Link to Fitch Ratings' Report(s):
Sukuk Rating Criteria https://www.fitchratings.com/site/re/10082827
Fitch Ratings-Dubai/London-July 22:
Fitch Ratings has updated its criteria for rating sukuk. The update does not contain any material changes and no changes to the ratings of existing transactions are anticipated as a result of the application of the updated criteria. The report describes Fitch's approach to assigning and maintaining ratings for new and existing originator-backed sukuk issues. These criteria apply to originator-backed (or "asset-based") sukuk structures, where investors rely upon obligor direct support features and contractual commitments built into the documentation. These criteria apply globally to: corporates, financial institutions, sovereigns, supranationals, public finance, insurers and global infrastructure. They do not apply to asset-backed sukuk, which rely on underlying collateral.
Fitch's analytical assumption under these criteria is that the structure of the sukuk and the underlying transaction(s) provides for full recourse to the originator - as with a conventional bond issue - and the sukuk rating is driven solely by the originator's rating. There remains a lack of legal precedent in terms of effective enforcement in many jurisdictions where sukuk issuance is prevalent. It therefore remains uncertain whether certificate holders will be able to enforce their contractual rights in relevant courts.
Sukuk analysis and ratings will reflect Fitch's view that the default of these senior unsecured obligations under the legal structure and sukuk documentation would reflect default of the entity in accordance with Fitch's rating definitions. Ratings assigned to sukuk do not imply any confirmation that the sukuk are sharia compliant. Fitch will assess non-compliance with sharia if it has credit implications. If these implications cannot be quantified under our criteria for rating sukuk, this may mean that the sukuk are not rateable under these criteria. It is also possible for sukuk to be structured as subordinated, short-term or secured claims. If so, they will be rated as such in accordance with Fitch's established criteria, with the ratings again anchored on the IDR or the issuer's Viability Rating (VR) where the case dictates. Sukuk do not have a standard structure and each structure may involve different underlying contractual arrangements. As a result, each structure has to be reviewed individually to assess whether it complies with these criteria.
The updated report, titled 'Sukuk Rating Criteria', replaces the existing version published on 22 July 2018. It is available at www.fitchratings.com or by clicking the link above.
Contact: Bashar Al Natoor Global Head of Islamic Finance +971 4 424 1242 Al Thuraya Tower 1 Office 1805 Dubai Media City Media Relations: Louisa Williams (NYSE:WMB), London, Tel: +44 20 3530 2452, Email: louisa.williams@thefitchgroup.com.
Additional information is available on www.fitchratings.com
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