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Monday, April 15, 2024

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Ahli United Bank concludes landmark US$1.1 billion sustainability-linked facility

Ahli United Bank (AUB) has concluded the world’s first sustainability-linked dual-tranche Murabahah financing for a financial institution. The three-year facility was met with high demand from banking partners leading to an upsize to US$1.1 billion from its original target of US$750 million. Proceeds from the facility will be channeled toward meeting AUB’s general corporate purposes.

“AUB is seeking to underline its commitment to sustainability by embedding it into the facility through three main KPIs [key performance indicators], being green financing, social housing financing and ESG governance. By doing this, AUB seeks to align the existing ESG commitments, to grow support for sustainable financing and the bank’s ESG governance process,” David O’Loan, deputy group CEO of treasury and investments at AUB, told ISFI.

Each KPI is based on a sustainability performance target (SPT). The margin would be calibrated and reduced or increased depending on whether AUB achieved the relevant KPI, thus financially incentivizing it to meet its KPI targets. The transaction’s profit rate comprises a profit rate margin plus the term secured overnight financing rate (SOFR). The profit rate margin will increase or decrease by 0.02% or 0.01% corresponding to each KPI.

“One of the biggest challenges was agreeing on and coordinating the relevant KPIs, SPTs and how the pricing would be formulated in connection with the sustainability parameters. This culminated in a number of calls and discussions between the sustainability coordinators, commercial principals and the relevant counsels,” Norton Rose Fulbright, the legal advisor for the participants for this transaction, told ISFI.

The transaction features one tranche that complies with AAOIFI standards and another tranche based on the traditional commodity Murabahah structure. This dual-tranche effort is an attempt to involve a larger investor base as the AAOIFI standard on commodity Murabahah (or Tawarruq) is strict with regard to the prohibition of dual-agency, which is a common practice in commodity Murabahah transactions. The dual-tranche nature of the transaction allows for financial institutions with varying adoption of the AAOIFI standards to participate in the transaction.

The first tranche appeals to banks in the UAE which need to comply with the Higher Sharia Authority guidelines dictating that Islamic facilities should comply with AAOIFI standards. The second tranche was intended for regional and international banks which have a preference to adopt the standard traditional commodity Murabahah structure.

AUB Sustainability-linked Murabahah Financing Facility

US$1.1 billion

3rd July 2022
Summary of terms and conditions
Aggregate principal amount
US$1.1 billion
Type of facility
Sustainability-linked dual-tranche commodity Murabahah financing
Use of proceeds
Shariah compliant general corporate purposes
Three years
Profit rate/yield
Profit rate (margin) + term SOFR
Bullet payment on termination date
Frequency of payment
Once on maturity
Legal advisor
AUB legal advisor: Linklaters
Participant’s legal advisor: Norton Rose Fulbright
Governing law
English law
Investment agent and global agent
HSBC Saudi Arabia
Mandated lead arrangers
Initial mandated lead arrangers:
Mandated lead arrangers:
Abu Dhabi Commercial Bank
Abu Dhabi Islamic Bank
First Abu Dhabi Bank
Gulf International Bank
Kuwait Finance House
Kuwait International Bank
Societe Generale
Saudi British Bank
Warba Bank
Sustainability coordinators
– HSBC Bank
– First Abu Dhabi Bank

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