Moody's assigns A1 rating to DIB sukuk

MENAFN - Khaleej Times) DUBAI — Moody's Investors Service has assigned an A1 foreign-currency rating to the upcoming Sukuk trust certificates due 2012 of Dubai Islamic Bank PJSC (DIB).


Moody's rating is subject to review of the final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents reviewed.

Accordingly, a special purpose entity (Issuer), DIB Sukuk Company Ltd, incorporated in the Cayman Islands, will issue Sukuk certificates to investors (Sukukholders) and will use the proceeds to acquire a co-ownership interest in a portfolio of assets comprising lease and Musharaka assets (equity participations, profit and loss sharing) from DIB, with the two parties becoming co-owners in the co-ownership assets.

DIB, as managing agent, will collect all rental and profit payments from the lease and Musharaka contracts relating to the co-ownership assets and will pay the issuer an amount sufficient to fund the required periodic distribution amount to Sukukholders on each distribution date. Any excess payments from the co-ownership assets will be paid to DIB as an incentive fee, while any shortfalls will be covered by DIB to ensure the required periodic distribution amount is paid.

DIB will issue a purchase undertaking in favour of the issuer, wherein it undertakes to purchase the Issuer's interest in the co-ownership assets at a pre-agreed price, either upon maturity date or prior to maturity in the case of a dissolution event. This undertaking is the source of principal repayment.

Moody's notes that the purchase undertaking is based on UAE law and that it has reviewed, and found acceptable an external legal opinion that advises that, in the event that a UAE court considers DIB's obligation to purchase the Issuer's interest in the co-ownership assets as not being legally binding and enforceable, then, DIB is obliged to fully indemnify the Issuer (acting as trustee for the Sukukholders). The opinion notes that such indemnification is legally binding and enforceable under UAE law.

The A1 rating that Moody's has assigned to the senior Sukuk is at the same level as the long-term foreign currency issuer rating already assigned to DIB, the obligor, given that DIB is (a) obliged to cover any shortfall between the rental and profit payments from the co-owned assets and the required periodic distribution amount to Sukukholders; and (b) has irrevocably undertaken to purchase the Issuer's interest in the co-ownership assets at the relevant exercise price sufficient to pay the Sukukholders, either at maturity or on dissolution.