In 2019, IFN Deals of the Year had a green sheen. Even if most of the submissions originated in hydrocarbon-producing countries, the trend is increasingly green. And, yes, dirty is still there. The ‘rise’ of fintech was notably absent, yet again. Perpetuals continued to be active as the low-rate environment dipped lower. Repairing, updating, tweaking and execution were bigger themes than innovation. Fixing what is broken was a major storyline. But when pushing boundaries and addressing complexity, this year’s submissions were impressive. The concentration of nominations has changed. Seven countries accounted for 85% of submission. Malaysia’s share fell from 32% to 25% while Saudi Arabia’s grew to 18%. The UAE offered 16% of the nominations as before. Pakistan, Kuwait, Indonesia and Turkey were the other top contributors.
Despite significant inroads for Islamic finance in Africa and Central Asia, market expansion was not an important feature in this year’s competition.
Green 2019 was real. In 2018, of 15 energy submissions, only five were green. This year, the green deals grew from 5.7% of the nominations by dollar value to 15%. Malaysia, Pakistan and the UAE are the green leaders. They are joined by the Republic of Indonesia and the IDB in 2019. In dollar terms, green nominations are still just 35% of total energy. The discrepancy turns up in the number of green deals for solar and wind projects. These tend to have substantially lower tickets than new petrochemical plants.
Infrastructure continues to play a major role in dealmaking. Malaysian and Turkish submissions led the way. Much of the infrastructure remains connected to traditional transportation. Green is an aspiration. Not so clean remains the reality.
Water flows to the lowest point. It is not surprising that Tawarruq has grown in preference across the market with 30% of the deals reviewed using Tawarruq. Another 18% were hybrids, almost all of which joined a Tawarruq leg to another tool such as Mudarabah, Musharakah or Ijarah. Straight Ijarah deals were merely 15%.
Mudarabah and Musharkah submissions were 20%, 26% if one adds diminishing Musharakah. Beyond the additional Tier 1 (AT1) capital Sukuk account for most of the Mudarabah deals, creative Mudarabah financing was presented in deals for NMG Workspace Solutions to invest in Saudi Arabia, and Sarana Multi Infrastruktur to support infrastructure development in Indonesia.
The market is clearly becoming ‘standardized’ as the diversity of deal type was limited. Innovation was within classes or limited.
Real estate continues its outsized role. Housing was less prominent in 2019 and shopping centers gave mega deals from Fawaz Alhokair and Majid Al Futtaim. Turkish real estate investment companies (REICs), UAE corporate real estate and Malaysian development figured as well. In addition, GCC investors continued their safe haven investment into the UK, the US and Ireland.
The US rate environment assured that the US dollar remained the most important currency for nominated deals. US dollar submissions dipped slightly from 49% to 46%. Islamic banks took advantage of the low to negative rate environment to issue Tier 1 and a few Tier 2 Sukuk facilities in US dollars.
Malaysia regained ground, with ringgit deals growing to 22% from 19% of the deals. Saudi’s might showed with 7% of the deals denominated in the Saudi riyal and Pakistan’s growing Islamic finance market meant that 8% of the deals submitted were in the Pakistani rupee.
Bit by bit, the local markets are growing in size and importance. Oman Sovereign Sukuk is a milestone as it shows the role of sovereign Sukuk in market development. As more ministries of finance and central banks join Malaysia and Bahrain, and now Oman with benchmark issuances, we expect to see the role of local currencies grow.
Three main themes emerged in these awards: (a) Green is real, (b) What’s broken can be fixed — but at a cost, and (c) there are positive steps underway for market development.
We have made it to 2020, and it remains to be seen if we will enjoy plenty — higher tensions in the Gulf region; the still unsorted Brexit; China and the US still at odds with one another; Russia’s growing influence and a weird US presidential year kicking off with an impeached Donald Trump and to end with an election. It is difficult to have a clear vision of what 2020 will bring, but one hopes to see enough peace and stability to execute more and better deals!
|Commodity Murabahah: Dubai Aerospace Enterprise|
|Arrangers:||Abu Dhabi Islamic Bank, Gulf International Bank and Warba Bank|
|Legal counsels:||Allen & Overy for the obligor and Linklaters for the financiers|
|Guarantor:||Dubai Aerospace Enterprise|
|Dayang Enterprise Holdings was advised by Maybank Investment Bank and United Overseas Bank on the issuance of Sukuk Murabahah. Jointly issued with an equity offering, the deal was structured in two tranches. The first tranche was secured and the second tranche guaranteed by Danajamin Nasional. The financing refinances and consolidates a number of the company’s financial obligations.
