Preliminary rating assigned to RAK Capital certificates issuance program

Subsequent issuances of certificates under this program are expected to be rated 'A'. The preliminary rating on the program (and any issuance under it) is thereby equal to, and fully reliant on, the rating on the Emirate of Ras Al Khaimah (A/stable/A-1).

RAK Capital is a Cayman-based special-purpose entity established for this transaction. The transaction structure allows the Emirate of Ras Al Khaimah to raise funds on Sharia (Islamic principles) compliant terms, with better distribution and sales perspectives, rather than to distinguish its obligations under this transaction from those under a conventional bond.

The equalization of the program rating (and subsequent issuances under it), with the rating on the Emirate of Ras Al Khaimah is based on the obligation of the government to make rental and repurchase payments to RAK Capital. These payments should at all times enable the issuer to make full and timely periodic distribution and principal redemption payments on all certificates under the program.

The rating on the program is further supported by the commitment and strong incentive for the Emirate to treat its obligations under this transaction as direct and unconditional obligations, pari passu with its other obligations, including conventional debt.

Although we consider that governments may sometimes in stressful fiscal situations consider rent or lease obligations as subordinate to bonds or bank loans, in this case a default by the government on its obligations under this transaction would likely trigger a default on the certificates. We believe that the government will consider the performance of the certificates as being equally important as the performance of its own debt.