Aug 11 2012
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NCB pioneers Shariah-compliant airport financing
"This is the first Islamically structured international airport financing in the world," it noted.
Shariah-compliant financing is primarily asset-based. However, critical infrastructure such as airports are essentially owned by governments. The private entities only receive development and operating rights for a finite period. This made the Islamic structuring all the more challenging.
Despite these constraints, an unprecedented structure is designed to ensure its compliance with Shariah and maintaining the project's bankability for the sponsors at the same time
" NCB is committed to supporting the Kingdom's infrastructure development. Besides leading Islamic finance in other segments, I am glad NCB also maintains its leadership position in Shariah-compliant infrastructure financing," said Corporate Sector Head Al Sharief Khalid. Madina International Airport is being built at a cost of approximately $1.2 billion. Out of this, NCB is providing a significant chunk of total funding through both senior participation and equity bridge financing.
"We had been working on this deal for the last 18 months. The build, transfer and operate (BTO) structure presented a few challenges from a Shariah standpoint. But we managed to overcome them all," said Mansoor Durrani, Head of Project Finance.
Long-term infrastructure financing sits well with Shariah principles. So far Islamic project finance is largely confined to power and hydrocarbon sectors.
"This experience will allow Saudi banks to extend their coverage of project financing to other critical infrastructure sectors like highways and railways," Durrani said. At a time when liquidity in the international banking market is drying up, Shariah-compliant financing is assuming added significance.
"In these challenging times, NCB is at the forefront of bringing innovative Shariah- compliant solutions to our esteemed clients," added Sikander Zaman, head of Specialized Finance Group.
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