Fitch rates Ras Al Khaimah's RAK Capital Dhs trust certificates expected 'A'

The final rating is contingent on the receipt of final documentation, assuming there are no material changes in the terms and conditions as detailed in the draft documentation.

The issue is the first under RAK Capital's certificates issuance programme, under which issuance may be in $ or Dhs. The inaugural issuance is expected to be denominated in AED. Ratings will be assigned to any future issues on a case-by-case basis.

RAK Capital is a special purpose company incorporated in the Cayman Islands 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 Government of Ras al Khaimah (RAK), ranking equally with RAK's other senior unsecured obligations. The rating is therefore in line with RAK's Long-term local currency Issuer Default Rating (IDR) of 'A' on which the Outlook is Stable. RAK's Long-term foreign currency 'IDR' is also 'A'.

The Sukuk follows an 'ijara' (leasing) structure. The issuer will use the proceeds of the Sukuk to buy assets from the government of RAK, acting through the Investment and Development Office, which it will then lease back to RAK for a period equal to the tenor of the Sukuk. The issuer will declare a trust over the assets in favour of certificate holders. Quarterly rental payments will be made by RAK, equal to periodic distribution amounts made by the issuer to the Sukuk investors. On maturity, RAK will repurchase the lease assets and a dissolution distribution amount, which is irrevocable, will be made by RAK to the issuer, to coincide with the maturity of the certificates.

RAK is required to provide sufficient funds to satisfy any outstanding periodic distribution amounts in full plus the dissolution distribution amount, 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 and related rights.

RAK's 'A' Long-term foreign and local currency IDRs, which were assigned in January 2008, are supported by RAK's relatively diverse economy, rapid economic development and high per capita income and the government's prudent fiscal policy and strong balance sheet. It is the fourth-largest of the seven emirates making up the United Arab Emirates.