RAKIA Sukuk (continued...) - Islamic Finance News

Deals of the Year 2007 Handbook
RAKIA Sukuk (continued...)
or on the redemption of the Sukuk. Under the purchase
undertaking, RAKIA agrees to purchase the issuer’s rights,
interest and title over the assets at a specified price on
a specified date following the issue of a notice from the
issuer. The notice will be served by the issuer either upon the
occurrence of an event of default or immediately before
the maturity date of the Sukuk, and the assets will be sold to
RAKIA under a separate sale agreement.
(iv) Sale undertaking
This undertaking was given by the issuer in favor of RAKIA.
Under the sale undertaking, the issuer agrees to sell its rights,
interest and title over the assets at a specifi ed price if there
are changes in the taxation laws in the issuer’s and RAKIA’s
jurisdiction.
(v) Sales contract undertaking
This undertaking was given by RAKIA in favor of the issuer,
where RAKIA in its own independent capacity guarantees
that the works will have a value of US$125 million following its
completion. In addition, RAKIA also guarantees the payment
performance of the third party developers for at least US$200
million. This will ensure that the full amount of the Sukuk will be
recoverable at maturity, given that RAKIA will only acquire
the works pursuant to the purchase undertaking at maturity.
The terms of this undertaking are designed to ensure that
the investors will receive the outstanding principal amount
in a manner that fi ts into the Sukuk structure.
(vi) Guarantee deed
The guarantee was issued by the government in favor
of the issuer, where the government irrevocably and
unconditionally guarantees RAKIA’s payment obligations
under the transaction.
DISTRIBUTION ANALYSIS
Middle East (75%)
United Kingdom (12%)
Rest of Europe (13%)
Despite the difficult market conditions brought on by the
international liquidity crunch during the time of closing, the
transaction was oversubscribed beyond the issue size. The
final distribution achieved investor diversification with banks
comprising 53% of the investors, while corporates, private
banks and fund managers made up the remaining 47%.
RAKIA managed to establish new investor relationships
while maintaining balanced distribution between traditional
fi xed-income and buy-and-hold investors. The transaction
was an important test of investor appetite for Sukuk
from the Middle East in light of the credit crisis which began
in mid-2007, a test that RAKIA passed.
Banks (53%)
Corporates (20%)
Private Banks (22%)
Fund Managers (5%)
This case study was written by
Iza Sheryl Kamaludin, a senior
associate at HSBC Amanah.
She can be contacted via
email at iza.kamaludin@hsbc.com
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