Daily Times

Fitch Ratings has assigned Pakistan’s proposed US-dollar sovereign global sukuk certificates, which will be issued through The Pakistan Global Sukuk Programme Company Limited, a ‘B-‘ rating.

The Pakistan Global Sukuk Programme Company Limited is a legal entity in Pakistan and is the issuer and trustee of the sukuk, incorporated primarily for the purpose of participating in the sukuk transaction. It is wholly owned by Pakistan, said Fitch Ratings.

The rating is sensitive to any changes in Pakistan’s long-term foreign-currency issuer default rating (IDR), which Fitch affirmed at ‘B-‘ with a Stable Outlook in May 2021.

The certificates’ rating is driven solely by Pakistan’s IDR. This reflects Fitch’s view that a default of these senior unsecured obligations would reflect a default of Pakistan, in accordance with Fitch’s rating definitions.

“We have not considered any underlying assets or collateral provided when assigning a rating to the sukuk, as we believe the issuer’s ability to satisfy payments due on the certificates will ultimately depend on the Pakistan government satisfying its unsecured payment obligations to the issuer under the transaction documents described in the prospectus and other supplementary documents,” said Fitch Ratings.

In addition to the government’s propensity to ensure repayment of the sukuk, Fitch believes the government would also be required to ensure full and timely repayment of the Pakistan Global Sukuk Programme Company Limited’s obligations due to its various roles and obligations under the sukuk structure and documentation, especially – but not limited to – the features below:

On each periodic distribution date, Pakistan, acting as a lessee, will pay to the trustee an amount reflecting the rental payable in respect of the lease assets, which is intended to be sufficient to fund the periodic distribution amounts payable by the issuer under the certificates and shall be applied by the trustee for that purpose.

On any dissolution event, the trustee will have the right to require the obligor, under the purchase undertaking, to purchase the lease assets from the trustee for an amount equal to the exercise price, intended to fund the dissolution distribution amount payable by the issuer under the certificates. The dissolution distribution amount equals (i) the outstanding face amount of such certificate; and (ii) all accrued and unpaid periodic distribution amounts in respect of such certificate, or other amount specified in the applicable pricing supplement as being payable upon the relevant dissolution date.

In the event of total or partial loss, if there is a short fall from the insurance proceeds, the obligor will be required to pay for the shortfall directly to the transaction account unless the lease assets are replaced. A partial loss dissolution event shall constitute a government event, which in turn shall constitute a dissolution event.

The payment obligations of the Pakistan government (acting in any capacity) under the transaction documents are direct, unconditional and unsecured obligations and rank pari passu with all other present and future unsecured and unsubordinated external indebtedness of the obligor, said Fitch.

The Pakistan Global Sukuk Programme Company Limited sukuk includes a negative pledge provision that is binding on the Pakistan government, as well as financial reporting obligations, covenants, government event and cross acceleration terms with external indebtedness. The documentation does not contain a change of control clause, said the report.