UIB acted as lead manager, Shari'ah advisor and joint bookrunner and Standard Bank acted as joint bookrunner. The underlying Sukuk structure and assets achieved a credit rating of A- from Capital Intelligence Ltd, (CI) an international credit rating agency with a strong track-record of rating GCC credits.
The International Finance Corporation (IFC), the private sector financing arm of the World Bank Group and rated AAA by internationally recognized rating agencies, has provided an innovative mezzanine credit enhancement taking the form of a stand-by murabaha facility. Furthermore, the Sukuk carries credit enhancement from Dar Al Arkan Real Estate Development Company of KSA, rated A- by CI.
Tahir M. Naseem, Director of Structured Finance at UIB commented, 'This securitization transaction has broken new ground from a legal, financial and Shari'ah structuring point of view and provides a model for other financial institutions seeking liquidity to fund housing finance operations. It will make home ownership more accessible to people in the Kingdom while developing a backbone for a vibrant Islamic capital markets.'
Carl Piccolo, Head of Syndicate at Standard Bank commented, 'The transaction was targeted at investors outside of the GCC Region and placed 15% with Asian Accounts and 85% with European Accounts, principally based in London. As a relatively small deal, Banks formed the overwhelming majority of investors by type. The deal was sold against a volatile emerging market backdrop for fixed income securities, a testament to the robustness of the structure and appetite for Saudi risk in RMBS format.'
The Sukuk transaction is the first true-sale securitization in the Gulf Cooperation Council (GCC) and is backed by US$23 million of Ijara and Istisna contracts providing a vital, off-balance sheet alternative source of funding to KIC as well as a Shari'ah-compliant, fixed-income investment product (akin to a mortgage-backed security) to GCC and international capital markets. The Sukuk has been priced at a fixed rate of 6.55% and matures in 2020, however, KIC have committed to re-purchase the assets at month 36, backed by a DAAR guarantee.
Abdullatif Alshalash, Board Director at KIC said, "The merging of traditional Shariah structures with modern conventional finance such as securitisation represents a quantum leap in the evolution of Islamic Finance. By directly accessing the capital markets and securing long term funding we have unlocked one of the key inhibitors to the growth of homeownership in the Kingdom of Saudi Arabia."
In addition, Simon Stockley, COO of KIC added, 'The transaction is truly international and has been structured and rated to the highest international standards: Saudi real estate assets have been used to collateralize a Cayman Island Special Purpose Vehicle; structured out of London with dollar denominated cash flows; credit rated from Capital Intelligence and credit enhanced by the IFC."
Nina Shapiro, IFC's Vice President of Finance and Treasurer, noted that, "This securitization is a landmark transaction in the GCC region. IFC's active involvement in the structuring of this transaction is another example of IFC's contribution to the development of local capital markets. This innovative transaction introduces a high quality asset class to the investors in the region and will be a benchmark for future securitizations out of the GCC region".
Walid Abdul Rahman Al-Murshed, Regional Investment Officer of IFC, MENA Region, added, "IFC is pleased to play its part in providing long-term Islamic financing as a credible alternative to direct housing loans from banks and encouraging more such Sukuks to help expand the housing finance scheme."
Saud Al-Gusaiyer, General Manager, Dar Al Arkan said, "This is an important shari'ah-compliant structure which will facilitate the liquidation of real estate assets according to international standards and stimulate financial growth."
The securitization is part of a series of Sukuk issues expected from KIC, which will enable the company to meet the huge demand for housing finance in KSA. Home ownership is set to continue its significant growth in the Kingdom given the young population demographics and a growing middle class. Recent research shows 86 percent of the country's population are under the age of 40 demonstrating the growing demand for new homes.
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Unicorn Investment Bank and Standard Bank Plc successfully close landmark securitization on behalf of Kingdom Installment Company: "KSA MBS 1 International Sukuk"
- Saudi Arabia: Tuesday, July 18 - 2006 at 15:40
- PRESS RELEASE
Unicorn Investment Bank (UIB) and Standard Bank Plc. (Standard Bank) have successfully closed a landmark securitization transaction on behalf of Kingdom Installment Company LLC (KIC) of Kingdom of Saudi Arabia (KSA), a pioneer of housing finance in the Kingdom.
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About the Sukuk:- Sukuk Amount: US$18 million (22% overcollateralization)
- Sukuk matures in 2020
- Purchase undertaking by KIC at month 36 (2009)
- Proposed profit rate:
- 6.55% (up to month 36)
- No prepayments allowed on underlying contracts)
-Credit Enhancement:
- First Loss - Reserve Account with an initial balance of 5% of the issuance amount
- Second Loss - Guarantee by DAAR for 10% of the issuance amount
- Third Loss - Credit enhancement by the IFC through a Tawarruq Facility for 10% of the Sukuk principal balance on an amortizing basis
- 193 underlying Shari'ah-compliant mortgages originated in KSA:
- 71% Ijara
- 29% Istisna
- The Sukuk has been approved by UIB's Shari'ah Board
About the Issuer:
The Issuer is a special purpose limited liability company incorporated in the Cayman Islands. The primary business of the Issuer is investment in real estate.
