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  • Exposure to Asset

    • CA-3.4.14

      When the project is rated by an ECAI, the RW based on the credit rating of the ultimate buyer is applied to calculate the capital adequacy requirement. Otherwise, the RW must be based on the "supervisory slotting criteria" approach for specialised financing (project finance), as set out in Appendix CA-5, which carries RWs as given below:

      Supervisory Categories Strong Good Satisfactory Weak
      External credit assessments BBB- or better BB+ or BB BB- to B+ B to C-
      Risk weights 70% 90% 115% 250%
      January 2015

    • CA-3.4.15

      Istisna'a financing with an "Exposure to Asset" structure is required to meet the characteristics as set out below in order to qualify for the above RW:

      (a) The segregation of the project's liabilities from the balance sheet of the Istisna'a ultimate buyer or project sponsor from a commercial and accounting perspective which is generally achieved by having the Istisna'a contract made with a special-purpose entity set up to acquire and operate the asset/project concerned;
      (b) The ultimate buyer is dependent on the income received from the assets acquired/projects to pay the purchase price;
      (c) The contractual obligations give the manufacturer/ constructor/ bank a substantial degree of control over the asset and the income it generates — for example, under the BOT arrangement where the manufacturer builds a highway and collects tolls for a specified period as a consideration for the selling price; and
      (d) The primary source of repayment is the income generated by the asset/project rather than relying on the capacity of the ultimate buyer.
      January 2015