254 AN INTRODUCTION TO ISLAMIC FINANCE
STRUCTURING TAMWEEL SUKUK (CONTINUED)
passed to the investors, with no recourse back to the originator (other
than in limited circumstances, such as misrepresentation).
In this respect, the Tamweel structure was considered more compli-
ant with the requirements of both the customer and the rating agencies,
and also fell within Shari’ah parameters.
Multi tranches
Structuring multiple tranches of securitization to cater to investors of
different levels of creditworthiness is common practice in conventional
securitization. However, replicating the same in a sukuk structure is
a real challenge because of Shari’ah requirements that all investors
are treated equally. In the case of Tamweel, Shari’ah scholars were
convinced that such tranching was possible without violating Shari’ah
principles. This was done by arguing that it was possible for the inves-
tors to agree to subordinate their interests so that different classes of
investors obtained differing returns and at different times.
Liquidity facility
Another interesting feature of the Tamweel sukuk was the introduc-
tion of a liquidity facility to cover any delay in the collection of rentals
from the underlying leasing agreements such that the fl ow to investors
was not disturbed. This was achieved by applying a qard - ul - hassan
mode of fi nancing.
Currency - exchange mechanism
The cashfl ows from the rental payments were denominated in UAE
dirhams (AED), whereas the sukuk was denominated in US dollars,
which give rise to classic exchange - rate mismatch risk. This risk was
mitigated by ensuring that in the event of the current fi xed/pegged rate
between the two currencies being broken, a fi nancial institution would
agree to exchange dirhams in the future for US dollars at the pegged
rate. This hedging facility was provided by Morgan Stanley & Co.
International plc and steps were taken to ensure that the facility met
all the Shari’ah requirements.
Source: de Belder (2009). The authors are grateful to SNR Denton, formerly Denton
Wilde Sapte, for sharing the case study. See: http://www.snrdenton.com/pdf/Syndicated_
and_Structured_IF_Chapter_3.pdf