Fitch Ratings has assigned Banque Saudi Fransi's (BSF; A-/Stable/bbb) up to USD4 billion trust certificate issuance programme, housed under BSF Sukuk Company Limited (BSCL), 'A-'/'F2' senior unsecured ratings.

The ratings only apply to the senior unsecured certificates issued under the programme.

The final ratings are the same as the expected ratings assigned on 19 May 2023, and follows receipt of the final documentation confirming the information already provided.

BSCL, the issuer and trustee, is a special-purpose vehicle incorporated in the Cayman Islands. BSLC has been incorporated solely for the purpose of participating in the transactions contemplated by the transaction documents to which it is a party.

Key Rating Drivers

The programme's ratings are line with BSF's Long- and Short-Term Issuer Default Ratings (IDRs) of 'A-' and 'F2', respectively, which in turn are driven by the bank's Government Support Rating (GSR) of 'a-'. The rating alignment reflects Fitch's view that default of these senior unsecured obligations would reflect a default of BSF in accordance with Fitch's rating definitions.

Fitch has given no consideration to any underlying assets or any collateral provided, as it believes that BSCL's ability to satisfy payments due on the certificates will ultimately depend on BSF satisfying its unsecured payment obligations to BSCL under the transaction documents described in the offering circular.

In addition to BSF's propensity to ensure repayment of the sukuk, in Fitch's view BSF would also be required to ensure full and timely repayment of BSCL's obligations due to the bank's various roles and obligations under the sukuk structure and documentation, especially, but not limited to, the features below:

Pursuant to the service agency agreement, BSF as service agent will ensure sufficient funds are available to meet the periodic distribution amounts payable by the trustee under the certificates of the relevant series on each periodic distribution date. BSF can take other measures to ensure that there is no shortfall and that the payment of principal and profit are paid in full, and in a timely manner

On any dissolution or default event, the aggregate amounts of deferred payment price then outstanding pursuant to the master Murabaha agreement will become immediately due and payable; and the trustee will have the right under the purchase undertaking to require BSF to purchase all of its rights, title, interests, benefits and entitlements, present and future, in, to and under the relevant assets in consideration for payment by BSF of the relevant exercise price;

The deferred payment price and the exercise price together are intended to fund the dissolution distribution amount payable by the trustee under the relevant certificates, which equals the sum of the outstanding face amount of such certificates; and any accrued but unpaid periodic distribution amounts for such certificates, or such other amount specified in the applicable pricing supplement as being payable upon the relevant dissolution date;

The payment obligations of BSF under the service agency agreement, purchase undertaking, master trust deed and the master Murabaha agreement will be direct, unconditional, unsubordinated and unsecured obligations and will at all times rank at least equally with all other unsecured and unsubordinated obligations of BSF, present and future;

The transaction documents also include an obligation on BSF to ensure that at all times the tangibility ratio (which is defined in the service agency agreement as, in relation to each series, the ratio of the aggregate value of the financing assets and the tangible part of all tradeable sukuk forming part of the Wakala portfolio relating to such series, to the Wakala portfolio value relating to such series) is more than 50%. Failure of BSF to comply with this obligation will not constitute an obligor event.

However, if the tangibility ratio falls below 33% (tangibility event), this would result in the certificate holders having a put right for the senior unsecured certificates. The certificates would then be delisted and each certificate holder can exercise a put option to have their holdings redeemed, in whole or in part, at their dissolution distribution amount within 30 days after delisting notice is given. In such an event, there would be implications for the certificates' tradability;

Fitch expects BSF to maintain the tangibility ratio at above 50%. For the purpose of establishing the programme, BSF has identified a pool of USD38.6 billion of eligible tangible assets, which cover over 10x the programme's size. The bank has a strong liquidity profile that allows it to repay the outstanding sukuk under the programme in case of a breach of the tangibility ratio, although this is not our base case. The USD4 billion maximum programme size would have accounted for about 8% of BSF's liabilities at end-2022;

The transaction does not contain physical tangible real estate assets, so no total loss event has been included;

The sukuk transaction documents include a negative pledge provision, cross-acceleration terminology, as well as trustee and obligor event clauses.

Certain aspects of the transaction are governed by English law while others are governed by the laws of Saudi Arabia and 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 certificates reflects the agency's belief that BSF would stand behind its obligations.

When assigning ratings to the certificates to be issued, Fitch does not express an opinion on the certificates' compliance with sharia principles.

Rating Sensitivities

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

The programme's and certificates' ratings are sensitive to negative changes in BSF's Long-Term and Short-Term IDRs, with which they are aligned. The ratings may also be sensitive to adverse changes to the roles and obligations of BSF under the sukuk's structure and documents.

A downgrade of BSF's Long-Term IDR would result in a downgrade of BSF Sukuk programme's and certificates' rating. A downgrade of BSF's IDR would be driven by a downgrade of the bank's GSR, which is unlikely given the Stable Outlook on Saudi Arabia.

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

The programme's and certificates' ratings are sensitive to positive changes in BSF's Long-Term and Short-Term IDRs. The ratings may also be sensitive to positive changes to the roles and obligations of BSF under the sukuk's structure and documents.

An upgrade of BSF's Long-Term IDR would result in an upgrade of BSF sukuk programme's and certificates' ratings. An upgrade of BSF's IDRs would come from an upgrade of the GSR.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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