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Murabaha Syndications and Transactions Proliferate with SR12.133 Billion of Deals in Saudi Arabia in June 2019 Alone

Murabaha syndications and transactions flourished during June 2019 with a spate of deals concluded in Saudi Arabia, Malaysia, Turkey and the UAE. The funds raised were used to finance a wide range of activities including expansion of a REIT, petrochemical plant activities, purchase of machinery and other assets, telecoms expansion, the “securitisation of the first non-asset backed Securitization transaction in Saudi Arabia”, and refinancing existing debt.

This illustrates the versatility and staying power of the commodity Murabaha in the global Islamic finance market, but especially in Saudi Arabia.

The Saudi Murabaha transactions alone accounted for SR12.1334 billion (US$3.24 billion) and involved many major corporations, including a SR1.4 billion Islamic credit facility for Swicorp Wabel REIT Fund from The National Commercial Bank with a tenor of 7 years. In a disclosure to Tadawul, the Saudi Stock Exchange, Swicorp explained that the purpose of the facility is to finance the expansion plan of the REIT through new acquisitions of income-generating properties that are located mainly within Saudi Arabia excluding Makkah and Madinah.  The financing is secured by a pledge on properties.

“It is also to ensure a diversified assets classes exposure that is in line with the Fund’s investment strategy, which shall reflect positively on the fund’s net income and cash dividends due to the difference between the income generated from acquired properties and the financing cost,” said Swicorp.

The single largest facility was for Al Kathiri Holding Co., which was a renewal of an existing SR3 billion Murabaha credit facility provided by Riyad Bank. That facility was increased to SR4 billion and the facility period similarly was extended to 12 June 2021with further extensions possible.

In a statement, Riyad Bank stressed that the facility is secured by a promissory note (equivalent to facility value) in favor of the bank. The purpose of this facility is to finance the company’s working capital and to meet other business requirements. Riyad Bank to date has provided Shariah-compliant credit facilities to the company totaling SR10.521 billion.

In an innovative transaction, United Electronics Company (eXtra) successfully closed a securitization deal with Al Rajhi Bank on 26 June 2019 against the assignment of a portion worth SR166 million of its installment sales’ receivables portfolio. The transaction, said the company, “is considered to be the first non-asset backed Securitization transaction in Saudi Arabia”.

“The transaction demonstrates the Company’s success in managing its installment sales business from all aspects, with accomplished records of delinquency and bad debts ratios marking 10 per cent and 3 per cent respectively for its receivables portfolio worth SR377 million by the end of Q1 2019. This transaction is intended to secure diversified funding sources for eXtra, which in turn will reflect positively on the Company’s key financial indicators and on its future credit rating,” said the company in a filing to Tadawul.

The transaction, added the company “will yield an instant cash inflow worth SR160 million that will be utilized for repayment of the Company’s indebtedness to the banks. It will also lead to the derecognition of the sold receivables from our financials. Furthermore, it will have an impact on the company’s profitability by SR12.1 million inclusive of a contingency provision amounting to SR10 million.”

In another development, Sahara & Ma’aden Petrochemicals Company (Samapco), which is owned 50 per cent by Saudi Arabian Mining Company (Ma’aden) and 50 per cent by Sahara Petrochemical Company, renegotiated their existing Murabaha on more favourable terms.

The Murabaha syndication involved a facility of SR2,250 million with a tenor of 12 years to be repaid in 24 semi-annual scheduled installments starting on 31 December 2019. Participants in the syndication included local commercial banks Saudi British Bank, The National Commercial Bank, Riyad Bank, AlBilad and Banque Saudi Fransi.

In another major transaction, Saudi Kayan Petrochemical Co signed a US$2 billion Murabaha financing facility agreement with The National Commercial Bank, which has a tenor of 7 years including a grace period of 3 years. In a disclosure to Tadawul, the company stressed that part of the proceeds will be used to repay existing credit facilities with NCB of US$1.2 billion due in August 2021 and of US$1.5 billion due in November 2029.

Mobile Telecommunication Company Saudi Arabia (Zain KSA) similarly signed a new SR2.25 billion Murabahah facility with a consortium of local and regional banks to refinance its existing $600 million facility with Commercial Bank of China (ICBC) “with better terms reflecting the improvement in the Company’s performances and the continuous trust and support of the core banking group participating in the transaction.”

A consortium of five banks comprising Al Rajhi Banking and Investment Corporation, Arab National Bank, Banque Saudi Fransi, First Abu Dhabi Bank PJSC (Saudi Branch) and SAMBA Financial Group participated in the deal with Banque Saudi Fransi (BSF) acting as the documentation bank and investment agent. Al Rajhi Bank was appointed bookrunner and mandated lead arranger together with Arab National Bank and First Abu Dhabi Bank.

The duration of the facility is two years, with the option to extend it for one year at Zain’s KSA request. The facility is fully secured by a corporate guarantee from Mobile Telecommunications Company K.S.C.P (Zain Group).

According to Prince Nayef bin Sultan bin Mohammed, the Chairman of Zain KSA, “this agreement will allow the company better capabilities to explore growth opportunities in the digital services that may arise in the future.”

Also in June, Zahrat Al Waha for Trading Company CJSC renewed an existing SR67.4 million Islamic credit facility with Alinma Bank with a duration from 10 June 2019 till 30 June 2020. The proceeds from the facility will be used to purchase raw materials as well as machinery and equipment.

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