Standard Chartered worked on an innovative structure for a GCC investor’s acquisition of UK property. It put together a five-year bullet Tawarruq for the acquisition finance. The deal named Jersey Incorporate Property Holding Co has an LMA real estate security and covenant package.
Abu Dhabi Islamic Bank (ADIB) engaged in an unusual syndication for Dubai Aerospace Enterprise (DAE). The senior unsecured facility takes into account the restrictive views of ADIB’s Shariah board on Tawarruq. This requires one set of documents and processes for the ADIB share of funding and a different one for its fellow financiers Gulf International Bank and Warba Bank. From the ADIB perspective, the rollovers for commodity Murabahah create two transactions with one effectively refinancing the first. The accommodation of ADIB’s views still allowed effective management of client goals.
The facility’s proceeds refinanced the pre-delivery payment (PDP) payments that DAE has already made to Boeing. The facility’s repayment is ring-fenced against aircraft PDP refunds that DAE will receive on aircraft delivery dates.
Honorable mention: Dayang and Jersey Incorporate Holding Co
|Corporate Finance: AKT Sugar Mills|
|Size:||PKR1.5 billion (US$9.67 million)|
|Legal counsel:||Mohsin Tayebaly & Co|
|Date closed:||January 2019|
|Shariah advisor:||Faysal Bank|
|Tecom Investments, the owner and operator of investment free zones in Dubai, raised US$222.5 million and AED2.1 billion (US$571.68 million) in the Ijarah tranches of an Islamic–conventional co-financing that closed in February 2019. The complex transaction allowed the company to consolidate its debt.
In Malaysia, Projek Lintasan Kota Holdings (Prolintas) raised RM780 million (US$191.22 million) in a syndicated commodity Murabahah transaction. The deal allowed Prolintas to finance two acquisitions: the entire issued and paid-up capital of Sistem Lingkaran–Lebuhraya Kajang from SILK Holdings and the entire outstanding Sukuk Mudarabah issued by Manfaat Tetap. This increased the group’s operating arteries to six. Malaysia’s UWC had a successful IPO in July 2019. The integrated engineering firm’s shares were affirmed as Shariah compliant by Securities Commission Malaysia prior to the IPO. The issuance finances an expansion of production facilities along with automation of the same.
AKT Sugar Mills (AKT) acquired the assets of Gulf Sugar Mills in a syndicated transaction. The eight-year diminishing transaction is structured with a two-year grace period. The structure is one that allows flexibility in addressing acquisitions. In this case, the acquisition is driven to assets. This allows AKT to acquire state-of-the-art crushing equipment and improve its market leadership. The acquired assets are located in the fertile and irrigated region of Ghotki which is climatically well suited for sugar cane production. On account of being near to the road network, the company has easy access for procuring raw material and distributing sugar at competitive prices. The transaction has collateral and AKT improves its market leadership position without violating regulatory restrictions on market concentration.
Honorable mention: Tecom Investments, Prolintas and UWC
|Shortlisted for Overall Deal of the Year 2019|
|Cross-Border: NASDA Green Energy|
|Size:||US$25 million and PKR4.7 billion (US$30.28 million)|
|Mandated lead advisor & arranger:||Meezan Bank|
|Financiers:||Islamic Corporation for the Development of the Private Sector and Meezan Bank|
|Legal counsels:||Haidermota & Co (Pakistan law) for NASDA and Clifford Chance (international law) and Vellani & Vellani (Pakistan law) for the financiers|
|Security trustees:||Meezan Bank (onshore security trustee) and Bank Al Habib, Wholesale Branch, Kingdom of Bahrain (offshore security trustee)|
|Shariah advisor:||Meezan Bank|
|Kuwait’s Warba Bank continues to expand its international property investment. In 2019, Warba partnered with Henley Investment Management. Established in 2006, Henley manages more than US$3.5 billion of diverse real estate assets. For the EUR125 million (US$138.95 million) investment in the Citywest Business Campus in Dublin and Cork Airport Business Park, Warba and Henley used an orphan structure together with a Musawwamah agreement, in what is believed to be an Irish market first. QIIB gave a hopeful sign that intra-GCC tensions are easing with the successful issuance of US$200 million via QIIB Tier 1 Sukuk. The deal was a first for the Central Bank of Qatar to allow a domestic bank to issue in the global US dollar market. The orderbook was predominately from Qatar, East and Southeast Asia, and Kuwait.
