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Murabaha Syndications Flourish as a Complement to Sukuk as a Diversified Source of Financing in Both Traditional and New Markets

December 2019 saw a flourish of syndicated Murabaha financing and Islamic credit facilities, which has always complemented Sukuk issuance, especially in the Middle East and Malaysian markets but also for one of the premier multilateral development financial institutions in Africa.

The largest facility was a Murabaha syndication for Saudi telecommunications company Etihad Etisalat (Mobily), totalling SR7.6 billion (US$2.03 billion) to replace and reduce the cost of its existing syndicated financing.

In a disclosure to Tadawul (the Saudi Stock Exchange) Mobily said the Murabaha syndication agreement was signed with five Saudi banks: Riyad Bank, Arab National Bank, Banque Saudi Fransi, Saudi British Bank, and SAMBA Financial Group.

Mobily said the seven-year unsecured refinancing will significantly reduce its cost of debt over the coming few years. The company signed a similar refinancing facility in November 2019 amounting to SR3 billion with Alinma Bank, also to replace existing financing, and for “general corporate purpose including capital expenditure”.

This is the second Islamic finance facility accessed by Mobily in as many months. In November 2019, Mobily signed a SR3 billion unsecured 10-Year Islamic credit facility with Alinma Bank. In a filing with Tadawul, Mobily said that the proceeds from that facility will be used to “replace existing financing facilities, and for general corporate purposes including capital expenditure.”

In the Gulf Cooperation Council (GCC) region, Dubai Aviation Corporation, (flydubai) successfully completed a US$500 million 5-year Islamic Term Financing Facility. Emirates NBD Capital Limited (EMCAP) and Noor Bank acted as Global Coordinators and Emirates NBD Bank and Noor Bank jointly underwrote the transaction. The Facility was subsequently launched to a general syndication, for which EMCAP, Noor Bank and Dubai Islamic Bank were the Mandated Lead Arrangers and Bookrunners.

The proceeds of the facility will be used towards refinancing the carrier’s first landmark Sukuk issued in 2014, which matured on 26 November 2019.

Ghaith Al Ghaith, Chief Executive Officer at flydubai said in a statement that the budget airline continues “to explore ways to further diversify our sources of funding, while at the same time optimising our cost of funding.  We are pleased to see the healthy appetite in the market that has enabled us to successfully raise the five-year Term Loan for US$500 million to refinance our first Sukuk issued in 2014.”

In Malaysia, Standard Chartered Saadiq has entered into a multifaceted long-term collaboration with Lembaga Tabung Haji (TH), Malaysia’s iconic Pilgrims Management Fund, involving the latter’s overseas properties as well as travel business.

To facilitate this collaboration, Standard Chartered Saadiq has extended a two-year Shariah-compliant financing facility totalling UK£65 million to two wholly-owned subsidiaries of TH for the refurbishment and refinancing of office properties in the United Kingdom. Part of the facility has been disbursed to LTH Property Holdings Ltd to partially fund the renovation of its office property in London, while the balance is to be used to refinance the term financing of a second office property owned by LTH Property Holdings 2 Ltd in Surrey.

Under the terms of the financing, TH has “the flexibility to convert its financing collateral from cash to Sukuk, allowing it to fully optimise its existing Sukuk investment, while Standard Chartered Saadiq is given the option to extend the facility for another year.” This is the first Islamic Structured Funding deal for Standard Chartered Saadiq in South East Asia. The deals were booked at Standard Chartered Bank Offshore Labuan, making the deal the first Financial Market transaction for the offshore entity. TH Group Managing Director and CEO Nik Mohamed Hasyudeen Yusoff said the Group leverages on foreign banking partners to minimise its non-ringgit financing cost in order to optimise returns.

TH will pursue further collaboration with Standard Chartered Saadiq to enhance its cross-border currency risk management framework. It will also be looking at expanding ESG investment opportunities through the bank.

In Dubai in December 2019, Eastern & Southern African Trade and Development Bank (TDB) successful closed a US$272 million and €160.2 million (combined US$450 million equiv.) Multi-Tranche Syndicated Term Financing (Conventional and Islamic) with a group of GCC-based local and international banks. The transaction follows and upsizes TDB’s debut Middle East focused Conventional and Islamic syndication that was signed in December 2017.

The Facilities are comprised of 2-year and 3-year bullet repayment tranches, as well as Conventional and Islamic tranches, and have been funded in US$ and Euros. Proceeds of the Facilities will be utilised for refinancing purposes and for meeting TDB’s trade financing and general corporate requirements.

Citi, Emirates NBD Capital Limited, First Abu Dhabi Bank PJSC, Mashreqbank and MUFG Bank, Ltd. acted as the Mandated Lead Arrangers and Bookrunners on the transaction. 

The transaction was initially launched at US$250 million equiv. to investors across the GCC and, because of strong demand from the market, the facilities were upsized to US$450 million equivalent. The facilities were oversubscribed by 1.8 times and featured participation from 20 banks across the GCC with commitments aggregating US$702 million. “The overwhelming response to the transaction is testament to TDB’s growing global reputation stemming from its increasing success in promoting trade, economic development and regional integration across Eastern and Southern Africa. While TDB has regularly tapped the global syndicated loan markets in the past, this transaction represents another important milestone in the expansion of its growing investor base in the Middle East through a longer dated issuance and helped TDB successfully tap Islamic liquidity available in the region,” said Admassu Tadesse, President of TDB in a statement.

The overwhelming response in the facility from Middle Eastern and international banks, he added, “confirms increasing interest in our African region and reflects the growing levels of confidence in TDB and its financial credibility, following years of strong performance, coupled with higher levels of capitalisation and its re-confirmed investment grade status from Moody’s” [Baa3].

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