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Sunday, 23 March 2008

Qatar Islamic Bank to finance massive water desalination facility for QEWC

QIB announced that it has reached an agreement with the Qatar Electricity & Water Company (QEWC), to finance the Ras Abu Fontas A1 (RAF A1) water desalination plant to be built in the northern part of Ras Abu Fontas.

The financing will be handled through a fully Sharia'a compliant Istisna-Ijara scheme alongside a conventional tranche, with QIB in charge of the Islamic portion of the financing. When it is completed in the summer of 2009, the plant will have a maximum capacity of 45 million Imperial Gallons per Day (MIGD). The additional capacity will play a vital role in satisfying Qatar's growing need for fresh water as its population and economy continue to grow. The announcement was made at a press conference held at QEWC headquarters on March 20th 2008. The financing deal marks a milestone in that it is the first Islamic transaction that QEWC has entered into. The financing has been structured as a 20-year Istisna-Ijara scheme through which QIB will finance the construction of 3 Multi stage flash type desalination units, of a capacity of 15MIGB each, at a cost of approximately $150m. 'Istisna-Ijara is the equivalent of 'lease-to-own' schemes in conventional banking,' explained the CEO of QIB, Mr. Salah Al Jaidah. 'Fitsia, an Italian firm, will build the desalination units on order from QIB over a period of approximately 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.' The Istisna-Ijara combination is commonly used in Islamic project financing. Typically, the project company (QEWC) and the investment agent, in this case QIB, 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 company under agreed upon rental arrangements in a lease (Ijara). The Istisna-Ijara combination works particularly well for the financing of large project assets, such as those used in industries such as petrochemicals, aluminum and power & water, or even mobile assets like ships and airplanes. The Islamic investors will often finance specific tangible assets in the deal as part of a larger project financing involving non-Islamic tranches of debt alongside the Islamic, as is the case in the financing for the RAF A1 plant. QIB has successfully syndicated the arrangement in collaboration with Islamic banks from Malaysia through its subsidiary, the Asian Finance Bank, from the UK through its new subsidiary, the European Finance House, and from Saudi Arabia. 'The Islamic financing tranche has been funded exclusively by full fledge Islamic banks, demonstrating that the Sharia'a compliant banking industry is maturing quickly, and that it is ready for bigger projects and longer term maturities,' pointed out Mr. Jean-Marc Riegel, QIB General Manager Investment Banking and Development Group. QIB plays a crucial role in the arrangement 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. 'We're pleased that we were able to capitalize on the burgeoning Islamic financing market and work out a Sharia'a compliant arrangement for the desalination units,' said Mr. Fahed Al-Mohannadi, General Manager of QEWC. 'Once the project is completed successfully, the additional water supply will certainly provide a boost to Qatar's infrastructure and economy, and we look forward to exploring Sharia' compliant financing options for more of our projects in the future.'
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