About Kingdom Installment Company:
Established in 1977, Kingdom Installment Company (KIC) is the largest specialist housing finance company in the Kingdom of Saudi Arabia. Dealing only in Shari'ah compliant housing finance solutions, the company has financed more than 3,000 home purchasers since its establishment as an offshoot of Dar El Arkan Real Estate Development Company. KIC's current loan portfolio is in excess of $430 million, with a default rate of less than 0.5 %. The company was the first lender in the region to offer 20 year fixed rate loan financing and has pioneered the use of Sukuk structures to allow investors to participate directly in the Saudi Real Estate market. KIC announced on July 13th 2006 a strategic alliance with Arab National Bank (ANB) which will see the company re - capitalized as a joint venture entity to in excess of $534 million making the company the largest specialist housing finance organisation in the Middle East and North Africa Region.
KIC Contact:
Simon Stockley
Chief Operating Officer
Riyadh, Kingdom of Saudi Arabia
Tel: +9661 (206) 1100 ext 1177
About Unicorn Investment Bank:
Unicorn Investment Bank was capitalized at US$ 111 million and commenced operations on May 5, 2004 in the Kingdom of Bahrain. UIB is a full service Islamic investment bank, with specialist teams operating in corporate finance and capital markets, private equity, asset management, strategic mergers and acquisitions and Takaful (Islamic insurance). The bank currently has offices both inside and outside the Middle East, including the United States and Malaysia.
• In Quarter 1 of 2006, UIB achieved revenues of US$ 25.5m and earnings of US$ 16.02m.
• In its first eight months of business, UIB achieved revenues of US$ 36m and earnings of US$ 17.06m.
• UIB recently reported second-year revenues of US$ 52.6 m and earnings of US$ 24.2m for 2005 financial year.
• UIB has achieved a number of "firsts" in Islamic banking. In November, the Bank closed the "KSA Real Estate Fund-1", the first ever equity fund to allow non-Saudi nationals to invest in the growing Saudi Arabian property market via an innovative financial and legal structure.
• In December, UIB announced "Gulf Springs", the first pan-GCC real estate fund, in partnership with leading real-estate developers in each GCC market, who as founding investors, bring local knowledge and investment opportunities.
• UIB has recently closed "KSA MBS 1 International Sukuk," the GCC's first Sharia'h-compliant asset-backed security for the Kingdom of Saudi Arabia: a debt product designed for home financing companies akin to a mortgage-backed security in partnership with a multilateral organization and underwritten by a global institution.
• UIB has completed several Private Equity investments in the United States including the US$32 million acquisition of Gardens Residential Care Centers in California, USA in 2004 and has just completed a US$7 million equity investment in Ellington-Elsasser, Inc. known by its trade name Ellington Leather Goods for 90% of the common shares. UIB's investment strategy is to exit within a 5 year period via a sale to a strategic or financial buyer
• Since inception, UIB has now advised, structured and successfully placed deals with a total value in excess of US$ 1 billion.
UIB Contact:
Tahir M. Naseem
Director Structured Finance
Manama, Kingdom of Bahrain
Tel: (973) 17566031
About Standard Bank Plc:
The Standard Bank Group is one of the world's leading emerging markets banks. It is headquartered in Johannesburg, South Africa, and is listed on the Johannesburg Securities Exchange. It has offices in 38 countries throughout Africa, Asia, the Americas and EMEA. It is the largest financial services organisation in South Africa and Africa with total assets as at 31 December, 2005 of US$120 billion, headline earnings of US$1.42 billion and a current market capitalisation of more than US$18 billion. The Group's business covers a broad range of activities in Corporate and Investment Banking, Personal and Business Banking and Investment Management and Life Insurance.
Standard Bank Plc in London is the focal point for the group's international Corporate and Investment Banking business and Standard Bank Asia Limited in Hong Kong is the hub for its Asian operations, which include offices in Hong Kong, Singapore, Kuala Lumpur, Shanghai, Taipei and Sydney.
Standard Bank Contact:
Carl Piccolo
Standard Bank Plc
Address : Cannon Bridge House, 25 Dowgate Hill, London EC4R 2SB
Telephone : +44 (0)20 7815 3142
Fax : +44 (0)20 7815 3091
About International Finance Corporation:
The mission of IFC is to promote sustainable private sector investment in developing and transition countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY05, IFC has committed more than $49 billion of its own funds and arranged $24 billion in syndications for 3,319 companies in 140 developing countries. IFC's worldwide committed portfolio as of FY05 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications. For more information, visit www.ifc.org
IFC Contact:
Adriana Gomez
+1 202 458 5204
Media Inquiries
Mark Lunn of Gavin Anderson & Co, London
UK Tel: +44 (0) 20 7554 1400
Saudi Arabia Media Inquiries
Sultan Al Bazie of Tariq Media Co
KSA Tel: +966 (1) 460 1600
Posted by Janeta Novakovic, Assistant News EditorTuesday, July 18 - 2006 at 15:40 UAE local time (GMT+4)
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This article was updated on Thu Jan 18 2007.
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