Fitch Assigns Pakistan's Sukuk 'B(EXP)'
3rdPIS is the issuer and trustee of the Sukuk, incorporated primarily for the purpose of participating in the sukuk transactions. 3rdPIS is wholly owned by Pakistan.
KEY RATING DRIVERS
The trust certificate issuance programme's rating is driven solely by Pakistan's IDR of 'B', which Fitch affirmed on 12 April 2016 along with the Stable Outlook. The programme's rating is based on Fitch's view that a default of these senior unsecured obligations would reflect a default of Pakistan in accordance with Fitch's rating definition.
Fitch has not considered any underlying assets or collateral provided, 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.
In addition to the Pakistan government's propensity to ensure repayment of the 3rdPIS sukuk, Fitch believes it would also be required to ensure full and timely repayment of 3rdPIS'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 due 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 the scheduled dissolution date or following the occurrence of any dissolution event or total loss 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.
- In addition, the Pakistan government will be required to pay any shortfall in insurance proceeds and the dissolution distribution amount directly to the transaction account on the occurrence of the total loss event unless the lease assets are replaced.
- 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, without preference among themselves, with all of Pakistan's other outstanding present and future unsecured and unsubordinated obligations.
The programme 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.
Certain aspects of the transaction will be governed by English law, while other aspects will be governed by the laws of Pakistan. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, Fitch's rating on the certificates reflects its belief that the Pakistan government would stand behind its obligations.
When assigning ratings to the programme and certificates to be issued under it, Fitch does not express an opinion on the programme's compliance with sharia principles. There is no assurance that notes issued in the future under the programme will be assigned a rating or that the rating assigned to a specific issue under the programme will have the same rating as the programme rating.
The rating will be sensitive to any changes in Pakistan's Long-Term Foreign-Currency IDR and any changes to the roles and obligations of Pakistan under the sukuk's structure and documents.