Posted Date: August 10, 2016

MARC has today published an updated version of the methodology it uses to assign ratings to sukuk. The updated methodology, which supersedes MARC’s “Sukuk: A MARC Perspective” first published in November 2008 and last updated in April 2015, includes:

  1. Outlines on the wakalah, istisna’ and mudharabah sukuk structures, case examples and the specific rating considerations applicable to the assigned ratings;
  2. Standard illustrations of generic sukuk structures with step-by-step explanations of underlying transaction flows to improve clarity; and
  3. Appendices which answer frequently asked questions about ownership and recourse to underlying assets and the role of the special purpose vehicle issuer. 

The updated methodology follows MARC’s recently completed periodic methodology review and is immediately effective upon publication. As a result of the methodology review, slight changes have been made to the sukuk rating definitions to accommodate both asset-based and asset-backed instruments. MARC currently uses two rating scales for rating Islamic fixed income instruments, an Islamic debt rating scale (with the subscript ID) and a sukuk rating scale (with the subscript IS). The vast majority of Islamic fixed income instruments are rated on the sukuk rating scale.

MARC will migrate its existing Islamic debt ratings to the sukuk rating scale and subsequently withdraw its Islamic debt ratings and rating scale. This exercise will affect 14 debt ratings assigned to outstanding combined conventional and Islamic medium-term note (MTN) programmes, al-bai bithaman ajil debt securities, and residential mortgage-backed securities of 12 issuers. The change in rating scale, which will have no actual impact on the assigned grade of existing Islamic debt ratings, will be implemented over the coming months as reviews on existing Islamic debt ratings are concluded.

Existing sukuk ratings are not impacted by this update of methodology as no changes have been made to MARC’s frameworks for analysing the credit risk of entities, governments, financial institutions, projects and structured transactions. The frameworks that MARC employs to rate conventional issuances remain equally applicable to our sukuk ratings and each assigned rating continues to be the outcome of a comprehensive and consistent analysis of each individual issue and issuer credit risk factors.

The updated rating methodology can be accessed on MARC’s website at Rating Approach To Sukuk.

Milly Leong, +603-2082 2288/