As part of the expansion of Pakistan’s alternative energy supplies, the federal government signed energy purchase agreements with 11 wind power projects. The most interesting was NASDA Green Energy. Meezan Bank arranged the entire onshore and offshore financing for the project. The onshore financing is fully financed by Meezan Bank based on diminishing Musharakah while the offshore financing is fully arranged from the Islamic Corporation for the Development of the Private Sector (ICD) based on Istisnah cum Ijarah. The facilities finance the design, development, construction, commissioning, operation and maintenance of a 50 MW wind power plant in Jhimpir, Sindh Province, Pakistan.
|Equity & IPO: Projek Lintasan Kota Holdings (Prolintas)|
|Size:||RM780 million (US$191.22 million)|
|Acquisition:||Sistem Lingkaran–Lebuhraya Kajang and all Sukuk Mudarabah from Manfaat Tetap|
|Legal counsel:||Wong & Partners (a member of Baker McKenzie)|
|Malaysia’s UWC enters the ring with a nomination for its IPO of 70 million ordinary shares at 82 Malaysian sen (20.1 US cents)/share and an offer of 33 million ordinary shares. UWC is deeply engaged with internet of things, 5G wireless broadband technology and the internet of medical things. The IPO finances the company’s acquisition of new equipment. This was the second-largest Shariah compliant IPO in Malaysia in 2019.
Al Tamimi advised Al Aman Investment Co on the acquisition of four K-12 schools in the State of Kuwait from Ajyal Holding Company. The curriculum for each of the four schools includes Pakistani, Indian, bilingual and special needs respectively. The deal reflects the growing investor interest in education and consolidation across the GCC.
Wong & Partners advised Maybank Islamic (as the lender) in the commodity Murabahah term financing-I facility of up to RM780 million for Prolintas. The proceeds of the facility helped to partly finance the purchase consideration and offer price of:
• the entire issued and paid-up capital of Sistem Lingkaran–Lebuhraya Kajang from SILK Holdings, and
Sistem Lingkaran is the concession holder of the Kajang Traffic Dispersal Ring Road, or more popularly known as the Silk Highway. The acquisition of the Silk Highway has expanded the infrastructure portfolio of Prolintas, supporting its objective of listing in 2020. This will elevate its competitiveness among the highway concessionaires in Malaysia and ultimately induce greater efficiency in the market of highway concessions, operations and maintenance.
Honorable mention: UWC and Al Aman Investment
|Green Project: Cypark Ref|
|Size:||RM550 million (US$134.83 million)|
|Arranger:||Maybank Investment Bank|
|Legal counsel:||Wong & Partners for the arranger|
|Rating:||‘AA3’ by RAM|
|Date closed:||October 2019|
|Shariah advisor:||Maybank Islamic|
|The direct green deals are piling on. IBD, Indonesia and Majid Al Futtaim are what one might call framework deals. They represent many possible deals, many future deals and many deals in progress. In 2019, we are opening the category of ‘Green Projects’ which is dedicated solely to green energy and water projects or related single project activities. Our selections in 2019 are varied. Malaysia and Pakistan are the best represented with deals like NASDA, Liberty and Lakeside Energy in Pakistan; and Edra Solar, Telekosang ASEAN Green SRI Sukuk and Cypark Ref in Malaysia. To help investors validate green deals in Malaysia, the Securities Commission Malaysia formalized the Sustainable & Responsible Investment (SRI) Sukuk Framework in 2017. This runs parallel with the ASEAN Green Bond/Sukuk Standards program.
Cypark Ref is Malaysia’s pioneering developer of integrated renewable energy, green technology, environmental engineering solutions and construction engineering. The Sukuk fund three project companies, of which the 30 MWac solar plants in Empangan Terip and Empangan Kelinchi will be the largest grid-connected floating solar plants in Malaysia. A third ground-based plant is being built in Sik, Kedah.
The deal is rated ‘AA3’ by RAM based on the strength of the power purchase agreements. The rating is affected by the variability of solar power reflected in its performance ratio.
