An Introduction to Islamic Finance: Theory and Practice

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.