Fitch Rates Saudi Arabia's Sukuk 'A+'
(The following statement was released by the rating agency) HONG KONG, April 20 (Fitch) Fitch Ratings has assigned a final rating of 'A+' to Saudi Arabia's trust certificate programme and US dollar-denominated sovereign global certificates (sukuk) issued through KSA Sukuk Limited under the programme. The rating is in line with the expected rating assigned on 4 April 2017 and with Saudi Arabia's Long-Term Issuer Default Rating (IDR) of 'A+' with a Stable Outlook. KSA Sukuk Limited, registered in the Cayman Islands, is the issuer and trustee and has been incorporated solely for the purpose of the sukuk transaction. The sukuk is a hybrid mudaraba-murabaha structure. KEY RATING DRIVERS The sukuk issuance rating is driven solely by Saudi Arabia's Long-Term IDR, which stands at 'A+' with a Stable Outlook following a downgrade on 22 March 2017. The sukuk issuance rating is based on Fitch's view that a default of these senior unsecured obligations would reflect a default of Saudi Arabia in accordance with the agency's rating definition. Fitch has not considered any underlying assets or collateral provided, as we believe the issuer's ability to satisfy payments due on the certificates will ultimately depend on the Saudi government satisfying its unsecured payment obligations under the transaction documents described in the prospectus and other supplementary documents. In addition to the government's propensity to ensure repayment of the obligations of KSA Sukuk Limited, Fitch believes it would also be required to ensure full and timely repayment of KSA Sukuk Limited's obligations due to its roles and obligations under the sukuk structure and documentation, especially - but not limited to - the features below: - On each periodic distribution date, the deferred sale price under each subsequent murabaha transaction will be payable by Saudi Arabia as the purchaser, which will be sufficient to make payment of each periodic distribution amount payable under that series of trust certificates. - On the scheduled dissolution date, the deferred sale prices, due under the initial murabaha transaction and the then outstanding subsequent murabaha transaction, will become immediately due and payable and will be sufficient to fund the dissolution amount specified in the final terms and any due but unpaid periodic distribution amounts payable under that series of trust certificates. Fitch understands that the government of Saudi Arabia's payment obligations associated with the trust certificates are direct obligations of the Government of Saudi Arabia and rank pari passu with all other unsecured external indebtedness of the government of Saudi Arabia. The sukuk issuance includes a negative pledge provision that is binding on the government of Saudi Arabia, as well as financial reporting obligations, covenants, government event and cross acceleration terms with other external indebtedness. Certain aspects of the transaction will be governed by English law, while other aspects will be governed by the laws of Saudi Arabia. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, Fitch's rating on the certificates reflects the agency's belief that the government would stand behind its obligations. Under the final terms, the Saudi Fund for Development is expected to purchase 5% of the issued tranches of trust certificates and hold such U.S. Retention Interest on an ongoing basis for so long as required by the U.S. Risk Retention Rules. Such retention obligation will commence as of the initial issue date. Sukuk rated under the programme are rated as originator-backed (or "asset-based"), which are based on the credit characteristics of the sukuk described in Fitch's Criteria for Rating Sukuk (published 16 August 2016). Fitch's approach to rating originator-backed sukuk structures is driven solely by the originator's rating (in this case Saudi Arabia), relying on the clarity and strength of the contractual documentation binding Saudi Arabia to the sukuk obligations, which is explained above. Fitch's Criteria for Rating Sukuk does not apply to "asset-backed" sukuk, which rely on underlying collateral and assets. Fitch does not typically regard a deal's risk retention structure as a credit factor. However, Fitch will continue to monitor the evolution of sukuk structures, including but not limited to credit risk retention, and will communicate the rationale and implications should our approach change. When assigning ratings to the sukuk issuance, Fitch does not express an opinion on its compliance with sharia principles. RATING SENSITIVITIES The rating is sensitive to changes in Saudi Arabia's Long-Term Foreign-Currency IDR. Contact: Primary Analyst Jan Friederich Senior Director +852 2263 9910 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Krisjanis Krustins Associate Director +852 2263 9831 Global Head Islamic Finance Bashar Al-Natoor Senior Director +971 4 424 1242 Committee Chairperson Shelly Shetty Senior Director +1 212 908 0324 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com; Rose Connolly, London, Tel: +44 203 530 1741, Email: rose.connolly@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Sukuk (pub. 16 Aug 2016) here Sovereign Rating Criteria (pub. 18 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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