Al Rajhi Bank concluded its US$1.16 billion three-year dual-tranche sustainability commodity Murabahah facility on the 20th September 2022. The deal was participated by 13 global investors from North America, Europe, Asia and the Middle East.
The facility was the first dual-tranche fully Shariah compliant facility based on the Loan Market Association (LMA)’s Green Loan Principles by a financial institution where the proceeds were directed toward eligible sustainability projects.
“We had a lot of interest from both local and international banks and the facility was oversubscribed. The challenge was to ensure that we meet each bank’s and the obligor’s internal compliance with both the sustainability elements and the commodity Murabahah structure.
“We had to draft various structure notes for both the AAOIFI and non-AAOIFI-compliant tranches and the structure was revised multiple times until we reached [a] unanimous consensus,” Seyavash Rahnema, a senior associate at Norton Rose Fulbright, which acted as the legal advisor for the lenders of the facility, told ISFI.
The syndication was led by lead arrangers and bookrunners HSBC and SMBC International Bank. The facility pays profits quarterly and has a one-time bullet payment of the principal amount at maturity.
With a profit rate of 0.5% per annum, the facility will finance sustainable projects in accordance with the bank’s Sustainable Finance Framework, which was issued in February 2022.
The facility is comparable to Ahli United Bank (AUB)’s US$1.1 billion sustainability-linked dual-tranche Murabahah financing facility which was concluded earlier in July 2022. Both facilities included an AAOIFI-compliant tranche to accommodate participation from UAE-based financial institutions.
The key differentiating factor between the two facilities is the sustainability-linked feature where the AUB facility included a price reduction mechanism tied to pre-defined sustainability performance targets while the Al Rajhi Bank facility did not include sustainability-linked pricing features.
As such, the AUB facility was based on the LMA’s Sustainability Linked Loan Principles as opposed to the Green Loan Principles, Rahnema shared.
Al Rajhi Dual Tranche Sustainability Commodity Murabahah
Size: US$1.16 billion US$1.16 billion 20th September 2022 |
|
Summary of terms and conditions | |
Aggregate principal amount |
US$1.16 billion |
Type of facility |
Dual-tranche commodity Murabahah
|
Structure |
Commodity Murabahah |
Use of proceeds |
To finance projects which comply with Al Rajhi Bank’s Sustainable Finance Framework, the Green Loan Principles and ESG practices. |
Tenor |
Three years |
Profit rate/yield
|
0.5% per annum |
Repayment |
Bullet payment of all outstanding principal on maturity |
Frequency of payment |
Quarterly profit payments, one-time bullet payment of principal at maturity |
Legal advisor |
Norton Rose Fulbright – lenders
|
Governing law |
English law |
Investment agent |
HSBC Saudi Arabia |
Mandated lead arrangers, bookrunners, coordinators and sustainability coordinators |
HSBC and SMBC International Bank |