax.

Under  the master trust deed, MAFH is required, among other obligations, to make up any shortfall between the exercise price,  the deferred sale price,  and the principal collections from the  underlying assets in case of a dissolution event, at a sufficient price to repay the sukuk holders. This price is equivalent to the aggregate face  value of the outstanding certificates, any accrued but unpaid periodic distributions, amounts repayable in respect of any liquidity facility, and any other amount payable by the trustee under the transaction documents.

Although the documentation mentions a risk of a total loss event (TLE), we view as remote the risk that a TLE will jeopardize the full and timely repayment of the sukuk. This is because any TLE would typically be mitigated by the guarantee provided by MAFH of full payment of principal and  accrued unpaid profit after such an event. MAFH has an obligation to ensure that the assets are  covered by insurance and to make up any shortfall between the insurance proceeds and principal amount, unless the company proves unequivocally that it has complied with its insurance obligations. Although such an exclusion might result in the residual exposure of investors to the underlying Wakala assets' risks, we consider the likelihood of a TLE occurring to be remote. Furthermore, we expect that MAFH's obligations to make up the value-restoration amount under the master trust deed will largely mitigate this risk.

We equalize our rating on the trust certificates with that on MAFH to incorporate our view that the  instruments show limited structural subordination to MAFH's existing obligations. We expect the company will use  the proceeds of the issuance for eligible green projects. In our view, the issuance will not cause MAFH's debt leverage ratios to deviate from our expectations for the issuer credit rating. To evaluate the certificates' structural subordination, we have applied our key credit factors for the real estate sector.

 

Related Criteria

-   Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019

-   General Criteria: Methodology For National And Regional Scale Credit Ratings, June 25, 2018

-   Criteria | Corporates | Industrials: Key Credit Factors For The Real Estate Industry, Feb. 26, 2018

-   General Criteria: Methodology And Assumptions: Assigning Equity Content To Hybrid Capital Instruments Issued By Corporate Entities And Other Issuers Not Subject To Prudential Regulation, Jan. 16, 2018

-   General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017

-   General Criteria: Guarantee Criteria, Oct. 21, 2016

-   General Criteria: Methodology For Rating  Sukuk, Jan. 19, 2015

-   Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014

-   Criteria - Corporates - Industrials: Key Credit Factors For The Leisure And Sports Industry, March  5, 2014

-   General Criteria: Group Rating  Methodology, Nov. 19, 2013

-   General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

-   Criteria | Corporates | Industrials: Key Credit Factors For The Retail And Restaurants Industry, Nov. 19, 2013

-   Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013

-   General Criteria: Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions, Nov. 19, 2013

-   General Criteria: Methodology: Industry Risk, Nov. 19, 2013

-   General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012

-   General Criteria: Criteria Clarification On Hybrid Capital Step-Ups, Call Options, And Replacement Provisions, Oct. 22, 2012

-   Criteria | Financial Institutions | General: Methodology: Hybrid Capital Issue Features: Update On Dividend Stoppers, Look-Backs, And Pushers, Feb. 10, 2010

-   General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

-   Criteria | Insurance | General: Hybrid Capital Handbook: September 2008 Edition,  Sept. 15, 2008

 

Related Research

-  MAF Sukuk  Ltd. Amended Sukuk  Certificate Program's 'BBB' Rating  Affirmed, Oct. 9, 2015

 

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public  website at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow  7 (495) 783-4009.

 

Copyright  © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their  directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use  of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES  DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES  OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR  PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation,

lost  income or lost profits and opportunity costs or losses caused by negligence) in connection with any use  of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are  expressed and not statements of fact.  S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when  making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due  diligence or independent verification of any information it receives.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole  discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their  respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com and www.spcapitaliq.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Like 

MORE INTERESTING TOPICS