Sunday, March 23, 2008

QIB to finance water desalination project

QIB will finance the Qatar Electricity and Water Company’s (QEWC) Ras Abu Fontas A1 (RAF A1) water desalination plant project through a fully shariah-compliant, Istisna-Ijara, alongside a conventional tranche.

QIB’s share in the $460mn project is $150mn, the bank has said.
The plant, slated to be ready in 2009, will have a capacity of 45mn gallons a day (MIGD).

According to QIB and QEWC officials, the deal is a milestone as is the first Islamic transaction that QEWC had entered into.
The financing has been structured as a 20-year scheme through which the bank would finance the construction of three multi-stage flash type desalination units of a capacity of 15MIGB each, at a cost of approximately $150mn.

“We’re pleased that we were able to capitalise on the burgeoning Islamic financing market and work out a shariah-compliant arrangement for the desalination units,” said Fahd al-Mohannadi, general manager, QEWC.

“Once the project is completed, the additional water supply will provide a boost to Qatar’s infrastructure and economy, and we look forward to exploring more shariah-compliant financing options for our projects in future,” he added.

He said the total cost of the RAS A1 would be financed through two ways - 20% of which will be raised through equity while the rest will be raised through banks, including QIB.

According to QIB assistant general manager and head of corporate banking, Ahmed Meshari Muhaidi, istisna-ijara is the equivalent of lease-to-own schemes in conventional banking.
The Istisna-Ijara combination is commonly used in Islamic project financing.

Fitsia, an Italian firm, will build the desalination units over a period of 16 months, and these will then be rented out to QEWC by QIB for the remaining period of 18 and a half years of the 20-year contract period, said Muhaidi.

The project company and the investment agent enter into an istina, a form of procurement agreement, under which the project company undertakes to arrange for the construction and delivery of the agreed upon assets to the investment agent by a certain date. The investment agent then leases those assets back to the project firm under agreed upon rental arrangements in a lease (ijara), said the bank official.

The istisna-ijara combination works particularly well for the financing of large project assets, such as those used in industries like petrochemicals, aluminium and power and water, or even mobile assets like ships and aircraft.

QIB has syndicated the arrangement in collaboration with Islamic banks from Malaysia and the UK through their subsidiaries, the Asian Finance Bank and European Finance House.
The QIB has also worked out collaboration through a Saudi Arabian bank.

Jean-Marc Riegel, QIB General Manager (Investment Banking and Development Group) said the bank played a crucial role in the arrangement of the loan as the sole mandate lead arranger for the Islamic tranche.

It has also been named the security agent and the investment agent for the Islamic portion of the financing, he said.
QEWC general manager Fahd al-Mohannadi said the QEWC has taken every care of environment and it is using a most sophisticated technology for producing water with multi-stage technology.

“The heat will be extracted from the existing plants to ensure production with relatively less energy. He said the additional capacity from the new plant would play a vital role in satisfying Qatar’s growing needs for fresh water as its population and economy continue to grow.

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