Corporate Green Sukuk – Majid Al Futtaim

Majid Al Futtaim Issues World’s First Corporate Benchmark Green Sukuk Under its Ambitious Green Finance Framework with More Issuances to Come

Majid Al Futtaim (MAF), a leading shopping mall, communities, retail and leisure developer across the Middle East, Africa and Asia, successfully closed its latest Sukuk issuance in May 2019 – a US$600 million benchmark Sukuk.

The 10-year fixed rate Trust Certificates were issued by MAF Sukuk Ltd., a limited liability exempted company incorporated in the Cayman Islands, established as a sole purpose vehicle (SPV) to act as the issuer of the certificates and the trustee for the holders of the certificates, on behalf of the obligor, MAF.

The Certificates were issued pursuant to MAF Sukuk Ltd.’s and Majid Al Futtaim Properties LLC’s US$1.5 billion trust certificate issuance programme, which is irrevocably guaranteed by MAF.

The transaction was highly successful and oversubscribed five times with an order book of around US$3 billion. The transaction was priced at a profit rate of 4.64 % per annum paid bi-annually, with the pricing tightening from initial pricing guidance of 245 basis points over mid-swaps (MS) to a final pricing of 220 basis points over MS.

The issuance is via a Wakala contract that comprises two components: a Murabaha contract (48.07 % of the asset pool) and a sale-and-purchase agreement for real estate assets (51.93 % of the asset pool).

The terms and conditions require a minimum of 34 % of the Sukuk proceeds to be invested in a Wakala portfolio of assets, which include income-generating real estate assets or other Sharia’a-compliant tangible assets. A maximum of 66 % of the proceeds can be used to purchase a commodity Murabaha investment to be sold to Majid Al Futtaim Properties (MAFP), Majid Al Futtaim Holding’s properties business unit, for a deferred sale price that includes the cost price of the commodities, a nominal profit, and, if applicable, any commodity tax.

As at 31 December 2018, MAF operated 23 shopping malls, 108 Carrefour hypermarkets, 156 Carrefour supermarkets and a number of other entertainment offerings (including 35 cinemas), predominantly located in the MENA region.

This transaction marks MAF’s debut “green finance” issuance and is the first green Sukuk issuance by a GCC corporate and “the world’s first benchmark corporate Green Sukuk.”

“The Green Sukuk is testament to Majid Al Futtaim’s long term commitment to support the transition to a low carbon economy. The investment will be used to finance and refinance Majid Al Futtaim’s existing and future green projects, including green buildings, renewable energy, sustainable water management, and energy efficiency,” said the company in a statement.

Proceeds from the Sukuk issue will be used in accordance with MAF’s Green Finance Framework (GFF) to finance or refinance eligible projects within the categories of renewable energy, energy efficiency, sustainable water management and/or green buildings. The GFF, issued in April 2019, foresees MAF issuing “Green Bonds or Green Sukuk as part of its commitment to financing the long-term sustainable projects required to transition to a low-carbon, more sustainable economy, in addition to attracting environmentally and socially conscious investors and demonstrating its leadership on sustainability in the global marketplace. Furthermore, the issuance of a Green Bond aligns with Islamic values surrounding local socio-economic development and care for the environment.”

The Sukuk Certificates are rated BBB by both Standard & Poor’s (S&P) and Fitch Ratings and are admitted to listing on Euronext Dublin and Nasdaq Dubai. Additionally, Fitch and S&P have reaffirmed the company’s credit rating at ‘BBB’ with a stable outlook, for a seventh consecutive year, reiterating its credit strengths such as the resilience of its business model, quality of assets, strong corporate governance and prudent financial management.

HSBC acted as the sole green structuring advisor while HSBC and Standard Chartered Bank acted as joint global co-ordinators. Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, Gulf International Bank, HSBC and Standard Chartered Bank acted as the joint lead managers and joint bookrunners to the transaction.

The listing on Nasdaq Dubai on 15 May marked the listing of the world’s first benchmark corporate Green Sukuk and the first Green Sukuk issued by a corporate in the region. Alain Bejjani, Chief Executive Officer at Majid Al Futtaim Holding, stressed at the bell ringing ceremony in Dubai that this “issuance will enable Majid Al Futtaim to deliver more sustainable experiences for our customers and to address the implications of climate change. As we progress on our sustainability journey, we are extremely proud to list the world’s first benchmark corporate Green Sukuk and look forward to identifying and pioneering innovative ways to meet our ambition to be Net Positive by 2040.

“The widespread interest from global investors in the Sukuk indicates their confidence in our ESG rating, BBB credit rating, and prudent financial and risk management approach. Investors’ faith in our vision empowers us to continue on our path to become one of the most environmentally sustainable companies within our industries.”

In addition to its GFF, MAF recently also established a Green Finance Steering Committee, which will oversee the selection of new and existing projects for its green portfolio. MAF has also received a “low risk” environmental, social and governance (ESG) rating by Sustainalytics, an independent ESG auditor, certifying the company is at ‘low risk’ of experiencing financial impact from ESG factors, due to its low exposure and effective management of ESG issues.

With the Green Sukuk listing, the value of all debt instruments listed on Nasdaq Dubai by MAF has reached US$2.4 billion. The company’s other listings comprise one Sukuk of US$500 million that listed in 2015, and two conventional bonds of US$500 million each that listed in 2013 and 2014 respectively, as well as a US$300 million tap on the 2014 bond that listed in 2016.

MAF closed 2018 with a solid financial and liquidity position covering its net financing needs for the next 3 years through its cash and available committed lines. In 2018, according to company financials, the company’s group revenue grew by 7 % reaching AED34.6 billion, while EBITDA increased by 9 % year-on-year to AED4.6 billion. The company continued to maintain a strong balance sheet with total assets valued at AED60.4 billion and a net debt of around AED 12.6 billion.

The total value of all Sukuk listed on Dubai’s exchanges has now reached US$61.49 billion, the largest amount of Sukuk on any listing centre in the world.

Green bonds are a growing category of fixed-income securities and green Sukuk could widen the appeal of Sukuk beyond its traditional markets in Asia and the Middle East to include ethical investors in Western countries.

But as a recent study by Moody’s Investor Service stressed, of the US$47.2 billion of green bonds that were sold in the first quarter of 2019, a 40 % surge over the same period last year, only 1.6 % represented Sukuk, namely the US$750 million sovereign Green Sukuk issued by the Indonesian government in February 2019.

“While the global green bond market reaches new annual highs, the green Sukuk market is still in its infancy, with only a handful of issuances to date following the world’s first green Sukuk in 2017 issued by Tadau Energy (Edra Power), a corporate based in Malaysia,” said Moody’s.

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