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.

Gulf project market to cross 1.5t

The project market in the Gulf region is now estimated in excess of $1.8 trillion, and while the project-finance market remains buoyant, it is still relatively immature and, as such, subject to the vagaries of current global market fluctuations, according to MEED Projects.

Edmund O'Sullivan, chairman, MEED Events, in his opening remarks at its 10th annual project-finance conference, said: "We saw from our research for our Islamic finance report last year just how influential Islamic project finance has become.

"The value of deals being closed looks set to reach $30 billion million in five years time and could represent up to a third of major structured deals in the region.

When you add to this rising opportunities afforded from more traditional international sources of project finance, the attraction of the region in business terms is quite understandable.

"What has been driving project-finance growth is the economic boom in the GCC, brought about by strong oil prices which has fuelled unprecedented liquidity in the regional banking market. However, while wider international project-financing sources exist, the global impact of the economic downturn now being felt means we are entering a period of real change and uncertainty.

"What happens in the next few months, and the patterns we will start to see emerging, will, I believe, determine the mid- to long-term future of project financing in the region." The two-day conference is believed to be a right forum aimed at investigating the impact of the credit crunch on major Gulf industries.

The event was attended by the key decision makers, government officials and leading industry figures. With the global credit crunch and the possibilities of a global recession hitting the headlines, this year looks likely to be a critical one for project financing in the Gulf.

Providing timely insight into the long-term health of the sector - from perspectives of both lenders and borrowers - is MEED's Project Finance conference. The two-day event, under the patronage of Shaikh Ahmed bin Mohammed Al Khalifa, Minister of Finance, taking place at the Ritz-Carlton, Bahrain, Hotel and Spa, concludes today.

During the past decade the region has seen the project-finance market develop from what was practically a standing start to become one of the most important sectors in its economic growth and development.

The event addresses these issues head on, sharing insight from some of the region's most respected figures from finance, government and industry including Fahad Al-Raqbani, senior manager, project and corporate finance at Mubadala; Dr. Amer Al-Swaha, head of IPP programme at Saudi Electric Company, and Ali Sheikh, head of project-finance advisory at NBD Investment Bank, as well as an opening address from event patron, the Minister of Finance.

Another area of focus for this year's Project Finance has been the significant impact of Islamic project financing on the region's financial and construction sectors. A special pre-conference workshop, led by Norton Rose, was dedicated to this area, and several speakers, including keynote speaker Fahad Al Raqbani, touched on the growing influence of Islamic finance on their business and organisational activities

Gulf's project financing in the spotlight

MANAMA: With the global credit crunch and the possibilities of a global recession hitting the headlines, this year looks likely to be a critical one for project financing in the Gulf.

Providing a timely insight into the long-term health of the sector - from the perspectives of both lenders and borrowers - is MEED's Project Finance 2008 conference.

The event, which is being held under the patronage of Finance Minister Shaikh Ahmed bin Mohammed Al Khalifa, takes place at the Ritz-Carlton Bahrain, Hotel and Spa on February 26 and 27.

The MEED Project Finance conference is now in its 10th successful year. During this time, the region has seen the project finance market develop from what was practically a standing start, to become one of the most important sectors in its economic growth and development.

The project market in the Gulf region is now estimated in excess of $1.8 trillion, according to MEED Projects, and whilst the project finance market remains buoyant, it is still relatively immature and, as such, subject to the vagaries of current global market fluctuations.

One key area of focus for this year's event is the significant impact of Islamic project financing on the region's financial and construction sectors.

"We saw from our research for MEED's Islamic Finance report last year just how influential Islamic project finance has become," said MEED events chairman Edmund O'Sullivan.

"The value of deals being closed looks set to reach $30 billion in five years time and could represent up to a third of major structured deals in the region.

"What's been driving project finance growth is the economic boom in the GCC, brought about by strong oil prices, which has fuelled unprecedented liquidity in the regional banking market.

The gold sponsor for Project Finance 2008 is NBD Investment Bank, with leading merchant bank, GIB and Bayern LB the silver sponsors.