TEXT-S&P assgns 'BB' rtg to Turkey's proposed USD sukuk lease certs

Thu Sep 6, 2012 6:56pm IST

(The following statement was released by the rating agency)

Sept 06 - Standard & Poor's Ratings Services said today that it has assigned its 'BB' issue credit ratings to the proposed U.S. dollar Sukuk Lease Certificates to be issued by Hazine Mustesarligi Varlik Kiralama Anonim Sirketi (the issuer), a special-purpose vehicle (SPV) wholly owned by the Republic of Turkey (foreign currency, BB/Stable/B).

We believe the transaction aims to raise funds in accordance with the Islamic principles of "ijara" (leasing). The assets underlying the lease will be state-owned buildings and land in Turkey. Under the transaction, the state will sell a pool of property assets to the issuer.

The issuer will hold the assets in its own name and for the benefit of the certificate holders. The state is to act as servicing agent to maintain the assets. The issuer will lease back the assets to the state, which will make regular rental payments to the issuer. These will be the basis for periodic distribution payments payable on the lease certificates. The rental payment obligation ranks pari passu with other unsecured and unsubordinated obligations of the state.

On maturity (dissolution), the state will purchase the lease assets from the issuer at the relevant exercise price, as specified in the purchase undertaking. The purchase price in connection with this sale funds the dissolution amount that is payable to the certificate holders.

In our view, the two key rating factors underpinning the rating on the sukuk are the rental payments to be made by the state, which ensure payment of the periodic distribution amounts, and the obligation that the state has to repurchase the underlying assets, which ensures payment of the dissolution amount to certificate holders. The rating on the sukuk is equalized with our rating on the senior unsecured debt of Turkey. Standard & Poor's considers that Turkey has a strong incentive to consider the performance of the lease certificates to be as important as its conventional debt, because the rationale for the transaction is to raise funds in accordance with Islamic principles, rather than to separate the state's own obligations from those of the issuer.

RELATED CRITERIA AND RESEARCH

All articles listed below are available on RatingsDirect on the Global Credit Portal.

-- Standard & Poor's Approach To Rating Sukuk, Sept. 17, 2007

-- Sovereign Government Rating Methodology And Assumptions, June 30, 2011