Honorable mention: NASDA and Telekosang
|Hybrid: Savola Group Company|
|Size:||SAR1 billion (US$266.16 million)|
|Arranger:||HSBC Saudi Arabia|
|Legal counsels:||Allen & Overy for the issuer and Clifford Chance for the arranger|
|Date closed:||July 2019|
|Shariah advisor:||Executive Shariah committee of HSBC Saudi Arabia|
|Almarai, the largest dairy company in the GCC, tested the hybrid combination of Ijarah and Tawarruq in a deal advised by Baker McKenzie and White & Case. Exsim Capital’s hybrid is another close contender. Proceeds from the Musharakah leg are linked to the purchase of the beneficial interest to the project-related SPAs and to refinance other debts. The Murabahah leg is meant to bridge project expenses.
Allen & Overy advised Savola Group, Saudi Arabia’s largest food product group, on an innovative method of subscription to issue replacement Sukuk for its 2013 issuance. SAR493 million (US$131.22 million) of the 2019 issuance was paid for through monetary consideration. SAR507 million (US$134.94 million) of the previous Sukuk was exchanged for Sukuk from the 2019 issuance, reducing the 2013 issuance’s balance to SAR993 million (US$264.3 million).
The innovative structure incorporates two alternative Mudarabah/Murabahah structures. These give Savola the flexibility to either use the ‘classic’ structure, with multiple Murabahah transactions covering both the principal amount of the Sukuk and all profit payments or an ‘enhanced’ structure, where the payment of principal is covered by a single Murabahah transaction and profit payments are made using income from the Mudarabah.
|Shortlisted for Overall Deal of the Year 2019|
|Ijarah: Oman Sovereign Sukuk with the government of Oman as obligor|
|Size:||OMR300 million (US$777.06 million)|
|Arrangers:||Alizz Islamic Bank, Meethaq Islamic Banking (Bank Muscat) and Bank Nizwa|
|Legal counsels:||Al Busaidy Mansoor Jamal & Co as the sole Oman law counsel and Linklaters as the international counsel for the arrangers and issuer|
|Shariah advisors:||Shariah Supervisory boards of Alizz Islamic Bank, Bank Muscat’s Islamic window, Meethaq and Bank Nizwa|
|Sidra Capital executed a complex US sale leaseback program in the industrial real estate market. The US$206 million transaction attracted funding from Goldman Sachs’s real estate conduit. Tenants are mid and large-sized corporations. The weighted average unexpired lease is in excess of 13 years. The deal reflects the ongoing attraction of safe haven real estate for GCC investors.
A&O advised Merex Investment Group on the AED2.45 billion (US$666.96 million) Ijarah financing of a five retail center portfolio. The highly structured deal delivered non-recourse funding to Merex with a comprehensive covenant package. Merex is a joint venture between Canada’s Brookfield Asset Management and Dubai’s Meraas Holdings.
The Sultanate of Oman transaction involved the establishment of the first-ever local Omani rial Sukuk issuance program by the government of Oman and the issuance and listing on the Muscat Securities Market of OMR300 million-worth of Sukuk in the following two tranches — first tranche of OMR100 million (US$259.02 million) with a tenor of five years and the second tranche of OMR200 million (US$518.04 million) with a tenor of seven years. Both tranches were issued on the 10th December 2019.
An important issue that we raise for Islamic financial market development is the requirement for both domestic currency benchmarks and high-quality liquid assets (HQLA). The former helps to establish pricing transparency by creating a risk-free benchmark. The latter helps Islamic banks to meet Basel III requirements. This first-ever OMR Sukuk issuance program by the government of Oman provides both to Omani Islamic institutions. Beyond supporting the further development of the Omani capital market, the deal was structured to provide opportunities to the retail sector in Oman to invest in Islamic instruments.
Another first for this issuance was the application of a differential pricing mechanism. The mechanics involved investors bidding on the price based on a fixed profit rate with allocations determined by the competitiveness of each bid. The unique outcome is that the ‘auction’ results in different investors paying different prices.
|Most Innovative: NMG Workspace|
|Size:||SAR10 million (US$2.66 million) under SAR500 million (US$133.08 million) program|
|Legal counsels:||King & Spalding; Maples Group for the issuer (Cayman Islands)|
|Trustee:||Albilad Investment Company|
|Konsortium KAJV issued Sukuk under a RM1 billion (US$245.15 million) program. Affin Hwang Capital advised on the Sukuk Wakalah, backed by irrevocable and unconditional undertakings by the state of Terengganu.
