BAHRAIN. (Fitch Ratings - Hong Kong -) Fitch Ratings has assigned Bahrain's proposed US dollar-denominated sovereign global sukuk trust certificates, to be issued by CBB International Sukuk Company 5 (CBB5), an expected 'BB+(EXP)' rating.
Fitch has also assigned Bahrain's proposed US dollar-denominated bonds an expected 'BB+(EXP)' rating. The expected ratings are in line with Bahrain's Long-Term Foreign Currency Issuer Default Rating (IDR), which was downgraded to 'BB+' with a Stable Outlook in June 2016.
CBB5 is the issuer and the trustee of the sukuk incorporated primarily for the purpose of participating in the sukuk transactions. CBB5 is a single person company incorporated in the Kingdom of Bahrain with limited liability whose proprietor is the Central Bank of Bahrain.
KEY RATING DRIVERS
The trust certificate issuance programme's rating is driven solely by Bahrain's IDR of 'BB+'. This reflects Fitch's view that default of these senior unsecured obligations would reflect default of Bahrain in accordance with Fitch's rating definitions.
We have not considered any underlying assets or collateral provided when assigning a rating to the CBB5 sukuk, as we believe that the issuer's ability to satisfy payments due on the certificates will ultimately depend on the Bahraini government satisfying its unsecured payment obligations to the issuer under the transaction documents described in the prospectus and other supplementary documents.
In addition to the Bahraini government's propensity to ensure repayment of the CBB5 sukuk, in Fitch's view it would also be required to ensure full and timely repayment of CBB5's obligations due to the Bahrain government's various roles and obligations under the sukuk structure and documentation, especially - but not limited to - the following features:
- On each periodic distribution date, the Bahraini government acting as sub-lessee will pay to the sub-lessor the rental which is intended to be sufficient to fund the periodic distribution amounts payable by the issuer under the certificates.
- On the scheduled dissolution or following the occurrence of any dissolution event, the dissolution distribution amount payable by the issuer to the certificate holders will be funded by the government paying to the issuer.
- The dissolution distribution amount equals (i) the outstanding face amount of the certificates (termination payment and the deferred purchase price), (ii) all accrued and unpaid periodic distribution amounts in respect of such certificate.
- The payment obligations of the Bahraini government (acting in any capacity) under the transaction documents are direct, unconditional and unsecured obligations, which rank pari passu, without any preference among themselves and, with all other outstanding present and future unsecured and unsubordinated obligations of the sovereign.
The sukuk programme includes a negative pledge provision that is binding on the Bahraini government, as well as financial reporting obligations, covenants, Bahrain Event and default acceleration terms. The documentation does not contain a change of control clause.
Certain aspects of the sukuk transaction will be governed by English law while others will be governed by laws of Bahrain. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, Fitch's rating on the certificates reflects the agency's belief that the Bahraini government would stand behind its obligations.
When assigning ratings to the sukuk programme and certificates to be issued under it, Fitch does not express an opinion on the programme's compliance with sharia principles. There is no assurance that notes issued in the future under the programme will be assigned a rating, or that the rating assigned to a specific issue under the programme will have the same rating as the programme rating.
The ratings on the US dollar-denominated bonds are in line with Bahrain's Long-Term Foreign Currency IDR.
The ratings will be sensitive to any changes in Bahrain's Long-Term Foreign Currency IDR.
The rating on the sukuk trust certificates may also be sensitive to any changes to the roles and obligations of Bahrain under the sukuk's structure and documents.