RAKIA Sukuk (continued...) - Islamic Finance News

Deals of the Year 2007 Handbook
Doraleh Container Terminal US$263 million
Project Finance Facility
Despite the rapid growth and interest in the Islamic
finance sector, until now there has not been a firmly
accepted structure for project financing that can satisfy
the requirements of all stakeholders.
In January 2008, however, Standard Chartered Bank,
WestLB AG and Dubai Islamic Bank (DIB) closed a
unique and innovative Islamic project fi nance structure,
developed in consultation with DIB’s Shariah board and
Lovells as legal adviser, which it is anticipated will set the
precedent for future project fi nancings.
This syndication was the fi rst major Islamic project fi nancing
in Africa and represents the fi rst ever World Bank Group
political risk cover for a Shariah compliant deal. The
container port project is meant to help Djibouti improve
its role as a gateway port to East Africa.
BACKGROUND
The project company, Doraleh Container Terminal
SA, a Djibouti-registered company, was granted a 30-
year concession to construct and operate the Doraleh
Container Terminal in Djibouti to service predominantly
landlocked Ethiopia and adjourning countries.
Doraleh Container Terminal SA is a joint venture between
DP World of Dubai and the Djibouti government.
The fi nancing for the project, which won ProjectFinance
magazine’s 2007 African Infrastructure Project Finance
Deal of the Year award, was settled on the basis of a
Musharakah/Istisna/Ijarah structure, with the structure
working as follows.
The participating banks, represented by DIB as investment
agent, and the project company entered into a Musharakah
agreement to implement the project, whereby both
parties agreed to contribute capital for the purposes of
the Musharakah.
For the investment agent, this capital contribution is the
funding provided by the participating banks and for the
project company the contribution is its rights, benefi ts and
entitlements in and to the concession agreement and the
project generally as well as the equity investment.
Simultaneous to this, though standing conceptually as an
independent arrangement, the project company and the
Musharakah partners entered into an Istisna agreement.
Under this agreement, the project company sells and
the Musharakah partners (as purchaser) buy the project,
and at the time of a Musharakah contribution, an equal
value stage payment of the purchase price is made to
the project company (as seller).
The fi nal key component of the structure was the project
company and investment agent entering into a forward
lease or Ijarah, whereby the project company leases the
investment agent’s interest in the project (acquired by the
investment agent under the Istisna agreement).
The forward lease requires the payment of advance rental
during the construction phase and actual rental during the
operating phase.
DOCUMENTATION
Other important documentation included a sale undertaking
and a purchase undertaking to accommodate early
repayment and acceleration respectively, with the sale
undertaking also being the mechanism, whereby title to
the project is returned to the project company at the end
of the forward lease period.
A servicing agency agreement was also an important
component of the arrangement as major maintenance
and repair must be undertaken by the lessor.
Under this document, the investment agent appoints the
project company as the servicing agent.
This is the fi rst Islamic project fi nancing which benefi ts from a
multilateral investment guarantee agency (MIGA) political
risk guarantee.
During the negotiation process, MIGA showed a great
deal of fl exibility in structuring its policy to fi t in with the
complex nature of the Musharakah/Istisna/Ijarah fi nancing
structure.
While the formulation and negotiation of the structure were
lengthy to achieve an appropriate project fi nancing model
that was completely Shariah compliant, it is anticipated
that this model will be embraced by fi nanciers seeking an
Islamic project fi nancing structure that does not affect their
usual expectations under a conventional fi nancing.
As Islamic fi nance had not previously been adapted
to project fi nance in such a successful way, this deal
showcases not only the dynamic and fl exible nature of
Islamic fi nance but that its underlying structures can be
viewed with confi dence by the market.
This case study was written by
Shibeer Ahmed, a partner in
Dubai-based Lovells.
www.IslamicFinanceNews.com
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