Abu Dhabi Islamic Bank (ADIB) tweaked the concept of Tawarruq to structure a novel working capital line for Etihad Airlines. In the ADIB structure, a rebate mechanism was introduced to create a competitive Tawarruq-based product that does not have any rollovers. And Serba Dinamik secured UK Export Finance support for its Tawarruq financing into Indonesia in support of project supplies.
King & Spalding advised NMG Workspace Solutions, the investor, on an innovative Mudarabah deal. The design gives the Sukuk investor an economic interest in Saudi operating company Modern Era Management Co. This is what Mudarabah is all about. NMG Workspace Solutions is a US company. The Sukuk allowed NMG Workspace Solutions to support Modern Era’s acquisition of a 50% stake in Jeel Al Idara Al Hadeetha Tijara Co, a Saudi operating business, without having to hold shares in the Saudi operating company directly. The importance of this deal is that NMG is not entitled to invest directly in Modern Era. The target company and Modern Era remain 100% Saudi-owned. Al Bilad Investment Company played an important role in the deal as the agent for the investor to act as the Rab Al Maal in the Mudarabah with Modern Era. Returns from the underlying Mudarabah flow to the US-based investor as a return on the Sukuk investment.
|Mudarabah: Sarana Multi Infrastruktur|
|Size:||IDR1 trillion (US$72.69 million)|
|Arrangers:||CIMB, BCA Sekuritas, Danareksa Sekuritas, Indo Premier Sekuritas, Mandiri Sekuritas, Trimegah Sekuritas Indonesia|
|Legal counsel:||Soemarjono, Herman & Rekan|
|Date closed:||28th August 2019|
|Banque Misr worked with BM Lease to execute a Mudarabah financing for MEDTEX. A member of Pakistan’s Saif Group, MEDTEX is Egypt’s largest producer and exporter of yarn.
US-based NMG Workspace Solutions entered into a Mudarabah with a Saudi business, gaining an economic return without having to hold shares in the Saudi operating company. An innovative deal, the transaction manages issues relating to foreign ownership in Saudi Arabia and taxes elsewhere.
CIMB led the dual-tranche securities issuance for Sarana Multi Infrastruktur (SMI). One series is structured conventionally. The second series is structured as Mudarabah. The Mudarabah tranche was issued in four series with tenors of 370 days, three years, five years and seven years. Proceeds go to domestic infrastructure development.
Given the nature of its business, SMI decided to opt for a Mudarabah structure as this Shariah structure does not necessitate the contribution of underlying properties or fixed assets. The Mudarabah has a cap and floor linked to revenue-sharing:
– Should revenue-sharing income drop below the floor, SMI will then provide a portion to the Sukuk Mudarabah holders, so that the Sukuk Mudarabah holders will receive revenue-sharing in accordance with the minimum value limit of the coupon to be funded from a reserve or SMI funds.
– Should revenue-sharing income attributable to the Sukuk Mudarabah holders exceed the cap, then the Sukuk Mudarabah holders will forgo the excess above the cap. Part of the excess will go to the reserve.
This is an unusual structure for project finance. If successful, SMI may more easily manage the revenue cycle of its projects.
Honorable mention: Sidra Capital and NMG Workspace Solutions
|Musharakah: United Mymensingh Power|
|Size:||BDT5 billion (US$57.83 million)|
|Legal counsel:||Farooq and Associates|
|Shariah advisor:||Shariah board of Standard Chartered|
|Meezan Bank brought Engro Powergen Thar (EPT) back to the Pakistan market with a PKR4 billion (US$25.79 million) Sukuk Musharakah issuance that included a green shoe option of PKR2 billion (US$12.89 million). EPT was formed in 2014 to set up a 2×330 MW power project in Thar Block II, Sindh, Pakistan. The company is a joint venture between Engro Powergen (with 50.1% ownership), China Machinery Engineering Corporation, Habib Bank and Liberty Mills. The coal-fired project successfully achieved the commercial operations date on the 10th July 2019.
Major Malaysian property developer IJM Land, advised by CIMB Investment Bank, issued RM650 million (US$159.35 million) of perpetual Sukuk in Musharakah form. The Musharakah venture under this transaction consists of Shariah compliant investments in the business operations of the issuer and its subsidiaries. The deal is highly structured to provide protection to investors.
Standard Chartered arranged the first zero coupon Islamic certificates to be issued in the Bangladesh market. The US$60 million equivalent deal for United Mymensingh Power was the largest corporate Sukuk in Bangladesh.
