LONDON, Dec 16: Moody’s Investors Service, (“Moody’s”) has today assigned a provisional (P)Baa2 rating to the $2 billion trust certificate issuance programme of EQUATE Sukuk SPC Limited (“Issuer” and “Trustee”), a special purpose company established in the Dubai International Financial Centre and wholly owned by EQUATE Petrochemical Co KSCC (“EQUATE”). The outlook is stable.
The (P)Baa2 rating assigned to the programme is at the same level as the senior unsecured issuer rating of EQUATE (Baa2 stable). EQUATE’s sister company, The Kuwait Olefins Company KSCC (“TKOC”, together with EQUATE being the “Obligors”), has through the Master Trust Deed unconditionally and irrevocably guaranteed the payment and performance obligations of EQUATE that are stipulated in the relevant programme transaction documents.
The alignment of the sukuk programme rating with that of EQUATE’s rating is because certificate holders are effectively exposed to the creditworthiness of the Obligors for the periodic distributions (akin to coupon payments) and principal repayment of the sukuk. Certificate holders (1) only have rights against each Obligor under the transaction documents, and these rights rank pari passu with other senior unsecured obligations of each Obligor; (2) are not exposed to the performance risk of the asset portfolio relating to the certificates; and (3) will not have any preferential claim or recourse over the relevant trust assets.
The sukuk structure is a combination of an Ijara (asset sale and lease back transaction) and commodity Murabaha (commodity purchased and sold on a deferred payment basis).
At the time of sukuk issuance, the Issuer will issue certificates to investors and in return the Trustee will use no less than 52 percent of the issuance proceeds to purchase EQUATE’s tangible assets (which will then be leased back to EQUATE) and no more than 48 percent of the proceeds to purchase commodities on a deferred payment. EQUATE will act as a lessee under the Ijara agreements and as purchaser under the Murabaha agreement.
The rent from the leased assets will be used to pay periodic distribution. At the time of a dissolution event (such as sukuk maturity date or event of default), the Trustee will exercise its rights under the Purchase Undertaking to oblige EQUATE to purchase back the leased assets and under the Master Murabaha Agreement to pay the outstanding deferred sale price.