S&P rates Damac debt BB

S&P said it assigned a preliminary BB rating to the proposed $125 million sukuk trust certificates to be issued by Alpha Star Holding IV Ltd.

Alpha Star IV is a special purpose vehicle (SPV) of Damac Real Estate Development Ltd.

On the closing date, Alpha Star IV will enter into a sale and purchase agreement with group operating companies of Damac to invest about 40% of the proceeds of the sukuk notes in a portfolio of Ijara (lease financing) agreements and the remainder in a Murabaha agreement, the agency said.

While the sukuk notes remain outstanding, at least 33% of the notes' outstanding face value will be held in the Ijara portfolio, S&P said.

Under the guarantee undertaking, Damac has committed to make up any shortfall between the distribution amount (profit and principal) and the amounts collected from the underlying assets, the agency noted.

The proposed rating on the sukuk reflects the rating on Damac since the proposed transaction fulfills the five conditions of our criteria for rating sukuk, S&P said.

The preliminary 3 recovery rating on Damac's existing sukuk reflects an expectation of meaningful recovery, in the higher half of the 50% to 70% expected default recovery range, the agency said.

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