Two of the most bedeviling challenges in Islamic finance are foreign exchange risk management and the J-curve for project finance. United Group had raised foreign currency financing for its power business and the currency risk was a growing burden. The zero coupon Musharakah structure allowed the payouts to be more manageable for the underlying business, while providing an investor with a Shariah compliant return. The deal allowed the company to extinguish its foreign currency debt.
The Musharakah is a co-ownership of assets agreement. The underlying assets are then leased to the operator with a rent reset every six months.
Honorable mention: IJM Land and Engro Powergen Thar
|Perpetual: IJM Land|
|Size:||RM850 million (US$208.38 million) in three tranches from a RM2 billion (US$490.3 million) program|
|Arranger:||CIMB Investment Bank|
|Legal counsel:||Adnan Sundra & Low for the arranger|
|Rating:||‘A2(s)’ by RAM Rating Services|
|Date closed:||March 2019|
|Shariah advisor:||CIMB Islamic Bank|
|The banks led by QIIB issued regulatory capital Sukuk. By definition, these must be perpetual to qualify as additional Tier 1 capital. Malaysia, the UAE and Saudi Arabia have been the most active domiciles of non-bank perpetual Sukuk.
In 2019, Malaysia led the way with issuances by WCT Holdings and IJM Land. WCT issued Musharakah perpetuals under a RM1 billion (US$245.15 million) program. This made WCT the first construction holding company to issue perpetual Sukuk. The issuances strengthened its capital structure, and provide a non-dilutive alternative to equity while improving the company’s rating profile.
IJM Land issued a complex Musharakah perpetual with a unique subordinated guarantee. This issuance is Malaysia’s first perpetual issuance backed by a guarantee, in this case, a subordinated guarantee from the issuer’s parent company, IJM Corporation (the Holdco Kafalah guarantor). The Musharakah venture under this transaction consists of Shariah compliant investments in the business operations of the issuer and its subsidiaries.
The transaction structure of this issuance contains some unprecedented features for the benefit of Sukukholders. In addition to the subordinated guarantee by the Holdco Kafalah guarantor, the repayment feature consists of replacement perpetual Sukuk to be issued by the Holdco Kafalah guarantor. This unique approach by a leading Malaysian developer may lead to more creative financing for the dynamic Malaysian real estate market.
Honorable mention: QIIB and WCT
|Project & Infrastructure Finance: North Marmara Motorway Infrastructure Project|
|Arrangers:||Kuveyt Turk, Albaraka Turk, Garanti Bankasi and Is Bankasi|
|Legal counsels:||Goksu Safi Isik and White and Case for the obligor; and Clifford Chance and Verdi Avukatlik Ortakligi for arrangers|
|Guarantor:||Republic of Turkey acting through the Prime Ministry, Undersecretariat of Treasury (Turkiye Cumhuriyeti Basbakanlik Hazine Mustesarligi)|
|Shariah advisors:||Shariah committees of Kuveyt Turk and Al Baraka Islamic Bank|
|Serba Dinamik’s affiliate Konsortium KAJV raised RM85 million (US$20.84 million) with the support of Affin Hwang Investment Bank and HSBC Amanah Malaysia. The medium-term notes fund the development of a 120 million liter/day waterworks plant in Kuala Terengganu Utara, Malaysia.
Exsim Capital Resources raised RM290 million (US$71.09 million) as Sukuk Musharakah and RM130 million (US$31.87 million) as Sukuk Murabahah as bridge financing for payments due under various projects. The first tranche of the RM2 billion (US$490.3 million) 10-year Sukuk Musharakah program monetizes unbilled sales for executed property transactions. Under this program, Exsim and its group of companies will sell their beneficial interest under the respective development projects.
Kuveyt Turk acted as a senior financier on the North Marmara Motorway Infrastructure Project. This was 2019’s largest Turkish public–private partnership (PPP) infrastructure deal. The total credit package is US$4.43 billion including conventional (US$4.13 billion) and Islamic tranches (US$300 million). Kuveyt Turk provided US$200 million in funding and acted as the Islamic facility agent.
