Burj Solar Energy (BSEPL) has successfully raised a PKR1 billion (US$5.37 million) syndicated Islamic finance facility for its portfolio of renewable distributed power generation in Pakistan. The financing was structured under the State Bank of Pakistan (SBP)’s Islamic Financing Facility for Renewable Energy (IFRE) and a commercial facility.
Meezan Bank was the mandated lead arranger and Pakistan Kuwait Investment Company was the co-arranger for the SBP IFRE and commercial facility, with each providing 50% toward the facility amount. The first tranche of PKR580 million (US$3.11 million) will be channeled toward the financing of the construction of a 7 MW solar power plant for Power Cement on the Karachi Hyderabad Motorway. The power plant will be rented to Power Cement under a 20-year equipment rental agreement.
“Meezan has played a key role in the financing of several renewable energy projects aggregating to 380 MW, as lead or co-lead manager and also participated in the debt syndications of two large hydroelectric projects being set-up by the government of Pakistan”, Ariful Islam, deputy CEO of Meezan Bank, shared.
While the IFRE framework promotes the establishment of renewable energy plants, the scheme has limitations. Under IFRE Scheme Category III, the maximum capacity of a single Renewable Energy Investment Entity (RE-IE) is 5MW.
“As BSEPL wanted to develop a 7 MW solar plant, the financing was bifurcated into two facilities: (i) 5 MW portion under IFRE; and (ii) 2 MW portion under KIBOR [Karachi Interbank Offered Rate]-based pricing. Due to this bifurcation, much of the work under the transaction doubled.”, Meezan Bank’s spokesperson tells Islamic Sustainable Finance & Investment.
Under the SBP’s IFRE Scheme Category III, the Participating Islamic Finance Institute (PIFI) extends financing to the RE-IE through Islamic modes of financing. Post-disbursement, the PIFI will apply for a reimbursement from the SBP which will reimburse the PIFI for 100% of the qualifying financing amount through Mudarabah investment. Meezan Bank as the PIFI extends financing to BSEPL under the diminishing Musharkah model. Under the commercial facility, Meezan Bank is the co-owner and BSEPL is the managing co-owner.
| Syndicated Islamic Finance Facility for Burj Solar Energy(private) PKR1 billion – First tranche of PKR 580 million  17th March 2022 |
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| Summary of terms and conditions | |
| Aggregate principal amount | PKR1 billion (US$5.37 million) -First tranche of PKR580 million (US$3.11 million) |
| Type of facility | Syndicated Islamic finance facility |
| Structure | Diminishing Musharakah |
| Use of proceeds | To develop a 7 MW (5 MW + 2 MW) solar power plant for Power Cement under the SBP’s IFRE Scheme Category III/KIBOR-based pricing |
| Tenor | 10 years inclusive of a six-month grace period |
| Profit rate/yield | SBP IFRE rate + 2.88%/3M KIBOR + 2% |
| Frequency of payment | Quarterly |
| Legal advisor | Mohsin Tayebaly & Co |
| Governing law | Pakistan |