Sukuk & Kuwait Deal of the Year
The KWD12.5 million (US$44.4 million) YAAS Sukuk Al-Istithmar Issuance is the first securitization of retail consumer installment obligations compliant with Shariah requirements issued by YAAS Sukuk I, a Cayman Island vehicle, (the trustee) and originated by YAAS Instalments for Credit Facilities in Kuwait. Rasameel Structured Finance Company served as lead arranger to the issuance. Advising on the behalf of the trustee and Rasameel was the Kuwait office of Al Tamimi & Co.
Recognizing the need for the development of structured finance and securitization markets within the GCC region, Rasameel’s innovative model underlying the issuance is intended to serve as an example where a high quality investment grade product was not only able to meet the increasing capital needs across the GCC but also to develop the markets and exchanges where such products can be freely traded to create liquidity.
In the conventional finance arena, securitization of a portfolio of consumer based installment obligations is not uncommon; however, issuing the same while maintaining Shariah compliance is an unprecedented approach and thus was a challenge accepted by all relevant stakeholders. Accordingly, the issuance was based upon the innovative concepts developed by Rasameel and lawyers at Al Tamimi & Co.
Upon the successful execution and completion of the: issuance, Rasameel intends to subsequently place several similar issuances.
The warehousing transaction
Yusuf A. Alghanim & Sons, W.L.L. (Alghanim) operates a regional leading consumer home furnishing and electronics retail sales network through its points of sale and showrooms within the State of Kuwait. Such network includes the offering and provision of credit sale arrangements through points of sale, process credit approval and documentation, product delivery, inventory warehousing and management and dedicated sales and support staff (the retail business).
YAAS Instalments for Credit Facilities has been established as a Kuwaiti special purpose vehicle to provide Shariah compliant consumer credit sales and services to the retail customers of the retail business on the basis of Kuwaiti law governed installment sale contracts (the contracts) and to provide cash sale and services to the debtors.
To fund its consumer credit activities, YAAS Instalments entered into a Wakalah arrangement with YAAS Warehouse, another Cayman Island vehicle established for the benefit of warehousing investors and managed by Rasameel. Pursuant to this Wakalah arrangement, YAAS Warehouse appointed YAAS Instalments as its investment agent to invest YAAS Warehouse’s investment capital in purchasing from Alghanim certain furnishings and electronic goods and selling them to the retail customers of the retail business pursuant to the contracts in accordance with the investment plan specified therein. In consideration for the investment capital, YAAS Instalments agreed to transfer by means of a Murabahah arrangement to YAAS Warehouse, the economic benefit of the installments due and payable by the respective consumers/debtors to YAAS Instalments under the contracts (the portfolio rights).
It is important to note that notwithstanding the Murabahah arrangement between YAAS Instalments and YAAS Warehouse, under Kuwaiti law the former remained as a party to the contracts and retained full legal title to the portfolio rights and has been and is still responsible to service, administer, collect and enforce any payment owed by each consumer/debtor.
The Sukuk issuance
The issuance is comprised of KWD10 million (US$35.29 million) Class A Sukuk Al Istithmar certificates due and KWD2.5 million (US$8.82 million) Class B Sukuk Al Istithmar certificates. Each certificate represents an undivided beneficial ownership interest in the trust assets which are held on behalf of the trustee on trust for, and on behalf of, the holders of each certificate.
What makes this issuance innovative and unprecedented is that the proceeds paid to the trustee by the holders of the certificates will be used by the trustee to refinance the funding provided by YAAS Warehouse to YAAS Instalments as described above. Such process entailed the use of a Murabahah arrangement between the trustee and YAAS Warehouse whereby YAAS Warehouse assigned to the trustee the right to receive the economic benefit of the portfolio rights in satisfaction, payment and discharge of its obligations under the Murabahah arrangement, which YAAS Instalments acknowledged and approved such assignment.
Because YAAS Instalments retains the legal title to the contracts, the trustee will appoint the former as its investment agent to service, administer, collect and enforce any payment due under the portfolio rights and to transfer such collections to the trustee. Notwithstanding the above, because YAAS Instalments is a special purpose vehicle, Alghanim will act as its servicing agent by undertaking to perform the duties and obligations set forth in the investment agency agreement for the benefit of YAAS Instalments and the trustee.
Lastly, one of the most unique aspects to the issuance, which further distinguishes the same as unprecedented and innovative, was the approach for the trust assets to be comprised of not only the portfolio rights but also a tangible product inventory supplied by Alghanim to YAAS Instalments, acting on behalf of the trustee.
The Sukuk issuance marks a landmark deal for Al Tamimi & Company, Rasameel and Alghanim, this being the first time an Islamic securitization issuance in the form of Sukuk has been seen in the State of Kuwait. Partner and head of the Al Taimimi Kuwait office, Alex Saleh, commented that: “Working on this transaction led to some interesting challenges and allowed our respective teams to come up with innovative solutions to satisfy Shariah law, while at the same time meeting the goals of the client. We want to thank everyone involved with this unique transaction for their dedication and efforts, especially to the members of Rasameel and Alghanim who made us part of such a groundbreaking transaction in the field of Islamic finance. It is truly an honor.” Partner Philip Kotsis added: “We hope that this first Sukuk securitization issuance will serve as a cornerstone for other large retailers in Kuwait and around the globe who wish to offer Shariah compliant consumer finance solutions to their customers.”
Alex Saleh
Partner & Head of Kuwait Office.
Tel: +965-2246-2253
Email:
[email protected]