|Shortlisted for Overall Deal of the Year 2019|
|Real Estate: Arabian Centres Sukuk (Fawaz Alhokair Group)|
|Size:||US$500 million 144a/RegS Sukuk and SAR4.5 billion (US$1.2 billion) syndicated facilities|
|Arrangers (Sukuk):||Credit Suisse Securities (Europe), Emirates NBD Capital, Goldman Sachs International, HSBC Bank, Mashreqbank, Samba Capital & Investment Management Company and Warba Bank|
|Arrangers (syndication):||Goldman Sachs International, Samba Financial Group, the Saudi British Bank, Abu Dhabi Commercial Bank, the National Commercial Bank, Arab National Bank, Al Rajhi Banking and Investment Corporation, Mashreq Al Islami (Islamic Banking Division of Mashreqbank)|
|Legal counsels:||White & Case for the obligor/issuer; Clifford Chance and Abuhimed Alsheikh Alhagbani Law Firm for the arrangers; Maples Group for the issuer (Cayman Islands)|
|Global agent, Ijarah investment agent, Murabahah investment agent, security agent and account bank:||Samba Financial Group|
|Rating:||Obligor: ‘Ba1’ (Moody’s Investors Service)/‘BB+’ (Fitch Ratings)|
|Shariah advisor:||Executive Shariah committee of HSBC Saudi Arabia|
|Financial advisors:||Houlihan Lokey & Swicorp|
|Malaysia featured near the top of the real estate competition. Exsim Capital’s innovative bridge was a close contender.
Axis REIT also returned to the market for a seventh follow-on placement of RM276.7 million (US$67.83 million). This was the largest equity capital market deal in Malaysia in 2019.
Fawaz Alhokair Group’s Arabian Centres Company (ACC), the owner, developer and operator of Arabian Centres, operates a portfolio of 21 centers in 10 major Saudi cities, made its debut issuance of Reg S/Rule 144A US$500 million five-year Sukuk as part of the company’s US$1.9 billion refinancing package which included a SAR4.5 billion (US$1.2 billion) domestic syndication. ACC’s successful financial repositioning is remarkable given the still-sluggish Saudi Arabian real estate market and less-than-stellar domestic retail demand.
The Sukuk apply a hybrid restricted Mudarabah–Murabahah structure. The deal is a rare high-yield covenant-style Sukuk issuance in a Reg S/Rule 144A format. The restricted Mudarabah is linked to two shopping malls and one additional property, and these provide the coupon revenue for the Sukuk. This was a rare excursion for the Saudi private sector into the global capital markets.
The new bank facilities expanded ACC’s bank group from local relationship banks to new regional and international banks.
|Regulatory Capital: QIIB Tier 1 Sukuk|
|Arrangers:||Al Khaliji, Barwa Bank, Kuwait International Bank, QInvest, QNB Capital and Standard Chartered Bank|
|Legal counsels:||Dentons for the issuer, Allen & Overy for the arrangers and Maples Group for the issuer (Cayman Islands)|
|Date closed:||November 2019|
|With the global rate environment remaining low, Islamic banks stampeded to the market like wildebeests to a waterhole. MBSB, Kuveyt Turk, Meezan Bank, Sharjah Islamic Bank and Kuwait International Bank all issued noteworthy securities to bolster their regulatory capital.
The transaction involved protracted discussions with the Qatar Central Bank regarding the structure of the terms and conditions, including on point-of-non-viability loss absorption, and detailed negotiations with the auditors regarding the issuance of its equity accounting treatment letter.
Getting the deal done with a wide international investor representation is hoped to be an indicator of reduced GCC tension.
Honorable mention: All other banks!
|Shortlisted for Overall Deal of the Year 2019|
|Restructuring: Urusharta Jamaah|
|Size:||RM27.56 billion (US$6.76 billion)|
|Arranger:||Bank Islam Malaysia|
|Legal counsel:||Shook Lin & Bok|
|Shariah advisor:||Bank Islam|
|In March 2019, DLA Piper finally saw the hard work come to an end as its role advising the creditors of Lagoon City concluded. The deal is one of the longest sagas in troubled Sukuk. Issued in 2006, the deal quickly headed to the Kuwait courts. In the first rounds, the Musharakah structure was an issue. In the end, the Musharakah structure may have facilitated the restatement of the deal.
Maybank Investment Bank and United Overseas Bank coordinated the debt restructuring of Dayang Enterprise Holdings. They successfully arranged a RM682.5 million (US$167.32 million) Tawarruq Sukuk program that allowed a comprehensive restructuring of the firm’s obligations. The issuance was supported by collateral and partial guarantee by Danajamin Nasional.
