Standard & Poor’s Ratings Services said that it assigned its ‘BBB’ issue rating to a $1 billion trust certificate program to be launched by MAF Sukuk Ltd., a special purpose vehicle incorporated in the Cayman Islands. The program is unconditionally and irrevocably guaranteed by Dubai-based property company Majid Al Futtaim Holding LLC (MAF Group; BBB/Stable/A-2). We equalize the rating on the program with the long-term rating on MAF Group, reflecting our expectation that the obligations under the guarantee will rank pari passu with the company’s other unsecured obligations.
MAF Sukuk Ltd., as the issuer and trustee, will invest the proceeds of the trust certificates in Sharia-compliant assets for a period of time corresponding to the duration of the certificates and hold the assets in trust for the benefit of the certificate holders. MAF Group subsidiary, Majid Al Futtaim Properties LLC (MAF Properties), as the managing agent, will collect the income that the assets generate. The income will serve as the basis for periodic distribution payments on the trust certificates. However, certificate holders do not have any recourse to the trust assets.
Upon maturity of the certificates or the occurrence of a dissolution event, the trustee, acting on behalf of certificate holders, is entitled to exercise a purchase undertaking requiring MAF Properties to purchase the assets at a price covering the aggregate face amount outstanding of the certificates and accrued and unpaid periodic distribution amounts, according to the terms of the program. In addition, in the event that the income generated by the assets is insufficient to fund periodic distribution payments, and funds are not available in reserve accounts, the managing agent shall provide funding or procure funding from a third party to meet such a shortfall. MAF Group unconditionally and irrevocably guarantees the due and punctual payment by the managing agent of the above amounts.
Standard & Poor’s has not evaluated whether the program is Sharia-compliant. The ratings solely represent our opinion about the likelihood of full and timely repayment of the certificates issued under the program.
The ratings on Dubai-based retailer and property company MAF Group reflect Standard & Poor’s view of the group’s “satisfactory” business risk profile and its “intermediate” financial profile.
MAF Group’s business strengths include its high asset quality, a strong management team with a good record of delivering successful greenfield developments, and a longstanding relationship with France-based international food retailer Carrefour S.A. (BBB+/Negative/A-2). These strengths are mitigated by geographic concentration, with about 73% of first-half 2011 EBITDA derived from assets located in the Emirate of Dubai (not rated), high development exposure, rapid rollout of new hypermarkets, and political instability in some countries where MAF Group is present, notably the Arab Republic of Egypt (B+/Negative/B) and the Kingdom of Bahrain (BBB/Negative/A-3).
S&P says the our view of MAF Group’s financial risk profile as intermediate takes into account the group’s strong operating cash flow generation, absence of a dividend payment, ability to curtail capital expenditure at short notice, and prudent liquidity management.