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Thursday, December 8, 2022

Launch Partners

Case study: Al Rajhi Bank’s dual tranche sustainability commodity Murabahah facility

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

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