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Tolkien Funding Sukuk No.1 Plc: 20 February 2018

Al Rayan Bank UK (which is 68.84% owned by Masraf Al Rayan) has become the first bank to issue sukuk outside an Islamic country, via its £250mn sukuk residential mortgage backed securities transaction. The transaction is secured by a portfolio of prime UK first-charge, owner-occupied, home purchase plans located in England and Wales, all of which have been originated by Al Rayan Bank.

Al Rayan Bank PLC is a subsidiary of Al Rayan UK Limited, a majority owned subsidiary of Masraf Al Rayan (Q.S.C.), the second largest bank in Qatar by market capitalisation. Al Rayan is authorised by the Prudential Regulatory Authority and regulated by the PRA and the Financial Conduct Authority and possesses a full banking licence. MAR acquired Al Rayan in January 2014, with formal change of control on 3 February 2014. Al Rayan (formerly known as Islamic Bank of Britain) is a UK registered Islamic Bank and since 2004 has remained the UK's largest wholly Sharia compliant retail bank. Al Rayan offers the UK's largest range of Islamic retail banking products and services, which includes ethical, Sharia-compliant home and property finance, savings accounts, current accounts, commercial finance and business banking.

As at the provisional pool cut-off date (19 January 2018) the portfolio consisted of 1,672 assets (a Home Purchase Plan). The Home Purchase Plan is a Sharia compliant alternative to a conventional mortgage, and does not involve interest. As a Sharia compliant product, Al Rayan’s Home Purchase Plans are based on joint ownership and lease agreements arranged using two separate principles of Islamic finance. Each Home Purchase Plan has four elements – a Diminishing Co-Ownership Agreement, a Lease Agreement, a HPP Service Agency Agreement and a Legal Charge Agreement. Amounts due to Al Rayan under a Home Purchase Plan are secured by a first ranking legal charge (governed by the Legal Charge Agreement).

The average balance is £180,280 and the largest current balance is £678,847. Repayment method (by current balance): repayment – 100%. Portfolio Assets by Rent Rate Type: Fixed – 55.87%, Discounted – 23.05%, Full SVR 21.08%. Portfolio Assets by Purpose of Financing: Purchase – 85.41%, Re-financing – 13.18%, others – 1.41%. Portfolio Assets by Region: Greater London and South East – 55.92%, West Midlands – 11.57% and the North West – 10.91%. The WA current FTV is 64.1% (original FTV was 69.2%) and the WA seasoning is 22 months.

“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,” said Sultan Choudhury, Al Rayan Bank chief executive.

CRR 405: The Seller will retain a material net economic interest of at least 5% of the securitised exposures in accordance with Article 405(1)(d) of Regulation (EU) No. 575/2013, Article 51(1)(d) of the AIFMD Level 2 Regulation and Article 254(2)(d) of the Commission Delegated Regulation (EU) 2015/35.

U.S. Risk Retention Rules: The Seller, as the sponsor under the U.S. Risk Retention Rules, does not intend to retain at least five per cent of the credit risk of the securitised assets for the purposes of compliance with the U.S. Risk Retention Rules, but rather intends to rely on an exemption provided for in s.20 of the U.S. Risk Retention Rules regarding non-U.S. transactions.

Volcker Rule: The Trustee is of the view that it is not now, and immediately following the issuance of the Certificates and the application of the proceeds thereof it will not be, a "covered fund" as defined in the regulations adopted under s.13 of the Bank Holding Company Act of 1956, as amended, commonly known as the "Volcker Rule".

Compare/contrast: Brass RMBS No 6 plc, Kenrick No.3 plc