ENSEC completes first Shariah-compliant home finance securitization for Tamweel

The transaction, which ENSEC structured for Tamweel, was the highest-rated standalone deal at issuance. The deal involved the first-ever issuance of various tranches of notes in an Islamic transaction and the first perfected sale structures in a securitization transaction from the UAE.

Within the ambit of the transaction, Tamweel securitized its book of UAE dirhams-denominated 736 Ijara contracts worth $210m. This issuance was divided into notes of four classes with a legal maturity in 2037. Of these classes, A, B and C enjoyed very high ratings by Moody's Investors Service (Aa2) and Fitch Ratings Limited (AA), while the unrated class was retained by originator.

ENSEC is a specialized structuring and advisory boutique focused on the securitization and structured products arena of the international capital markets. The Tamweel securitization was the second transaction structured by ENSEC, and represents a major milestone - promoting the ability of UAE-based institutions to tap into the international securitization capital markets.

In his comments on the transaction, Sandeep Chaudhry, CEO of ENSEC, said: "The deal was a true success and we as the leading organization in securitization are geared towards driving home the success of similar transactions in the future. With ever-increasing financing needs in the Middle East, and the pursuant expansion plans of UAE based companies, securitization provides a sophisticated, attractive and diversified funding source that can be utilized to finance expansion across global business franchises."

The securitization deal was unique in the way because considerable efforts were exerted on adapting the principles of conventional securitizations into the Shariah framework and making it work in the new and untested legal jurisdiction in Dubai and UAE. Moreover, the deal posed a challenge for Islamic organizations to match maturity profiles and terms.

To counter this, a specialized non-interest based liquidity facility was structured which met conventional Residential Mortgage Backed Securities (RMBS) requirements and at the same time adhered to Shariah principles.

As per the deal, all cash generated from the properties flows directly in the accounts of the Issuer SPV (special purpose vehicle, which plays the key role of separating off the assets that are to be securitized from other activities). The funds are then applied in accordance with the payment priorities (1) to pay expenses, (2) repayment of the liquidity facilities, (3) profit on the notes, (4) principal on the notes and (5) excess spread to Tamweel.

The transaction also benefited from an exchange rate undertaking which protected it against the dirham depreciating below past levels as well as from an interest-free facility for any liquidity shortfalls.