AL RAJHI BANKING AND INVESTMENT CORPORATION
Fitch Ratings has assigned
The ratings only apply to the senior unsecured certificates issued under the programme.
ARSL, the issuer and trustee, is a special purpose vehicle incorporated in the
Key Rating Drivers
The programme's ratings are line with Al Rajhi's Long- and Short-Term Issuer Default Ratings (IDRs) of 'A-' and 'F1', respectively, which in turn are driven by the bank's standalone credit profile as captured in the bank's 'a-' Viability Rating (VR). The rating alignment reflects Fitch's view that default of these senior unsecured obligations would reflect a default of Al Rajhi in accordance with Fitch's rating definitions. The bank's Long-Term IDR, driven by its VR, is used as the anchor rating for the certificates.
Fitch has given no consideration to any underlying assets or any collateral provided, as it believes that the ARSL's ability to satisfy payments due on the certificates will ultimately depend on Al Rajhi satisfying its unsecured payment obligations to ARSL under the transaction documents described in the offering circular.
In addition to Al Rajhi's propensity to ensure repayment of the sukuk, in Fitch's view Al Rajhi would also be required to ensure full and timely repayment of ARSL's obligations due to the bank's various roles and obligations under the sukuk structure and documentation, especially, but not limited to, the features below:
Pursuant to the service agency agreement, Al Rajhi as service agent will ensure sufficient funds are available to meet the periodic distribution amounts payable by the trustee under the certificates of the relevant series on each periodic distribution date. Al Rajhi can take other measures to ensure that there is no shortfall and that the payment of principal and profit are paid in full, and in a timely manner
On any dissolution or default event, the aggregate amounts of deferred payment price then outstanding pursuant to the master Murabaha agreement shall become immediately due and payable; and the trustee will have the right under the purchase undertaking to require Al Rajhi to purchase all of its rights, title, interests, benefits and entitlements, present and future, in, to and under the relevant assets in consideration for payment by Al Rajhi of the relevant exercise price
The deferred payment price and the exercise price together are intended to fund the dissolution distribution amount payable by the trustee under the relevant certificates, which equal the sum of the outstanding face amount of such certificates; and any accrued but unpaid periodic distribution amounts for such certificates, or such other amount specified in the applicable pricing supplement as being payable upon the relevant dissolution date
The payment obligations of Al Rajhi under the service agency agreement, purchase undertaking, master trust deed and the master Murabaha agreement will be direct, unconditional, unsubordinated and unsecured obligations and shall at all times rank at least equally with all other unsecured and unsubordinated obligations of Al Rajhi, present and future
The transaction documents also include an obligation on Al Rajhi to ensure that at all times the tangibility ratio (which is defined in the service agency agreement as, in relation to each series, the ratio of the aggregate value of the financing assets and the tangible part of all tradeable sukuk forming part of the Wakala portfolio relating to such series, to the Wakala portfolio value relating to such series) is more than 50%. Failure of Al Rajhi to comply with this obligation shall not constitute an obligor event. However, if the tangibility ratio falls below 33% (tangibility event), this would result in the certificate holders having a put right for the senior unsecured certificates. The certificates would then be delisted and each certificate holder can exercise a put option to have their holdings redeemed, in whole or in part, at their dissolution distribution amount within 30 days after delisting notice is given. In such an event, there would be implications on the certificates' tradability.
Fitch expects Al Rajhi to maintain the tangibility ratio at above 50%. For the purpose of establishing the programme, Al Rajhi has identified
The sukuk transaction documents include a negative pledge provision, cross-acceleration terminology, as well as trustee and obligor event clauses
The transaction does not contain physical tangible real estate assets, so no total loss event has been included
Certain aspects of the transaction are governed by English law while others are governed by the laws of
When assigning ratings to the certificates to be issued, Fitch does not express an opinion on the certificates' compliance with sharia principles.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The programme's and certificates' ratings are sensitive to adverse changes in Al Rajhi's Long-Term and Short-Term IDRs, to which these are aligned. The ratings may also be sensitive to adverse changes to the roles and obligations of Al Rajhi under the sukuk's structure and documents.
A downgrade of Al Rajhi's Long-Term IDR would result in a downgrade of ARSL's programme's and certificates' rating. A downgrade of Al Rajhi's IDR would be driven by a downgrade of the bank's VR.
The VR could be downgraded if Fitch believes the operating environment has weakened significantly or if the bank's financial profile deteriorates. The Short-Term IDR of Al Rajhi would be downgraded if the bank's funding and liquidity profile weakens, which would also result in a downgrade of ARSL's certificates' Short-Term IDR.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The programme's and certificates' ratings are sensitive to favourable changes in Al Rajhi's Long-Term and Short-Term IDRs. The ratings may also be sensitive to favourable changes to the roles and obligations of Al Rajhi under the sukuk's structure and documents.
An upgrade of Al Rajhi's Long-Term IDR would result in an upgrade of ARSL's programme's and certificates' ratings. An upgrade of Al Rajhi's IDRs would come from an upgrade of the VR, although this is unlikely without a material improvement in the Saudi Arabian operating environment.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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