Fitch Ratings has assigned Arabian Centres Company's (ACC, trading as Cenomi Centres) USD600 million senior unsecured sukuk (trust certificates), issued through Arabian Centres Sukuk III Limited (ACSL3), a final rating of 'BB+'.

The Recovery Rating is 'RR4'.

ACSL3, also the trustee, is an exempted company with limited liability incorporated in the Cayman Islands and has been established for the sole purpose of issuing the certificates. Its shares are held by MaplesFS Limited as share trustee.

ACC is using proceeds from the issue primarily to refinance its USD500 million sukuk that matures in November 2024.

Key Rating Drivers

The sukuk's rating is derived from ACC's Long-Term IDR (for ACC's Key Ratings Drivers see 'Fitch Affirms Arabian Centres at 'BB+'/'A-(sau)' dated 31 July 2023 at www.fitchratings.com). This reflects Fitch's view that a default of the senior unsecured obligations would reflect a default of ACC, in accordance with Fitch's rating definitions.

Fitch has given no consideration to any underlying assets or collateral provided, as the agency believes that the trustee's ability to satisfy payments due on the trust certificates will ultimately depend on ACC satisfying its unsecured payment obligations to the trustee under the transaction documents.

In addition to ACC's propensity to ensure repayment of the sukuk, in Fitch's view, ACC is required to ensure full and timely repayment of repayment of ACSL3's obligations due to its role and obligations under the sukuk structure and documentation, especially, but not limited to the features below:

ACC, as a servicing agent, will ensure the timely receipt and recording of all revenues of the wakala portfolio and murabaha profit instalment payments and also paying these amounts into the transaction account, which is intended to be sufficient to fund the periodic distribution amount payable under the certificates.

On the business day prior to the relevant scheduled dissolution date, the trustee will have the right to require the obligor (ACC) to purchase all of the trustee's interests, rights, title, benefits and entitlements in, to and under the wakala assets; and the aggregate amounts of the deferred sale price then outstanding, if any, will become immediately due and payable.

The exercise price payable by ACC to the trustee and the aggregate amounts of the deferred sale price then outstanding, are intended to fund the dissolution distribution amount payable by the trustee under the certificates, which should equal the sum of (a) the outstanding face amount of the certificate; and (b) any accrued, but unpaid, periodic distribution amounts; and (c) any other amounts payable following a total loss event.

In addition, the sukuk documentation has tangibility events. The certificates may be delisted and redeemed prior to the scheduled dissolution date of the certificates following the occurrence of a tangibility event. The documentation includes an obligation on ACC to ensure that at all times the tangibility ratio (defined as the aggregate value of the wakala assets/aggregate value of the wakala assets and the aggregate amounts of the deferred sale price outstanding) remains more than 50%. If the tangibility ratio falls below 50%, but above 33%, the servicing agent will take steps (in consultation with the sharia advisor) required to restore it to more than 50%. If the ratio falls below 33%, the certificates will be delisted and certificate holders will have the option to require the redemption of all of any of its certificates.

Fitch expects ACC to maintain the tangible asset ratio above 50%. This ratio has substantial headroom (end-December 2023: ACC had more than 5x additional headroom). The underlying eligible assets comprise shopping centres in Saudi Arabia. If the company disposes assets or if there is a partial, or total loss of an asset, ACC has a large pool of unsecured assets which, subject to sharia compliance, could substitute for any disposed assets and make good any shortfalls. The company's unencumbered asset ratio currently exceeds 2.5x.

In a total loss event, if there is a shortfall from the insurance proceeds, ACC has undertaken to pay the total loss shortfall amount directly to the transaction account.

The payment obligations of ACC (acting in any capacity) under the transaction documents will be direct, unconditional, unsubordinated and unsecured obligations of the obligor which at all times rank equally with all other unsecured and unsubordinated obligations of ACC, present and future.

The sukuk issue includes negative pledge provisions, financial reporting obligations, ACC events, change- of-control clauses, restrictive covenants, asset disposal events, permitted security enforcement events, and cross-default terminology.

Certain aspects of the transaction will be governed by English law, while other aspects will be governed by the laws of the Kingdom of Saudi Arabia and the Cayman Islands. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, Fitch's rating on the trust certificates reflects the agency's belief that ACC would stand behind its obligations. Fitch does not express an opinion on the trust certificates' compliance with sharia principles when assigning ratings to the certificates to be issued.

Derivation Summary

The sukuk's rating is derived from ACC's Long-Term IDR and is in line with its senior unsecured rating.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:

ACSL3's Rating:

An upgrade of ACC's senior unsecured rating

ACC's IDR:

Occupancy rate consistently above 95%

EBITDAR net leverage consistently below 4.5x

Improvement of the operating environment on a sustained basis

A material reduction in asset concentration

A smoother lease maturity profile

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:

ACSL3's Rating:

A downgrade of ACC's senior unsecured rating

Adverse changes to the roles and obligations of ACC and ACSL3 under the sukuk's structure and documents

ACC's IDR:

Deterioration in the operating environment

EBITDAR net leverage above 7.0x on a sustained basis

EBITDAR fixed coverage charge under 1.75x

Occupancy rate below 90%

Liquidity and Debt Structure

For ACC's Liquidity, see 'Fitch Affirms Arabian Centres at 'BB+'/'A-(sau)' dated 31 July 2023 at www.fitchratings.com.

ESG CONSIDERATIONS

ACC has an ESG Relevance Score of '4' for Group Structure, reflecting a high number of related-party transactions that generate more than 25% of group rental income. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation of the materiality and relevance of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

Issuer Profile

ACC is the largest real-estate company in Saudi Arabia and owns or operates a portfolio of 21 malls. The assets are located in the country's 10 largest cities with a gross leasable area of about 1.3 million sqm and a market share of around 14%.

Date of Relevant Committee

27 July 2023

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

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