RAM Ratings has assigned an AAA(s)/stable final rating to Ihsan Sukuk Berhad's (Ihsan) RM1 billion Sukuk Ihsan Programme. Ihsan is a trust-owned company established for the sole purpose of raising capital to support the corporate and social responsibility efforts of Khazanah Nasional Berhad - the promoter of this exercise. As the issuer, Ihsan will raise funds under the Islamic principle of Wakalah Bi Al-Istithmar and/or other Islamic principles to be determined. The initial issue of Sukuk Ihsan will be based on the Islamic principle of Wakalah where process raised will be used to purchase eligible sukuk investments. Khazanah will, in turn, use the proceeds to fund Shariah-compliant eligible sustainable and responsible investment (SRI) projects, as defined under the Securities Commission's sukuk guidelines revised and effective 28 August 2014.
In assessing the credit risks associated with Sukuk Ihsan, RAM had considered Khazanah's role as the sukuk holders' counterparty in the transaction structure. Khazanah, as the sub-wakeel for Ihsan (which is the wakeel for the sukuk holders) - will invest the proceeds in Shariah-compliant tangible assets and Shariah-compliant commodities under the principle of Murabahah (Commodity Murabahah Investment), with at least 33% of the sukuk proceeds invested in Shariah-compliant tangible assets.
The AAA(s) rating is supported by Khazanah's role as the obligor under the purchase undertaking to buy the sukuk holders' interests in sukuk investments, as well as its commitment to make deferred payments pursuant to the Commodity Murabahah Investment in order to fully meet the obligations under the Sukuk Ihsan in relation to the Wakalah structure. While we recognise that Khazanah's credit profile fully backs the sukuk obligations, investors should take note that they remain exposed to the performance of the underlying SRI project.
Notably, the Sukuk Ihsan repayments on the scheduled dissolution date are dependent on the SRI project's performance. Unlike a fixed-income instrument with fixed maturities and profit rates, the repayment and performance of the Sukuk Ihsan will depend on the eligible SRI project's ability to meet identified key performance indicators (KPIs). If the SRI project successfully achieves the targeted indicators, investors will not recover their original investment amount; the nominal value or accreted value (where applicable) of the Sukuk Ihsan will be mandatorily reduced in accordance with a pre-defined formula. The adjustment will be determined prior to the issue date of the relevant Sukuk Ihsan, with the KPI assessment performed by an independent auditor. Furthermore, the Sukuk Ihsan holders can also (wholly but not partially) waive their rights, benefits and entitlements under the Sukuk Ihsan by selling their sukuk holdings to Khazanah at a nominal consideration. The waiver can be exercised on either the issuance date of the relevant Sukuk Ihsan or at any point after the issuance date, but prior to the maturity of the said sukuk. Such points will be determined prior to the issue date of the relevant Sukuk Ihsan.
We highlight that the rating of the Sukuk Ihsan does not measure nor indicate the likelihood of the eligible SRI project meeting its KPIs. As such, it does not reflect the risks associated with the possible reduction of the nominal value or accreted value (where applicable) of the sukuk, as provided for under the terms of the Sukuk Ihsan Programme. RAM will reassess the rating if there is any variation to the Islamic principles applied.
The proceeds from the initial sukuk issue of RM100 million (First Sukuk Ihsan) will go towards funding Yayasan AMIR's Trust Schools Porgramme for 2015, a not-for-profit foundation set up by Khazanah in October 2010. Through its Trust Schools Programme, Yayasan AMIR focuses on improving access to quality education in government schools as a private-public partnership in education. For the purposes of the first Sukuk Ihsan issuance, the key performance indicators will relate to the number of schools, and improvements in teaching competencies, senior leadership practices and student outcomes.
Khazanah is a strategic investment fund owned by the Government of Malaysia (GOM). Save for 1 share held by the Federal Lands Commissioner, the entire equity interest in Khazanah is directly or indirectly owned by the Minister of Finance Inc. We therefore consider Khazanah as being very closely linked to the GOM. Based on our criteria for government-linked entities, Khazanah's rating and the corresponding outlook are in line with those of the GOM, and are likely to shift in tandem with any movement in the sovereign's rating and outlook.
Media contact
Siew Suet Ming
(603) 7628-1171
suetming@ram.com.my
© Press Release 2015