Al Rayan Bank (UK) issues largest ever Sterling Sukuk for £250m

14 February 2018

Al Rayan Bank, the UK’s largest Islamic bank* and one of the fastest growing banks in the country**, has become the first bank in the world to issue a public Sukuk (Islamic bond) in a non-Muslim country, reinforcing the UK’s position as the western hub for Islamic finance. The transaction is priced at Sterling 3 months’ LIBOR plus 80bps.

Tolkien Funding Sukuk No.1 Plc (“Tolkien Sukuk”) is Al Rayan Bank’s inaugural securitisation of residential finance backed security (a Sharia compliant alternative to a conventional RMBS^). The transaction is secured by a portfolio of prime UK, first-charge, owner-occupied, Home Purchase Plans ("HPPs") originated by Al Rayan Bank. The £250million Sterling-denominated Sukuk has an expected called weighted average life of 3 years. The securitisation of residential assets is provisionally rated AAA by Standard & Poor's (S&P) and Aaa by Moody's Investors Service (Moody’s).

Al Rayan Bank’s Tolkien Sukuk is the largest ever Sterling denominated Sukuk issued by a UK entity, following the UK Government’s £200m Sukuk, which was issued in 2014. Tolkien Sukuk was oversubscribed with final demand at 155% of book, reflecting the strong demand for Islamic financing instruments that exists in the market, and the fact that the UK is well positioned to become the destination of Sukuk issuance for Western Europe.

Tolkien Sukuk showcases both the structuring capabilities within the UK legal framework and the capabilities of UK financial institutions such as Al Rayan Bank to produce asset-backed Sukuk using homogenous residential assets. Legal advice on the issuance was provided by Norton Rose Fulbright’s London team, and joint lead manager for distribution was Standard Chartered Bank’s Financial Institution team in London. Sharia certification of the structure was provided by the Sharia Supervisory Committees of both Al Rayan Bank and Standard Chartered Bank.

Demand from investors has been significant, with European RMBS investors and conventional and Islamic banks and pension funds all represented in the final allocation. Commenting on the successful issuance Sultan Choudhury OBE, CEO, Al Rayan Bank, said: “The issuance of this ground breaking Sukuk is a major landmark in the history of Al Rayan Bank, but it is also a significant development for the global Islamic finance sector which reinforces the UK’s position as a global hub for Islamic banking. Tolkien Sukuk has been designed to ensure that it is recognisable as High Quality Liquid Assets (HQLA) and as a securitisation under CRD definitions; this has resulted in high levels of demand from conventional institutions as well as from Islamic investors.”

Proceeds raised from the Sukuk issuance will be used by Al Rayan Bank to fund further growth in its asset book, which has increased by more than 23% over the last 12 months.

The issuance follows Al Rayan Bank’s announcement in November 2017 that it had become the first Islamic Bank in the UK to receive an official credit rating. Moody’s judged the Bank’s Counterparty Risk Assessment to be Aa3 (equivalent AA-). Its Baseline Credit Assessment (BCA) is judged to be A2 (A) with the support of its parent Masraf Al Rayan, and Baa2 (BBB) independently.

Al Rayan Bank has been a pioneer of British Islamic banking since it was founded in 2004 and has experienced unprecedented growth in recent years. As an independent UK bank, the Bank is authorised by the Prudential Regulation Authority, regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is a member of Financial Services Compensation Scheme.

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* Al Rayan Bank is the UK’s largest Islamic bank by assets as per 2016 published accounts

** Bank League Tables 2017, a complete financial analysis of all 155 UK incorporated banks, Searchline Publishing 2017

^ RMBS: residential mortgage-backed security is a type of mortgage-backed debt obligation where the cash flows derive from a pool of residential debt packaged into a special purpose vehicle which then issues securities that can be purchased by investors

The sukuk is called Tolkien Funding Sukuk no. 1 PLC, and details are available using the Bloomberg Ticker TOLK 1 A MTGE, ISIN XS1756356298

This press release has been prepared solely for information purposes. It does not constitute an offer to sell, or is a solicitation of an offer to buy the securities described herein, nor shall there be any sale of these securities in any state, or other jurisdiction in which such an offer, solicitation or sale would be unlawful, prior to registration or qualification, under the securities law of any jurisdiction.

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