Fitch Rates Al Rajhi Sukuk Limited’s Trust Certificate Issuance Program “A-“”F1”

Fitch Ratings awarded Al Rajhi Banking and Investment Corporation’s (Al Rajhi; A-/Stable/a-) until $4 billion trust certificate issuance program, hosted under Al Rajhi Sukuk Limited (ARSL), ‘A-“”F1’ senior unsecured ratings.

Ratings only apply to senior unsecured certificates issued under the program.

ARSL, the issuer and trustee, is a special purpose entity incorporated in the Cayman Islands with all of its issued share capital held in trust for charitable purposes by MaplesFS Limited. ARSL was incorporated solely for the purpose of participating in the transactions contemplated by the transaction documents to which it is a party.

Main rating factors

The program ratings are consistent with Al Rajhi’s long and short-term issuer default (IDR) ratings of ‘A-‘ and ‘F1’, respectively, which in turn are determined by Al Rajhi’s stand-alone credit profile. the bank as it appears in the ‘a’ of the bank. -‘ Viability Assessment (VR). The ratings alignment reflects Fitch’s view that default on these senior unsecured notes would reflect a default by 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 gave no consideration to the underlying assets or collateral provided, as it believes that ARSL’s ability to meet payments due on the certificates will ultimately depend on Al Rajhi meeting its payment obligations. unsecured to ARSL under the transaction documents described in the offering circular. .

In addition to Al Rajhi’s propensity to ensure repayment of sukuk, according to Fitch, 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 sukuk structure and documentation, in particular, but not limited to the features below:

Pursuant to the Service Agency Agreement, Al Rajhi, as Service Agent, will ensure that sufficient funds are available to cover the periodic distribution amounts payable by the Trustee under the certificates of the relevant series. on each periodic distribution date. Al Rajhi may take further steps to ensure that there is no shortfall and that principal and profit payments are paid in full and in a timely manner.

In the event of dissolution or default, the total amounts of the Deferred Payment Prize then unpaid under the Murabaha Master Agreement shall become immediately due and payable; and the Trustee shall have the right under the Purchase Undertaking to require Al Rajhi to purchase all of its rights, titles, interests, benefits and rights, present and future, in and under the Assets concerned in return for the payment by Al Rajhi of the corresponding exercise price

The Deferred Payment Price and the Exercise Price are intended to fund the amount of the Termination Distribution payable by the Trustee under the relevant certificates, which is equal to the sum of the outstanding nominal amount of such certificates; and any accrued but unpaid periodic distribution amount for such certificates, or such other amount specified in the applicable pricing supplement as being payable on the relevant termination date

Al Rajhi’s payment obligations under the Service Agency Agreement, Purchase Commitment, Master Trust Deed and Master Murabaha Agreement will be direct, unconditional, unsubordinated obligations. and unsecured and will at all times rank at least pari passu with all other unsecured and unsubordinated obligations of Al Rajhi, present and future

The transaction documents also include an obligation for Al Rajhi to ensure that at all times the tangibility ratio (which is defined in the agency services agreement as, in relation to each series, the ratio of the total value financing assets and the tangible part of all negotiable sukuk forming part of the Wakala portfolio relating to this series, to the value of the Wakala portfolio relating to this series) is greater than 50%. Non-compliance with this obligation by Al Rajhi does not constitute a chargeable event. However, if the Tangibility Ratio fell below 33% (tangibility event), this would result in certificate holders having a sell right for senior unsecured certificates. The certificates would then be delisted and each certificate holder could exercise a put option to have their holdings redeemed, in whole or in part, at the amount of their dissolution distribution within 30 days of the mailing of the notice. radiation warning. In such a case, there would be implications on the negotiability of the certificates.

Fitch expects Al Rajhi to maintain the tangibility ratio above 50%. For the purposes of scheduling, Al Rajhi has identified $20.5 billion of eligible tangible assets (mainly ijara funding), which covers more than 5x the size of the program and effectively covers more than 15x the level of eligible tangible assets required for a tangible event. The prospect of early redemption would only have minor implications for Al Rajhi’s liquidity. Indeed, the bank has a strong liquidity profile that allows it to repay outstanding sukuk under the program if the tangibility ratio is exceeded, although this is not our base case. the $4 billion the maximum size of the program would have represented approximately 0.7% of Al Rajhi’s liabilities at the end of 2021

Sukuk transaction documents include negative pledge clause, cross acceleration terminology, as well as fiduciary and debtor event clauses

The transaction does not contain any 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 Saudi Arabia and Cayman Islands. Fitch expresses no opinion as to whether the relevant transaction documents are enforceable under any applicable law. However, Fitch’s rating on the certificates reflects the agency’s belief that Al Rajhi would meet his obligations.

In assigning ratings to certificates to be issued, Fitch does not express an opinion on the certificates’ compliance with Shariah principles.

Rating sensitivities

Factors that could, individually or collectively, lead to a negative rating action/downgrade:

The program and certificate ratings are sensitive to adverse changes in Al Rajhi’s long-term and short-term IDRs, to which they are aligned. Ratings may also be sensitive to adverse changes to Al Rajhi’s roles and obligations under the sukuk’s structure and documents.

A downgrade in Al Rajhi’s long-term IDR would lead to a downgrade in the program’s rating and ARSL’s certificates. A downgrade in Al Rajhi’s IDR would be driven by a downgrade in the bank’s RV.

The RV could be downgraded if Fitch believes the operating environment has weakened significantly or if the bank’s financial profile deteriorates. Al Rajhi’s short-term IDR would be downgraded if the bank’s funding and liquidity profile were to weaken, which would also lead to a downgrade in the short-term IDR of ARSL’s certificates.

Factors that could, individually or collectively, lead to positive rating action/improvement:

The program and certificate ratings are sensitive to favorable changes in Al Rajhi’s long-term and short-term IDRs. Ratings may also be sensitive to favorable changes to Al Rajhi’s roles and obligations under the sukuk’s structure and documents.

An upgrade of Al Rajhi’s long-term IDR would result in an upgrade of program ratings and ARSL certificates. An upgrade to Al Rajhi’s IDRs would come from an upgrade to VR, though that’s unlikely without a hardware upgrade to the Saudi operating environment.

Best/Worst Case Evaluation Scenario

Global credit ratings of financial institutions and covered bond issuers have a best-case scenario for a rating upgrade (defined as the 99th percentile of rating transitions, measured in the positive direction) of three notches out of a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured negatively) of four notches over three years. The full range of best-case and worst-case credit ratings for all rating categories ranges from ‘AAA‘ to ‘D’. Best and worst case credit ratings are based on historical performance. For more information on the methodology used to determine sector-specific best and worst-case credit ratings, visit

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