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Fitch Rates MEXIM's Sukuk 'A-(EXP)'

February 11, 2014

Fitch Ratings has assigned Export Import Bank of Malaysia Berhad's (MEXIM) US dollar-denominated Sukuk an expected rating of 'A-(EXP)'. The Islamic bonds will be issued under MEXIM's$1 billion multi-currency Sukuk programme established through EXIM Sukuk Malaysia Berhad.

The final rating is subject to the receipt of final documentation conforming to information already received.

The Sukuk rating is the same as MEXIM's Long-Term Issuer Default Rating (IDR). This is because the Sukuk will effectively represent unsecured obligations of the bank, and rank equally with all its other unsecured and unsubordinated obligations.

Parties involved under the Sukuk structure are MEXIM, Sukuk holders and EXIM Sukuk Malaysia Berhad, a special purpose vehicle (SPV) incorporated solely to facilitate Sukuk issues. The SPV will issue the Sukuk and act as the trustee on behalf of the Sukuk holders via a declaration of trust. The SPV will use the Sukuk proceeds to purchase eligible assets from MEXIM. The SPV and MEXIM will enter into a Wakala agreement, or agency agreement, in which MEXIM will render certain services, including the management of the underlying assets and periodic distributions.

Periodic distributions will be made to the Sukuk holders, based on expected returns from the underlying assets. This will be achieved using returns from the underlying assets and, in a shortfall event, funds that MEXIM (in the capacity of an agent) may extend to the SPV via a liquidity facility. MEXIM is obliged under a purchase undertaking agreement to acquire the trust assets from the SPV at a price that will cover all final amounts payable to the Sukuk holders, including the principal. This will occur either on a scheduled maturity date or in a dissolution event. An event of default will be tantamount to a dissolution event, during which the SPV (on behalf of the Sukuk holders) will have direct recourse against MEXIM on an unsecured basis, for the principal amount and any accrued and unpaid distributions. The transaction documents will be principally governed by English Law.

Any deterioration in the Malaysian sovereign's creditworthiness and ratings or in the government's propensity to support MEXIM would hurt the IDR and hence the Sukuk rating. MEXIM's IDR and Negative Outlook are the same as those of the Malaysian sovereign, reflecting Fitch's belief of a very high probability of extraordinary state support to MEXIM's senior creditors, in the event of need.

Fitch stresses that it does not express an opinion on whether the Sukuk is Shari'ah-compliant.

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Source: CPI Financial

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