Unicorn Investment Bank and Standard Bank Plc successfully close landmark securitization on behalf of Kingdom Installment Company: “KSA MBS 1 International Sukuk”
Bahrain, 18 July 2006 - Unicorn Investment Bank and Standard Bank Plc. (Standard Bank) have successfully closed a landmark securitization transaction on behalf of Kingdom Installment Company LLC (KIC) of Kingdom of Saudi Arabia (KSA), a pioneer of housing finance in the Kingdom. Unicorn acted as lead manager, Shari’ah advisor and joint bookrunner and Standard Bank acted as joint bookrunner. The underlying Sukuk structure and assets achieved a credit rating of A- from Capital Intelligence Ltd, (CI) an international credit rating agency with a strong track-record of rating GCC credits. The International Finance Corporation (IFC), the private sector financing arm of the World Bank Group and rated AAA by internationally recognized rating agencies, has provided an innovative mezzanine credit enhancement taking the form of a stand-by murabaha facility. Furthermore, the Sukuk carries credit enhancement from Dar Al Arkan Real Estate Development Company of KSA, rated A- by CI.
Tahir M. Naseem, Director of Structured Finance at Unicorn commented: ‘This securitization transaction has broken new ground from a legal, financial and Shari’ah structuring point of view and provides a model for other financial institutions seeking liquidity to fund housing finance operations. It will make home ownership more accessible to people in the Kingdom while developing a backbone for a vibrant Islamic capital markets’.
Carl Piccolo, Head of Syndicate at Standard Bank commented: ‘The transaction was targeted at investors outside of the GCC Region and placed 15% with Asian Accounts and 85% with European Accounts, principally based in London. As a relatively small deal, Banks formed the overwhelming majority of investors by type. The deal was sold against a volatile emerging market backdrop for fixed income securities, a testament to the robustness of the structure and appetite for Saudi risk in RMBS format.’
The Sukuk transaction is the first true-sale securitization in the Gulf Cooperation Council (GCC) and is backed by US$23 million of Ijara and Istisna contracts providing a vital, off-balance sheet alternative source of funding to KIC as well as a Shari’ah-compliant, fixed-income investment product (akin to a mortgage-backed security) to GCC and international capital markets. The Sukuk has been priced at a fixed rate of 6.55% and matures in 2020, however, KIC have committed to re-purchase the assets at month 36, backed by a DAAR guarantee.
Abdullatif Alshalash, Board Director at KIC said: “The merging of traditional Shariah structures with modern conventional finance such as securitisation represents a quantum leap in the evolution of Islamic Finance. By directly accessing the capital markets and securing long term funding we have unlocked one of the key inhibitors to the growth of homeownership in the Kingdom of Saudi Arabia.” In addition, Simon Stockley, COO of KIC added: ‘The transaction is truly international and has been structured and rated to the highest international standards: Saudi real estate assets have been used to collateralize a Cayman Island Special Purpose Vehicle; structured out of London with dollar denominated cash flows; credit rated from Capital Intelligence and credit enhanced by the IFC.”
Nina Shapiro, IFC’s Vice President of Finance and Treasurer, noted that: “This securitization is a landmark transaction in the GCC region. IFC’s active involvement in the structuring of this transaction is another example of IFC’s contribution to the development of local capital markets. This innovative transaction introduces a high quality asset class to the investors in the region and will be a benchmark for future securitizations out of the GCC region”. Walid Abdul Rahman Al-Murshed, Regional Investment Officer of IFC, MENA Region, added: “IFC is pleased to play its part in providing long-term Islamic financing as a credible alternative to direct housing loans from banks and encouraging more such Sukuks to help expand the housing finance scheme.”
Saud Al-Gusaiyer, General Manager, Dar Al Arkan said “This is an important shari’ah-compliant structure which will facilitate the liquidation of real estate assets according to international standards and stimulate financial growth”.
The securitization is part of a series of Sukuk issues expected from KIC, which will enable the company to meet the huge demand for housing finance in KSA. Home ownership is set to continue its significant growth in the Kingdom given the young population demographics and a growing middle class. Recent research shows 86 percent of the country’s population are under the age of 40 demonstrating the growing demand for new homes.