Madrid: Standard & Poor’s Ratings Services assigned its ‘AAA’ rating to Luxembourg treasury securities SA’s proposed sukuk certificates.
Luxembourg Treasury Securities SA, a trustee incorporated in Luxembourg, wholly owned by the Grand Duchy of Luxembourg (AAA/Stable/A-1+), plans to issue euro-denominated sukuk (trust certificates) via a leasing contract. We understand that the government is using such a structure to raise funds in compliance with Sharia law.
Under our criteria, the proposed trust certificates qualify as sukuk with full credit enhancement mechanisms provided by the government of Luxembourg through its obligations to make rental payments on the lease assets, equal to the periodic distribution payments under the lease agreement; pay the “exercise price,” which will equal the euro amount outstanding face value of the certificates, plus accrued and unpaid periodic distribution amounts under the “purchase undertaking.” These payments cover both periodic distribution and the principal of the sukuk at maturity.
“On the closing date of the sukuk, Luxembourg Treasury Securities SA will purchase a portfolio of land assets and buildings from Luxembourg. Luxembourg Treasury Securities SA will lease the assets back to the government in return for periodic rent payments. Although we do not consider leasing payments as financial obligations, we would treat them as akin to financial obligations because we understand that the government is using this structure to raise funds in compliance with Sharia law. We therefore believe that the government will treat its payment obligations under the sukuk transaction documents as equally important as conventional financial obligations. This assumption is central to our rating because it underpins our expectations of timely repayment for sukuk holders,” S&P in a statement said.
“We therefore equalize the rating on the proposed trust certificates with our long-term rating on Luxembourg. All of Luxembourg’s obligations under the transaction documents are unsubordinated and will rank pari-passu with its other senior unsecured obligations. These contractual obligations also underpin the equalization of our rating on the sukuk with that on Luxembourg.”