Moody's assigns Aa3 rating to HSBC Middle East Limited Sukuk Trust Certificates

The rating is subject to review of the final terms of the sukuk trust certificate issuance.

Accordingly, a special purpose entity, HBME Sukuk Company Ltd, (issuer) incorporated in the Cayman Islands, will issue sukuk certificates to investors (sukuk holders), use the proceeds to acquire an ownership interest in a portfolio of assets comprising primarily Ijara, Murabaha and Musataha contracts from HBME, thus becoming an owner in the assets (Trust assets).

HBME, as managing agent, will collect all rental and other payments from the contracts in the trust assets and will pay the issuer an amount sufficient to fund the periodic distribution amounts to sukuk holders on each distribution date. HBME will issue a purchase undertaking in favour of the issuer, wherein it undertakes to purchase the issuer's interest in the Trust assets at the exercise price either upon maturity date or prior to maturity due to a dissolution event.

Moody's notes that the sukuk certificate holders will (i) effectively be exposed to HBME's senior credit risk, (ii) are not exposed to the risk of the Trust assets (iii) have no preferential claim or recourse over the Trust assets, or rights to cause any sale or disposition of the Trust assets, except as expressly provided under the Purchase Undertaking Deeds and Sale Undertaking Deeds, and (iv) only have rights against HBME, ranking pari-passu with other unsecured obligations as provided in the Transaction documents.

Accordingly, the Aa3 rating assigned to the senior sukuk is placed at the same level as the long-term foreign currency deposit rating already assigned to HBME, the obligor, given that HBME (a) is obliged to cover any shortfall between the rental and other payments from the company-owned assets and the required periodic distribution amount to sukuk holders; and (b) has irrevocably undertaken to purchase the issuer's interest in the Trust assets at the exercise price, sufficient to pay the sukuk holders either on maturity date or due to a trigger of a dissolution event.

Moody's also notes that its sukuk rating does not express an opinion on the structure's compliance with Sharia law, and for this it refers to the opinion provided to HBME by the HSBC Amanah Central Sharia Committee.

HBME's deposit ratings are set at Aa3/Prime-1, based on its BFSR of C, reflecting its strong regional franchise in the Middle East and its good financial fundamentals and a three-notch uplift due to the very high likelihood of support from the bank's parent and 100% owner, HSBC Holdings.

HSBC Bank Middle East Limited is headquartered in Jersey, Channel Islands and had total assets of $41.6bn at year-end 2008.