The longest surviving pioneer of Islamic finance, Lembaga Tabung Haji, fell into serious liquidity issues. Warnings first arose with a Bank Negara Malaysia missive to improve risk management practices. Then, mismanagement and asset impairments were highlighted in external reports. In December 2018, new management came in with renowned Malaysian banking plumber Zukri Samat taking the lead as CEO. Acting quickly, Zukri identified the leaks, and worked with Bank Islam and the Ministry of Finance to plug them.
The result was the Urusharta issuance. The transaction efficiently moves troubled assets from Tabung Haji’s balance sheet to an SPV created by the Ministry of Finance. The transaction is financed by the largest face value ringgit bond ever. Arranged by Bank Islam and advised by Shook Lin & Bok, the Sukuk are sold on a discount to Tabung Haji. With the closing of this transaction, three positive outcomes were achieved:
The rebased Tabung Haji is now able to perform its duties.
Honorable mention: Dayang Enterprise Holdings and Lagoon City
|Sovereign: Government of Sharjah|
|Arrangers and bookrunners:||Bank ABC, Bank of Sharjah, Dubai Islamic Bank, HSBC, KFH Capital, Warba Bank, Sharjah Islamic Bank and Standard Chartered Bank|
|Legal counsels:||Clifford Chance for the issuer, Dechert for the arrangers and Maples Group for the issuer (Cayman Islands)|
|Guarantor:||The government of Sharjah, acting through Sharjah Finance Department|
|Rating:||Obligor rating: ‘A3 (Stable)’/‘BBB+ (Stable)’ (Moody’s/S&P Global Ratings)|
|Date closed:||April 2019|
|Shariah advisors:||The Fatwa and Shariah supervisory board of Dubai Islamic Bank, Dar Al Sharia, the Central Shariah Committee of HSBC Bank Middle East, the Fatwa and Shariah supervisory board of Sharjah Islamic Bank and the Shariah supervisory committee of Standard Chartered Bank|
|According to NASDAQ Dubai, Indonesia’s US$15 billion in outstanding Sukuk make it the largest Sukuk issuer on that exchange. The country was back with its second green Sukuk. The IDB returned with its second euro and first green Sukuk. Oman issued with its first domestic Omani rial Ijarah Sukuk with wide implications for market development.
The government of Sharjah came to market with a liability management transaction being used alongside the new issuance to support multiple commercial and risk management objectives, including the smoothing of its debt maturity, expanding its debt maturities and taking advantage of the low-rate environment.
Recognizing the unfamiliarity of the liability management transaction to many investors, Sharjah offered an attractive deal framework, whereby there would be an extended tender period for the outstanding Sukuk and a direct switch, at the investor’s option, into the new issuance. The result was that Sharjah was able to hit its liability management target of 35–40% take-up (actual was 36.5%), reducing its 2021 maturities by US$182.4 million and executing the new issuance at the top of its target range of US$1 billion, without compromising on price.
The deal was supported by Sharjah’s strong credit story showing economic resilience. With a diversified economy, not reliant on hydrocarbons or real estate, Sharjah is supported by real productive economic activities and a comprehensive program of government investment and development
Honorable mention: Oman, Indonesia and IDB
|Structured Finance: Avari Hotels|
|Size:||PKR4.28 billion (US$27.59 million)|
|Legal counsel:||Mohsin Tayebaly & Co for the financier|
|Trustee:||Industrial and Commercial Bank of China|
|Date closed:||October 2019|
|Shariah advisor:||Meezan Bank|
|Complexity is clearly a theme in 2019. Consider the execution of a parallel Istisnah by Kuveyt Turk in the context of a large multisource financing or examine how Konsortium KAJV secured a complex financing for a water treatment plant.
Meezan Bank has structured a diminishing Musharakah for Avari Hotels. The deal was based on advance future rentals receivable by Avari Hotels from Unilever. Meezan purchased the land from Avari. The facility was structured to ring-fence the Unilever receivables. Unilever Pakistan entered into a 10-year lease with Avari of which two years had lapsed when the deal was executed.
Unilever Pakistan as the tenant entered into a 10-year lease deed with Avari Hotels for its office premises. The rentals are payable in advance for five-year terms. In order to manage its cash flows efficiently, Unilever and Avari agreed to a provision to discount the lease deed rental, whereas Unilever undertakes to cover all associated costs of financings. The remaining rental stream is sufficient to fully amortize the deal.
Honorable mention: North Marmara and Konsortium KAJV