The media has reported that the Saudi Arabian General Authority for Civil Aviation's sukuk, which raised SAR 15 billion, is structured as a Murabaha product. However, if you look closely at the offer document, it is clear that there are two structures - Mudarabah and "questionable" Murabaha.
The sukuk portfolio constitutes 51% Mudarabah and 49% Murabaha. Such a structure would make it a tradable instrument.
Cash Flow
On the closing date, the sukukholders' agent will purchase X% of the benefits that are owned by the issuer, GACA, which is entitled to charge and collect fees from airlines. Such fees are for:
(a) landing aircraft at King Abdulaziz International Airport in Jeddah, King Fahad International Airport in Dammam and King Khaled International Airport in Riyadh; and
(b) parking aircraft at King Abdulaziz International Airport (excluding rights relating to the Hajj Terminal), King Fahad International Airport and King Khaled International Airport.
The exposure to the cash flow of these three airports is part of the financial engineering of Mudarabah. At first reading it may seem to be referring to "usufruct" Ijarah. Nonetheless, it appears that GACA is the Mudarab here.
Murabaha or Reverse Tawarruq?
The rate of return for Murabaha investment is quite high and it is cleverly linked to the reserve fund which acts as a buffer for any shortfall in the periodic payment (i.e. 2.5% per annum).
I will try not to split hairs over whether this is Reverse Tawarruq (RT) or simply plain vanilla Murabaha. For a well-versed Sukuk Structurer, the following paragraph taken from GACA's offer circular may shed some light: "The Issuer will, pursuant to the terms of the Murabaha Agreement (as defined in the Conditions), acquire from time to time Commodities from the Seller (each as defined in the Murabaha Agreements) for subsequent on-sale to independent third party purchasers."
For those who find it difficult to distinguish between what constitutes Murabaha sukuk or RT, they can easily refer to a paper I wrote on Goldman Sachs' sukuk.Credit Enhancement
The obligations of the issuer to the sukukholders are not secured by any assets or security. Pursuant to a credit support agreement (the guarantee) to be entered into by the finance ministry of Saudi Arabia (the guarantor), the payment obligations of the issuer as purchaser under the Murabaha agreement and as administrator under the Purchased Benefits Administration Agreement will be guaranteed in full by the guarantor.
Mohammed Khnifer is a second-generation of banking practitioner with an academic background in Islamic finance. He is a Sukuk Structurer as well as an External Islamic Finance Expert at the New York-based Edcomm Group Banker's Academy. He is in the process of being certified as a Shariah Advisor and Auditor by AAOIFI. He can be contacted at mkhnifer1@gmail.com.
© Zawya 2012
