In August 2007, the first Sukuk program in Kuwait was established for National Industries Group Holding Company (NIG), one of the largest publicly traded companies listed on the Kuwait Stock Exchange and the second-largest conglomerate in the Middle East.
The US$1.5 billion program was structured in compliance with Shariah principles. The inaugural issuance under the program was for US$475 million and carried a five-year tenor.
Standard Chartered Bank acted as joint program arranger, joint lead manager and joint bookrunner for the US$475 million Sukuk issuance under the program.
In addition, Standard Chartered Bank also performed the role of joint documentation and structuring bank for the program. The Sukuk was issued on the 16th August 2007.
The US$475 million issuance was launched in highly volatile market conditions where a number of similar deals were being delayed or pulled out. The transaction was ultimately oversubscribed at the pricing of LIBOR + 105bps.
Roadshows for the NIG Sukuk issue were held in Dubai, Bahrain, Hong Kong, Kuala Lumpur, Singapore and London.
The Client
NIG, based in Kuwait City, is a publicly listed investment holding company with a strong foothold in a multitude of industries spanning numerous sectors, including building materials, specialist engineering, petrochemicals, oil and gas, financial services, utilities and real estate.
In addition to its core operating businesses, NIG continues to manage a diversified investment portfolio ranging from financial to strategic long-term investments.
NIG aims to use the proceeds from the Sukuk issuance to lengthen its debt maturity profile and for the financing of further strategic and financial investments.
The group has been assigned a foreign currency issuer rating of “Baa2” with a stable outlook by Moody’s. The rating reflects the strong asset coverage provided from the group’s existing portfolio of well-diversified investments, and a general track record of prudent financial management.
In August 2006, NIG was ranked first in Kuwait and fifth among the top 50 performing listed Arab companies in “Forbes Arabia’s 50 Best Companies List”.
For the financial year 2006, NIG achieved a net profit of KWD141.9 million (US$534 million). The group’s assets totaled KWD1.46 billion (US$5.5 billion) as at the 31st December 2006, while capital amounted to KWD833 million (US$3.13 billion).
Program Structure
The Sukuk was structured as a Sukuk Mudarabah. A Mudarabah is a “partnership in profit” akin to a non-discretionary investment management arrangement.
It involves Rab al maal (investors) placing funds with the Mudarib (fund manager) to generate returns from identified investments.
The SPV, acting on behalf of the Sukuk holders, and in its capacity as the Rab al Maal, appointed NIG as the Mudarib to invest the capital of the Mudarabah in accordance with an agreed investment plan prepared by the Mudarib.
The SPV, as Rab al Maal, entered into a master Mudarabah agreement with NIG wherein, from time to time, the SPV would appoint NIG as the Mudarib to invest the proceeds of each Sukuk issue under the program.
The master Mudarabah agreement governs the overall relationship between the Rab al Maal and the Mudarib. At the time of each Sukuk issue under the program, NIG, as the Mudarib, would enter into a supplemental Mudarabah agreement with the SPV, as Rab al Maal, on the basis of the supplemental Mudarabah agreement annexed to the master Mudarabah agreement.
On the closing date of each Sukuk issue under the program (Sukuk issue date), the SPV, as Rab al Maal, would apply the proceeds of the Sukuk as the capital of the Mudarabah, constituted by the Rab al Maal and NIG as Mudarib. The Mudarib would invest the capital of the Mudarabah in accordance with an agreed investment plan, which will provide that such capital be invested in Shariah compliant activities, including investments in the Mudarib’s business activities.
All of the assets of the Mudarabah, including all assets acquired after, from or through the investment of such capital shall be assets of the Mudarabah (the Mudarabah assets). The Mudarib may commingle the Mudarabah assets with the assets of NIG, provided the Mudarabah accounts clearly distinguish between the Mudarabah assets and the assets owned by NIG.
The SPV, in its capacity as the Rab al maal, shall apply its share of the profit generated by the Mudarabah to distribute the profit payments to the Sukuk holders.
NIG, in its corporate capacity and having evaluated the anticipated return and commercial benefit it will receive in acquiring the Mudarabah assets, will execute a purchase undertaking in favor of the SPV. The purchase undertaking is neither a guarantee from NIG nor an undertaking to purchase the Rab al Maal’s Mudarabah units in the Mudarabah.
Under the purchase undertaking, NIG undertakes that upon the SPV exercising its option to oblige NIG to purchase all or, as applicable, the relevant proportion of the SPV’s rights, benefits and entitlements in and to the Mudarabah assets, NIG shall purchase the same, with settlement in cash based on a pre-determined sale price, on the relevant exercise date following the exercise of purchase undertaking by the SPV.
[email protected]
National Industries Group
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