The first ever project financing in Uzbekistan has been completed.
The $500 million multi-source financing for Russian oil and gas
company OAO Lukoil to build the Khauzak-Shady and Kandym gas fields
overcame local law constraints to set a benchmark for how to structure
This precedent is particularly significant in light of the increasing
deployment of investment capital outside of the Gulf Cooperation
Council and the associated adoption of Islamic structures into new
"As more funding is extended to Uzbekistan and the wider CIS
[Commonwealth of Independent States] region I would expect to see this
structure employed more often," said Oli Charlesworth, Abu Dhabi project
and Islamic finance partner with Akin Gump.
Limitations in the laws of Uzbekistan and project documents from the
Uzbek government meant that banks on the deal could not own project
This meant a traditional ijara-based financing structure would not work.
Ijara leasing arrangements are common in Islamic multi source
project financings. They require that the banks own the assets so they
can subsequently lease them back.
Working with counsel on the deal, the Islamic Development Bank came up with a murabaha-based
instalment sale arrangement to get around the ownership restrictions.
This innovative structure saw the project company act as an undisclosed
agent for the bank.
Lawyers carved out a group of assets from the overall project assets, which would be designated as Islamic assets.
The project company then bought these as an agent of the bank. To
structure the sale, the bank disbursed funding directly to the supplier
of these assets and the project company took delivery of the assets as
agent for the bank.
Immediately after taking delivery, the project company bought the assets back from the bank in its own capacity as the company.
The sale price for those assets was payable on a deferred instalment basis.
"It's in the payment of the sale price that the economic equivalent
of principal and mark-up will be generated," said Charlesworth.
The financing is also significant because it shows multiple funding sources coming together.
"In particular, commercial international banks are getting ready to
enter this market," added Charlesworth. "This will be accomplished under
the cover of political risk guarantees."
This deal is supported by political risk insurance provided by ADB
and the Multilateral Investment Guarantee Agency of the World Bank
Akin Gump advised OAO Lukoil. Shearman & Sterling advised the lenders.