An Introduction to Islamic Finance: Theory and Practice

(Romina) #1

252 AN INTRODUCTION TO ISLAMIC FINANCE


STRUCTURING TAMWEEL SUKUK


The Tamweel sukuk —a $210 - million secured fl oating - rate note issued
by Tamweel Residential ABS Ltd in July 2007 — is said to be the fi rst
international real - estate mortgage - backed security (RMBS) from the
six countries of the Gulf Cooperative Council (see Figure 12.1).
Tamweel’s objective was to move part of its residential fi nanc-
ing portfolio which consisted of Shari’ah - compliant mortgages based
on the ijarah structure off its balance sheet so that the funds could
be used elsewhere. According to the ijarah arrangements, customers
would lease a villa or apartment from Tamweel and make periodic
rental payments. At the end of the lease, if all of the rental pay-
ments had been made, the lessee (owner) would obtain the title to the
property.
The Tamweel Class A sukuk were structured in such a way that they
would pay a variable return rate to investors of one month US$ Libor
+35bps. The sukuk received an Aa2 rating from Moody’s Investors
Service and AA from Fitch Ratings Limited, which are among the high-
est international ratings achieved thus far in the Middle East and North
Africa region.

Objective

As a Shari’ah - compliant home fi nance provider, Tamweel required
a range of innovations and adjustments to conventional securitiza-
tion structures that would allow them to accommodate residen-
tial leases rather than mortgage loans as the securitized assets. This
meant that the securitization vehicle took on continuing obligations
as lessor under the residential leases, which required further tailoring
procedures.
From a Shari’ah compliance perspective, the challenges of struc-
turing were that the investors could only have recourse to the under-
lying assets; there had to be a liquidity facility; and, as the revenue
stream was in UAE dirhams and the issue was to be in US dollars,
there had to be some form of hedge against currency - exchange
risk.
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