Moody’s Assigns Definitive Aa1 Rating To IFFIm’s Planned Sukuk

Moody’s has today assigned a definitive Aa1 senior unsecured MTN rating (outlook stable) to the Trust Certificate Issuance of IFFIm Sukuk Company Limited, a special purpose vehicle established in the Cayman Islands by International Finance Facility for Immunisation Company (IFFIm).

Moody’s has today assigned a definitive Aa1 senior unsecured MTN rating (outlook stable) to the Trust Certificate Issuance of IFFIm Sukuk Company Limited, a special purpose vehicle established in the Cayman Islands by International Finance Facility for Immunisation Company (IFFIm).
[main text ]”The IFFIm sukuk offering reflects the continued interest in Islamic capital markets as a source of funding and will widen its investor base in the Gulf and Asian markets,” commented Khalid Howladar, Global Head of Islamic Finance at Moody’s Investors Service. “The financing raised will be directly used to support the immunization and vaccination programmes of Gavi, the Vaccine Alliance, and is in keeping with the social and responsible investment principles of Islamic finance.”

“Moody’s Aa1 issuer rating and stable outlook on IFFIm reflects the strong commitment on the part of its sovereign donors as well as its ample liquidity,” says Renzo Merino, Analyst in the Sovereign Risk Group at Moody’s. “We also note that the World Bank’s role as treasury manager and the policies it implements add institutional strength to IFFIm’s credit profile and ensure appropriate levels of liquidity to cover upcoming debt-service requirements. This contributes to reducing the risks emerging from IFFIm’s front-loaded debt structure relative to the revenues derived from its sovereign donor pledges.”

The Aa1 rating assigned to the trust certificates is at the same level as the long-term senior unsecured rating of International Financial Facility for Immunisation, as the sukuk certificate holders will (i) effectively be exposed to IFFIm’s senior unsecured credit risk; (ii) not be exposed to fluctuations in the value of the commodities relating to the Certificate structure; (iii) will not have any preferential claim or recourse over the Trust Assets, or rights to cause any sale or disposition of the Trust Assets except as expressly provided under the Transaction Documents; and (iv) ultimately have recourse against IFFIm, ranking pari passu with other senior unsecured obligations as provided in the Transaction Documents.

Moody’s also notes that its sukuk rating does not express an opinion on the structure’s compliance with Shari’ah law, and for this it refers to the Fatwa provided by IFFIm’s Shari’ah supervisory board.

The proceeds of the sukuk certificates will be used by the Issuer to purchase eligible commodities which will then be sold to IFFIm at a pre-specified deferred price, which will include a cost component and a profit component. IFFIm will subsequently on-sell the purchased commodities to a third party (Supplier for On-Sale) and use the proceeds as part of its immunisation grant program. The transactions between the Issuer, Commodity Agent, IFFIm and Supplier for On-Sale will repeat every distribution period with the principle cost component netted out. This will effectively reduce the monetary side of the structure to a payment of the profit component of deferred price from IFFIm to the Issuer and, subsequently, to certificate holders. At a dissolution date, IFFIm will pay back the full deferred price to the Issuer, which will then pay the dissolution amount of the certificates to the holders. IFFIm’s obligations with respect to deferred price payments will rank pari passu with IFFIm’s other senior unsecured indebtedness.

IFFIm’s Aa1 issuer rating is based on the firm commitment of the donor governments to make payments to IFFIm on specified dates over periods of around 20 years, on adherence to its gearing and liquidity policies, and on the involvement of the World Bank as Treasury Manager., explains the ratings agency.

IFFIm was established as a charity in the United Kingdom in 2006 with the purpose of accelerating and facilitating funding for immunization programs in the world’s poorest countries. The programs are carried out by the Gavi, a public/private entity that is active in such immunization programs.

IFFIm issues bonds to finance Gavi programs, and the donor payments will be used to repay the bonds. As such, IFFIm’s rating is closely linked to the creditworthiness of its sovereign donors because its revenue structure is reliant on the receipt of donors’ pledges. Although the amount and timing of donor payments is predetermined at the time they are pledged, the amounts and maturities of debt issuance are determined on the recommendation of the Treasury Manager.

According to Moody’s credit challenges for IFFIm include the high concentration of donor pledges, particularly due to the high correlation in credit risk among euro area donors, and the possibility of a large number of recipient countries going into arrears with the IMF causing material reductions in donor payments via the high-level financing condition.

The outlook on IFFIm’s ratings is stable and therefore the outlook on the sukuk trust certificates is also stable. A change in IFFIm’s ratings or outlook will be automatically reflected in the trust certificate ratings of the Issuer, says Moody’s.

Originally published on www.ftseglobalmarkets.com