Dismal rating for the International Islamic Liquidity Management Corporation’s Sukuk (By IFN)

Dismal rating for the International Islamic Liquidity Management Corporation’s Sukuk

Daily Cover

GLOBAL: Global rating firm S&P has assigned an ‘A-1’ rating on the International Islamic Liquidity Management Corporation’s (IILM) upcoming Sukuk issuance; a rating which most market players would deem to have “missed the mark”. According to sources close to the deal, the corporation was targeting an ‘A1/+’ rating in line with the quality and profile of the assets. However, market talk has alluded to the corporation’s fluctuating stand on the assets to be utilized. The rating analysis on the IILM 2 SA’s US$500 million Sukuk issuance by S&P reads: “The rating on the program depends on the asset eligibility criteria of the vehicle, which among other requirements limit the purchase of assets to those having a long-term rating corresponding to 'A-1'. Additionally, the transaction benefits from conditions restricting the issuance of certificates, which include minimum levels of liquidity, non-defaulted assets, and sufficient cash flows to cover profit and expenses of the vehicle.” The vehicle has also been structured to be bankruptcy-remote, mitigating the potential for an insolvency of the program, upon an insolvency of the IILM. The structure is also said to benefit from “a golden share held by a nominee trustee”, thus restricting the ability of the IILM to change the incorporation documentation of the vehicle, and protecting its certificate holders. S&P added that IILM will act as the program administrator of the vehicle. It has been over a year since the IILM first announced the issuance of its landmark Sukuk program, with constant changes within the corporation — from management upheavals to the Saudi Arabia Monetary Authority (SAMA)’s last minute decision to pull out, announced just yesterday. Earlier this year, Dr Zeti Akhtar Aziz, governor of Bank Negara Malaysia — which is one of the main backers of IILM, alongside the IDB and 10 other central banks — announced that the IILM Sukuk was in its “final stages.” It was subsequently given a proposed deadline of the first quarter of 2013. Dr Zeti, on the 21st March said: “The shareholders of IILM are in the process of supplying the underlying assets for the Sukuk,” adding that the corporation had at the time, already elected the primary dealers for the issuance. However, in light of the relatively disappointing rating and SAMA’s withdrawal, things are not as rosy as many would have expected; and the issuance, despite seemingly nearing its materialization, is still shrouded in a myriad of questions.