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Islamic finance awards 2008: Best project finance deal

As the Saudi Arabian project finance pipeline grows to almost $500 billion, there is new momentum behind the Shariah-compliant project finance world.

ACWA Power Projects

The ACWA Power Projects financed by Al Rajhi Bank are the best example of the latest trends.

These projects have grabbed headlines through their innovative application of Shariah principles. Three projects – Shuqaiq IWPP, Marafiq (Jubail) IWPP and Shuaibah Expansion IWP – which closed before December 2007, used an original forward leasing structure called Ijarah Mawsufa Fi Al Dhimmah for the Islamic tranches, which accounted for between 10% and 46% of the deals. For these transactions, the Islamic bank agreed to finance the procurement of assets, which it owned and then leased to the project company when construction was finished. This leasing plan also specified that the lessee start to pay for the assets before construction was completed, hence the forward leasing name.

Initially this payment structure came up against some criticism as the forward payments were seen as a way for the banks to obtain interest payments. But with these ACWA projects it is clear that Saudi Shariah scholars have accepted the structure. This bodes well for the future use of forward leasing throughout the MENA region and beyond.

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