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Syndicated Murabaha Facilities for Trade and Sustainable Projects Flourish in Pakistan as US$933m of Deals Signed in November 2021 with State-owned Agencies and Private Sector

Pakistan has emerged as a growing market for Islamic financing facilities accessed by the federal and state governments, state agencies, local corporates and financial institutions. During 2021 there have been several notable transactions supported by a proactive Islamic finance regulatory and policy environment.

The preferred facilities are Sukuk originations and syndicated Murabaha facilities. In September, for instance, a consortium led by local Islamic banks, Meezan Bank and Faysal Bank, arranged a PKR4.5 billion (US$25.98 million) Syndicated Murabaha Facility for the local Engro Enfrashare, a wholly owned subsidiary of Engro Corporation. The proceeds would be utilized to finance the development of tower sites for various mobile network operators operating in Pakistan.

In November 2021, The Islamic Trade Finance Corporation (ITFC), the trade fund of the Islamic Development Bank (IsDB) Group, signed a syndicated Murabaha facility agreement totalling US$761.5 million with the Government of Pakistan to finance the country’s energy imports.

Proceeds from the facility will be used by state-owned companies including Pakistan State Oil Company, Pak Arab Refinery and Pakistan LNG to fund imports of crude oil, refined petroleum products and liquefied natural gas (LNG). The facility has a one-year tenor and was initially set at US$300 million but was upsized to US$761.5 million due to the fact that it was significantly oversubscribed.

The Ministry of Economic Affairs, in a statement, stressed that the success of the transaction was driven by the “growing energy needs of the country and enhanced confidence of international financial institutions in its economic reforms and recovery amid the Covid-19 pandemic. The financing facility will also be helpful in financing [the] oil and gas import bill of the country and easing pressure on foreign exchange reserves.”

The increased ITFC engagement with Pakistan is based on the three-year Framework Agreement signed virtually in June 2021 by Omar Ayub Khan, Pakistani Minister of Economic Affairs, and Hani Salem Sonbol, CEO of ITFC, for a cumulative amount of US$4.5 billion to be provided by ITFC to Pakistan to finance the import of essential commodities such as crude oil, refined petroleum products, LNG and urea.
The financing would be utilized by Pakistan State Oil (PSO), Pak-Arab Refinery Ltd. (PARCO) and Pakistan LNG Ltd. (PLL) for the import of crude oil, refined petroleum products and LNG during 2021-2023.

Under the agreement ITFC will also suggest other areas of cooperation at the country and regional levels to enhance and promote trade, trade capacities of relevant state authorities and financial institutions and trade cooperation in Pakistan.

In a further development, a consortium of banks led by the local Meezan Bank, the largest Islamic bank in the country, closed a Rs25.5 billion (US$145.4 million) Islamic syndicated project financing facility for the government of Sindh on 24 November 2021.

The facility agreement was signed by the Meezan Bank led consortium and Enertech Water Private Limited, a project company incorporated by EnerTech Holding Company, which is a wholly owned subsidiary of National Technology and Enterprise Company, which in turn is a fully owned subsidiary of Kuwait Investment Authority.

EnerTech Water Private Limited has signed a Concession Agreement with the Government of Sindh under a public-private partnership (PPP) agreement to build, construct and operate a water processing facility for supply of water to Thar, Sindh. The facility will be utilized for the development of a 45 Cusec water supply project from Nabisar to Vajihar including two large water reservoirs and a 65km pipeline in Thar, Sindh.

The Mandated Lead Advisors and Arrangers for the facility were Habib Bank, United Bank, Meezan Bank, Bank Alfalah and Pak Kuwait Investment Company. The other participating financial institutions included National Bank of Pakistan, MCB Bank, Faysal Bank, The Bank of Punjab, Bank Islami and Pak China Investment Company Limited.

The transaction was led by Meezan Bank in its capacity as the Investment Agent, Security Agent, Accounts Bank and Sharia’a Structuring Bank. According to Meezan Bank, this is the largest financing facility raised for the Government of Sindh, structured under a PPP. The Pakistan financial sector registered an overwhelming interest in the transaction resulting “in the facility being oversubscribed by a substantial amount.”

According to Abdullah Al Mutairi, Chief Executive Officer, EnerTech Holding Company, “Pakistan can be a very attractive investment destination for sophisticated investors and EnerTech will continue to play its part to develop infrastructure in Pakistan.”

Ariful Islam, Deputy CEO of Meezan Bank, stressed that “this facility is an excellent example of a Public Private Partnership. Meezan Bank has always been keen to play an active role in the development of the country and is delighted to have played a lead role in arranging the debt financing for this project that will contribute towards sustainable infrastructure development. As the country’s largest Islamic bank, we aim to continue working with entities like Enertech to bring strategic infrastructure projects to scale for the betterment of the region.”

Meezan Bank also signed a Tahawwut Master Agreement (TMA) with the Industrial and Commercial Bank of China (Pakistan) (ICBC Pakistan) on 23 November 2021 which will allow Meezan Bank to execute Sharia’a-compliant hedging for renminbi denominated transactions on a Wa’ad (promise) based structure.

The TMA, which was developed b y the International Islamic Financial Markets (IIFM), is an Islamic alternative to the globally recognized International Swaps and Derivatives Association (ISDA) agreements, which allow banks to trade over-the-counter (OTC) financial products.

According to Irfan Siddiqui, CEO of Meezan Bank, “the development of the financial system is critical for the future growth and success of any economy. I would like to congratulate ICBC Pakistan for completing ten years of successful operations in Pakistan and thank them for their support in recognizing Islamic financial markets as a viable alternative to existing conventional financial markets.”

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