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Friday, September 30, 2022

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Alba completes landmark US$1.25 billion sustainability-linked facility refinancing

Aluminium Bahrain (Alba) has become the first Bahraini company to successfully refinance a syndicated loan facility to a sustainability-linked facility. The US$1.25 billion dual-tranched facility includes a dollar-denominated senior Shariah compliant facility of US$710 million and a dollar-denominated senior unsecured conventional term loan facility of US$537.48 million.

The facility will contribute to the Line 6 Expansion Project. Arab Banking Corporation, Gulf International Bank and National Bank of Bahrain (NBB) were the coordinators and underwriters with NBB and Standard Chartered Bank serving as joint environment, social and governance (ESG) coordinators. The syndicated facility was oversubscribed by US$2.6 billion and comprised 21 banks.

“The oversubscription in the refinancing of our existing syndicated loan facility by three times is a vote of trust in Alba, its fundamentals as well as the Kingdom of Bahrain. We are also equally pleased with the favorable terms of the new syndicated loan facility as we have dropped the interest margin from 300bps over LIBOR (London Inter-Bank Offered Rate) to 235bps over secured overnight financing rate (SOFR) and credit adjustment spread (CAS). Locking these new terms will allow us to invest in our future growth initiatives all the while giving back to our shareholders,” Shaikh Daij Salman Daij Al Khalifa, Alba’s chairman of the board of directors, shared.

The facility has a tenor of eight years to be repaid in 16 semi-annual installments with three sustainability-linked key performance indicators (KPIs): total waste recycled (solid waste), training houses and lost time injury frequency’s incident count. The margin is subject to adjustment on an annual basis upward and downward by an aggregate amount of 2.5bps based on if Alba meets its sustainability KPIs.

The Islamic tranche was structured based on the Ijarah concept. The periodic payments for the Islamic tranche are structured as rental payments with a fixed rental amount being the principal amortization payment and variable rental amounts linked to the daily risk-free rate (RFR) plus the sustainability-linked adjusted margin.

Commenting on the unique challenge the Islamic sustainability-linked facility posed, Sabir Ahmad, the executive director of Islamic origination at Standard Charted Bank, shared with Islamic Sustainable Finance & Investment: “Under Ijarah, rental amounts are agreed between the parties at the start of the rental period with rental payments due at the end of the period. One of the challenges was to incorporate daily RFR benchmarked pricing in the Ijarah structure due to the backward-looking nature of the benchmark rate. This was resolved by incorporating two rental sub-periods in each semi-annual period where the rental amount of the first sub-period is calculated based on an estimated rate and any difference between the estimated amount and actual amount at the end of the relevant period is adjusted in the rental amount of the second sub-period.”

Alba recently rolled out its ESG roadmap to contribute to the Kingdom’s net-zero emissions by 2060 target and the UN Sustainable Development Goals. The roadmap highlights six strategic priorities over the years: (1) decarbonization, (2) green energy and aluminium, (3) circular economy and secondary aluminium, (4) employee welfare, (5) collaboration and partnership and (6) transparency, communications and due diligence. A special ESG taskforce committee has also been created led by the CEO to evaluate ESG-linked initiatives for each of the six priorities.

Sustainability-Linked Syndicated Senior Unsecured Facility (Islamic Tranche)
US$710 million (Islamic Tranche)

April 2022
Summary of terms and conditions
Aggregate principal amount US$710 million (Islamic tranche)
Type of facility Sustainability-linked syndicated senior facility
Islamic structure Ijarah
Use of proceeds Refinancing of company’s existing facilities
Tenor Eight years
Profit rate/yield Daily non-cumulative compound rate + margin subject to the sustainability-linked adjustment mechanism
Repayment Semi-annual installments during facility tenor
Frequency of payment Semi-annual
Legal advisor Allen & Overy
Governing law English law

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