Fitch Rates BBG Sukuk Ltd's Trust Certificate Issuance Programme 'A '
KEY RATING DRIVERS
The trust certificate issuance programme's rating is driven solely by Barwa Bank (Q.S.C.)'s (Barwa) Issuer Default Rating (IDR) of 'A+'/'F1'. This reflects Fitch's view that default of these senior unsecured obligations would reflect default of the entity in accordance with Fitch's rating definitions. Fitch has given no consideration to any underlying assets or any collateral provided, as we believe that the issuer's ability to satisfy payments due on the certificates will ultimately depend on Barwa satisfying its unsecured payment obligations to the issuer under the transaction documents described in the prospectus.
In addition to Barwa's propensity to ensure repayment of the BBG sukuk, in Fitch's view it would also be required to ensure full and timely repayment of BBG's obligations due to the bank's various roles and obligations under the sukuk structure and documentation, especially- but not limited to- the features explained below.
A sufficient amount should be transferred to the transaction account to ensure that on any maturity data or at any dissolution event it contains an amount equal to the aggregate of: (i) an amount equal to the aggregate face amount of certificates then outstanding for the relevant series; (ii) an amount equal to any accrued and unpaid periodic distribution amounts; and (iii) other amounts specified in the applicable final terms as being payable upon dissolution of the relevant series.
In our view, this is ensured by the following:
- Under the purchase undertaking, on the business day immediately preceding the scheduled dissolution date, the trustee will have the right to require Barwa to purchase all of the trustee's rights in, title to and interests, benefits and entitlements under the wakala assets and make payment for these at the relevant exercise price into the transaction account.
- Under the terms of the service agency agreement, Barwa in its role as servicing agent, is required to pay an amount equal to the amount of the principal or capital revenues owed to the principal collection account into the transaction account, also on the business day immediately preceding the scheduled dissolution date.
- In the case of wakala/mudaraba series, the mudarib will also be required under the master restricted mudaraba agreement and the relevant supplemental restricted mudaraba agreement to liquidate the relevant mudaraba on the business day prior to the scheduled dissolution date and distribute all proceeds including the mudaraba profit to the trustee by payment into the transaction account.
On the business day prior to each periodic distribution date (i) the servicing agent will pay amounts reflecting the returns generated in respect of the relevant wakala portfolio into the relevant transaction account; and (ii) for a wakala/mudaraba series, the mudarib will also pay, in accordance with a pre-agreed profit sharing ratio, amounts representing the rab-al-maal's share of the returns generated in respect of the relevant mudaraba portfolio into the relevant transaction account. In aggregate, these are intended to be sufficient to fund the periodic distribution amounts payable by the trustee under the certificates of the relevant series and shall be applied by the trustee for that purpose. Fitch notes that Barwa can take other measures to ensure that there is no shortfall and that funding and the portfolio income are redeemed in full.
Barwa's payment obligations (in any capacity) to the trustee under the transaction documents in respect of each series of certificates will be direct, unconditional, unsubordinated and unsecured obligations and shall, at all times rank at least equally with all other unsecured and unsubordinated monetary obligations of the bank, present and future.
Fitch understands that certain aspects of the transaction will be governed by English law while others will be governed by Qatari law and the laws of the Cayman Islands. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, Fitch's rating on the certificates reflects the agency's belief that Barwa would stand behind its obligations.
When assigning ratings to the programme and certificates to be issued under it, Fitch does not express an opinion on the programme's compliance with sharia principles. There is no assurance that notes issued in the future under the programme will be assigned a rating, or that the rating assigned to a specific issue under the programme will have the same rating as the programme rating.
The programme includes a negative pledge provision binding Barwa, as well as financial reporting obligations, covenants and cross-default clauses. The documentation does not contain a change of control clause.
RATING SENSITIVITIES
The programme's rating is sensitive to any changes in Barwa's Long-term IDR. A downgrade of Barwa's IDR would result in a downgrade of BBG's debt ratings. The ratings may also be sensitive to any changes to the roles and obligations of Barwa under the sukuk's structure and documents.
Barwa's IDRs, Support Rating and Support Rating Floor are potentially sensitive to a change in Fitch's assumptions around the Qatari authorities' propensity or ability to provide timely support to the banking sector. At present Fitch considers the likelihood of any change to be small.
RATING ACTIONS
New rating:
BBG Sukuk Ltd.'s Trust Certificate Issuance Programme:
Long-term rating: assigned at 'A+'
Short-term rating: assigned at 'F1'
Barwa's ratings are as follows:
Long-term foreign currency IDR: 'A+'; Outlook Stable
Short-term foreign currency IDR: 'F1'
Viability Rating: 'bbb-'
Support Rating: '1'
Support Rating Floor: 'A+'
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