Fitch Ratings has assigned ‘F1sf’ ratings to six series of short-term sukuk totalling US$1.261 billion issued under International Islamic Liquidity Management 2 SA’s (IILM 2 SA) asset-backed commercial paper programme.
The rated issuances comprise US$220 million of Series 260083, US$356 million of Series 260084, US$240 million of Series 260085, US$226 million of Series 260086, US$166 million of Series 260087 and US$53 million of Series 260088.
IILM 2 SA is a Luxembourg-incorporated vehicle established in 2013 to issue short-term US dollar-denominated trust certificates with maturities of up to 364 days.
The programme has a maximum size of US$8.5 billion, while outstanding certificates will remain at US$7.45 billion following the latest issuance, as maturing certificates will offset the new securities.
Fitch said the underlying asset pool comprises Shariah-compliant assets or sukuk issued by specified entities, including sovereign and supranational issuers. Assets must meet eligibility requirements that include a minimum ‘A’ rating from Fitch at the time of purchase.
The current pool consists of 14 sukuk and is effectively exposed to five risk-presenting entities, with Fitch applying its “weakest link” approach in assessing the credit and liquidity support providers.
Liquidity risks are mitigated through early prepayment features or external liquidity support to address timing mismatches between collections from the underlying assets and repayment of the certificates.
Fitch added that the issuer’s reserve account is expected to cover any shortfall in transaction costs and target profit payments should cash collections from the underlying assets prove insufficient.
The rating agency also cited the experience of the International Islamic Liquidity Management Corporation (IILM), which has served as programme administrator and investment adviser since inception in 2013.
Fitch assessed IILM’s asset origination, programme management, administration and credit-risk management capabilities as supportive of the ratings. It also described the programme’s legal structure as robust, with the issuer and holding entities structured to be insulated from bankruptcy and insolvency risks involving transaction counterparties.
On rating sensitivities, Fitch said a one-notch downgrade of any risk-presenting entity would not affect the certificates’ ratings, although a two-notch downgrade of the weakest-linked entity could result in a one-notch downgrade of the securities.
