Fitch rates Bahrain's CBB International Sukuk Company's $350m trust certificates 'A'

CBB International Sukuk Company (SPC) is a single-person company (SPC) wholly owned by the Central Bank of Bahrain (CBB) whose sole purpose is to participate in this transaction.

The rating reflects Fitch's judgement that the Sukuk can be considered an unconditional, unsubordinated and general obligation of the Kingdom of Bahrain (KoB), ranking equally with Bahrain's other senior unsecured obligations. The rating is therefore in line with Bahrain's Long-term foreign currency Issuer Default Rating (IDR) of 'A' on which the Outlook is Stable.

The Sukuk follow an 'ijara' (leasing) structure. The issuer uses the proceeds of the Sukuk to make an advance payment to KoB, acting through the Ministry of Finance (MoF), for a lease on a parcel of land, which it then sub-lets back to MoF for a period equal to the tenor of the Sukuk. The issuer declares a trust over the land in favour of certificate holders.

Semi-annual rental payments, based on Libor and paid in USD, are to be made by KoB, acting through MoF, to the issuer, equal to periodic distribution amounts made by the issuer to the Sukuk investors.

A termination payment, which is irrevocable, is made by KoB, acting through MoF, to the issuer, to coincide with the maturity of the certificates.

KoB, acting through the MoF, is required to provide sufficient funds to satisfy any outstanding periodic distribution amounts in full plus the termination payment, including in the case of a dissolution event (event of default).

However, the issuer/trustee and the certificate holders have no right to sell or dispose of the trust assets (ie the parcel of land and the related rights).

Bahrain's 'A' Long-term foreign currency IDR, which was upgraded in August 2007, is supported by its net external creditor status and current account surplus, high per capita income, as well as modest public debt and debt service.

It also reflects KoB's good track record of growth, supported by economic and structural reforms and successful diversification strategy.