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Gulf Finance House Real Estate Entity Infracorp Issues Debut US$900m Green Mudaraba Sukuk to Accelerate Sustainable Infrastructure Development Growth Across MENA and South Asia

Sustainability and Green Sukuk continue to feature in the issuance landscape, albeit at a steady but slow pace, with the debut benchmark US$900 million Green Sukuk Mudaraba by Manama-based Infracorp, the infrastructure, real estate and sustainability spin-off of Gulf Finance House (GFH).

In 2021, a record US$1tn of green, social and sustainable bonds were issued globally according to the European Commission. The EU expects this figure to rise by 50% in 2022. In contrast, total Green and Sustainable Sukuk, says Fitch Ratings, reached US$15bn in 2021, led by sovereign and corporate issuers in Indonesia, Malaysia and the GCC states. Sukuk remain the preferred format for ESG-linked debt in core Islamic finance markets.

According to Infracorp, this is the first-ever Green Sukuk issued by a Bahraini entity and has been listed on London Stock Exchange. This transaction reflects Infracorp’s strategy to accelerate growth of sustainable infrastructure development across MENA and South Asia regions while generating long-term returns for investors and adding lasting value to communities.

The US$900 million Exchangeable Hybrid Capital Certificates were issued through Infracorp Sukuk Limited, the Trustee and Rab Al Maal, which is incorporated as an exempted company with limited liability in the Cayman Islands.  The Certificates are perpetual securities which have no scheduled payment date.

Infracorp BSC is the Mudareb and GFH Financial Group is the Sole Lead Manager to the transaction. The Sukuk is priced at a Profit Rate at 7.5% per annum in respect of the Initial Period, and at 8.5% per annum on and from the First Call Date.

GFH spinned off its infrastructure and real estate assets into a newly established entity Infracorp in January 2022, which is capitalized with more than US$1 billion in infrastructure and developed assets. The mandate of Infracorp is “to specialise in investments focusing on accelerating growth and development of sustainable infrastructure assets and environments across the Gulf and global markets.”

Hisham Alrayes, Chairman of Infracorp, is confident that “this Sukuk issuance will enable positive and sustainable impact on the infrastructure development sector across the Gulf, North Africa and South Asian regions and is a response to the market’s appetite for opportunities that generate returns also in addition to participating in leaving a significant and tangible ESG impact.”

“With green Sukuk growing by more than 17% year-on-year in 2021 to $15 billion and expected to remain a key theme of the Islamic finance market in 2022, sukuk issuance activity is expected to stand between US$160 and US$170 billion in 2022, according to Moody’s. We therefore anticipate a growing investor appetite for ESG and Green Sukuk throughout the ongoing economic headwinds, he added.”

The GFH Group secured net profits attributable to shareholders of over US$84.2 million in 2021, an increase of almost 87% on 2020.

Infracorp manages assets of nearly $3 billion of infrastructure assets including a 250 million square feet land bank that is earmarked for sustainable economic and social infrastructure. The group is building a sustainability ecosystem in part through investments in a social infrastructure portfolio solution that comprises building materials, logistics and technologies that support climate change goals, as well as social infrastructure assets across the education and healthcare sectors.

The company has a diverse, synergistic portfolio of businesses, including Social Infrastructure, Mixed Use Developments and Development Solutions, with over USD$1 billion in assets under management. Infracorp currently has projects under development in Bahrain, UAE, Morocco, Tunisia, Saudi Arabia and India.

The company says its business strategy “is aligned with global and industry Environmental, Social and Governance (ESG) standards and best practices that empower economies, bring communities together, and through innovative design and technologies, preserve our planet’s natural resources to enrich living for generations to come.”

Infracorp mobilizes private sector resources through public private partnerships (PPPs), that together shape sustainable destinations that bring commercial communities and societies together and drive sustainable economic growth through job creation and localized innovation.

Meanwhile GFH Financial Group also launched and seeded a US$100 million Sukuk fund in March 2022, which holds a diversified portfolio of sovereign, quasi sovereign and corporate Sukuk and Sukuk-related securities from various countries and issuers, primarily in the GCC, following an agreement with Credit Suisse to provide financing and fund administration services.

GFH aims to generate returns to the fund through active asset allocation, credit selection, optimal leverage and duration management to achieve an above average long-term investment return on a risk adjusted basis.

Salem Patel, Head of Asset Management at GFH, maintains that “the market is becoming more buoyant as economies in the GCC recover amid a revival of key sectors. Global borrowers have issued more than US$23 billion of Sharia’a-compliant debt in 2021 and global Sukuk supply is expected to accelerate in 2022. The GFH Sukuk Fund aims to capitalise on post-pandemic economic growth and recovery.”

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