QATAR. Standard & Poor's Ratings Services said today that it has assigned 'AA' issue credit ratings to the proposed U.S. dollar Sukuk Trust Certificates to be issued by SoQ Sukuk A QSC, a special purpose vehicle (SPV) registered in Qatar (AA/Stable/A-1+) and wholly owned by the state.
 
We believe the reason behind the transaction is to raise funds in accordance with Islamic principles. The issuance of sukuk shall be made via the Shariah principle of "ijara" (leasing). The assets underlying the lease will be state-owned buildings and land in Qatar. Under the transaction, the state will sell a pool of property assets to SoQ Sukuk A.
 
SoQ Sukuk A will enter into a trust arrangement under which it will hold the assets as trustee for the certificate holders. The state is to act as servicing agent to maintain the assets. SoQ Sukuk A will lease back the assets to the state, which will make regular rental payments to SoQ Sukuk A. These will be the basis for periodic distribution payments payable on the trust certificates. The rental payment obligation ranks pari passu with other unsecured and unsubordinated obligations of the state.

On maturity (dissolution of the trust), SoQ Sukuk B QSC, a second SPV wholly owned by the state and registered in Qatar, will purchase the lease assets from SoQ Sukuk A 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. The state guarantees the obligations of SoQ Sukuk B under the purchase undertaking in a timely, irrevocable, and unconditional manner.
 
In our view, the two key rating factors underpinning the rating on the sukuk are the rental payments to be made by Qatar, which ensure payment of the periodic distribution amounts, and Qatar's guarantee on SoQ Sukuk B's obligations, 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 Qatar. Standard & Poor's considers that Qatar has a strong incentive to consider the performance of the trust 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, SoQ Sukuk A.

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