Middle East

CASE STUDY: Tabreed’s Innovative Islamic Loan Paves the Way for Future Sukuk Deal

Abu Dhabi-based National Central Cooling Company PJSC, better known as Tabreed, secured its first club loan through an AED1.5bn 10-year sharia-compliant facility, enabling the company to extended its debt maturity profile and appeal to new pockets of global and regional investors.

Oct 27, 2017 // 11:42AM


Following a loan secured in 2011, which was then refinanced in 2014, Tabreed inked a new hybrid conventional and sharia-compliant facility that allowed it to secure better terms and covenants, and helped reduce its overall cost of funding.

The facility also served the dual purpose of opening the company up to sharia-compliant investors, many of which are based within the GCC, Malaysia and Indonesia, and helped the company move away from secured financing structures – giving it more flexibility when funding new projects, and allowing it to more closely align liabilities with cashflows.

Transaction Breakdown

Tabreed selected three banks to manage the transaction: Abu Dhabi Islamic Bank (ADIB), Abu Dhabi Commercial Bank (ADCB), and Mashreq Bank.

The company appointed the only Islamic bank, ADIB, to act as the Structuring and Documentation Bank to lead on structuring, handle documentation and necessary approvals.

The innovative Islamic structure is based on the sale and purchase of refrigeration capacity, and the appointment of Tabreed to sell that capacity to generate revenue to service the financing and pay the principal amount. As an asset light structure that, it is still widely acceptable to Islamic banks while retaining an element of flexibility.

It also includes a security created over revenues from the DC plants, which are deposited, ring-fenced and routed to a separate account that lenders control. The cashflows themselves were not securitized; under this structure, the customer agrees to pay all future cashflows into project bank accounts, including any termination payments, and there is no assignment of receivables in contract. About AED1bn was used to refinance existing maturities and the rest going towards new capital expenditure.

In the case of early termination, the lenders and Tabreed agreed on a package formula that includes a blend of collateralised asset and securities included in the main Tango facility, which are assigned to a new facility that does not include customer assets.

The 10-year loan with a 42% bullet effectively allowed the company to optimise tenors from 10 years to 16 years, in line with the company’s bid to smooth out its maturity profile.

In the final distribution, ADBC took the biggest portion of the loan with AED608mn, ADIB followed with AED530mn, and finally Mashreq Bank with AED375mn.

This transaction not only allowed Tabreed to diversify its funding base, extend its maturity profile and lower its financing costs, but also prepares the company for a future sukuk issuance – with the deal giving the company a much larger share of sharia-compliant assets on its books.

Middle East Islamic Finance CEEMEA CEE & Turkey

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