Middle East: ADIB retail assets – Zain restructure

Author: | Published: 1 Dec 2014
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Abu Dhabi Islamic Bank – Barclays’ UAE
retail banking

Islamic banks gain ground

This landmark deal saw Abu Dhabi Islamic Bank, the largest shariah-compliant bank in Abu Dhabi, acquire Barclays' UAE retail banking assets. It was the first acquisition in the UAE by an Islamic bank of a conventional retail banking portfolio.

This deal, signed in April 2014, was also the first time that an Islamic bank in the UAE has acquired conventional banking assets and then converted them into shariah-compliant financial products. The sale and purchase agreement was structured in a 100% shariah-compliant manner, representing one of the few shariah-compliant sale and purchase agreements ever crafted and used on a transaction of this scale.

The retail credit cards, retail deposits, retail mortgages and personal loans acquired are all being transferred to Abu Dhabi Islamic Bank as non-shariah compliant products that will eventually be converted to shariah-compliant retail banking assets. The conversion process for each financial product is unique, with each conversion process therefore highly complex. It will likely serve as a model for future M&A deals.

Tear sheet
• Al Tamimi & Company – Barclays
• Latham & Watkins
– Abu Dhabi Islamic Bank
• Linklaters – Barclays

Almarai sukuk

The Gulf’s first corporate hybrid sukuk

This deal saw Saudi Arabian dairy producer Almarai issue 1.7 billion riyal ($453.2 million) senior sukuk. The issue was a perpetual sukuk, meaning that it has no maturity date and in some ways resembles an equity instrument.

The complex transaction was the first Islamic instrument to utilise a dual murabaha and mudaraba structure and contained deferral mechanics that give Almarai flexibility over when it will make profit payments in relation to the sukuk.

The precedent-setting sukuk represents a number of firsts. It was the first corporate hybrid sukuk in Saudi Arabia, the first corporate hybrid sukuk in the Middle East and the first Saudi Arabian riyal-denominated corporate hybrid sukuk issuance in the world.

Detailed structuring and documentation of the sukuk began in July and a fast timetable saw the deal complete on September 30 2013. Almarai obtained 100% equity accounting treatment for the transaction, which required careful consideration during the initial structuring phase.

Tear sheet
• Allen & Overy – joint lead managers and sukuk-holders' agent
• Baker & McKenzie – Almarai
• Zeyad S Khoshaim Law Firm – joint lead managers and sukuk-holders' agent

Arabian Cement IPO

A landmark for Egypt’s capital markets

The Arabian Cement initial public offering (IPO) was the first listing on the Egypt stock exchange since the introduction of the new listing rules in 2014. In fact, the listing rules were changed seven months into the deal and shortly before its original planned date of completion. This large-scale overhaul of the regulatory framework meant that the IPO had to be restructured in just a few weeks.

The May 2014 deal was also the first public offering with an international component on the Egyptian bourse since the 2011 uprising that ousted President Hosni Mubarak. The listing took place against the backdrop of a country that had a weak currency, unstable security situation, energy crisis, and a government close to bankruptcy.

Despite this, the IPO was 18.5 times oversubscribed, raising $110 million and receiving $1.5 billion in bids from institutional and individual investors. The deal's success has been hailed as a positive sign for Egypt's economy, and a vital step in the rehabilitation of Egypt's capital markets.

Tear sheet
• Matouk Bassiouny – Arabian Cement Company, and EFG-Hermes and CI Capital as joint global coordinators
• Norton Rose Fulbright – Arabian Cement Company

Az-Zour North IWPP

A pioneering IWPP in Kuwait

Worth $1.43 billion, this bellwether deal was the first independent water and power project (IWPP) in Kuwait. It was also the first financing under the new build-operate-transfer law, and the first by the Kuwaiti government procurer, the Partnerships Technical Bureau (PTB).

The debt financing, provided by the commercial lenders, Nippon Export and Investment Insurance, and Japan Bank of International Cooperation, will be used for the construction of a gas-fired combined cycle power plant of at least 1.500 megawatts and an associated water desalination plant.

The project achieved signing and financial close under significant political and commercial scrutiny.

Tear sheet
• Allen & Overy – lenders
• Al Tamimi & Company – lenders
• ASAR – Al Ruwayeh & Partners – consortium
• Chadbourne & Parke – Partnerships Technical Bureau
• Clifford Chance – Japan Bank of International Cooperation
• Dentons – Sponsor/winning bidder – GDF Suez
• Latham & Watkins – borrowers

Barwa real estate assets sale

A significant asset disposal programme

These June 2014 transactions comprise the $5.5 billion acquisition by Labregah Real Estate Company of several Barwa assets, including: a 37.3% stake in Barwa Bank; a 100% stake in Barwa City company and a 95% stake in Barwa Commercial Avenue Company. They are part of the publically announced $6 billion asset disposal programme by Barwa Real Estate to Qatari Diar, the sovereign wealth fund focusing on real-estate development and investment.

Both the Barwa City transaction and the Barwa Commercial Avenue transaction are the two largest M&A deals in Qatar this year. Moreover, both were the first significant M&A transactions to close in Qatar under the new M&A rules of the Qatar Financial Markets Authority, which entered into force in March 2014. The Barwa Bank disposal was also the first significant disposal of a major stake in a local bank under the new law of 2012 governing the Qatar Central Bank. The deals involved complex issues relating to land ownership and property matters, live construction contracts, leases, ongoing litigation, corporate issues, intellectual property, financing and regulatory issues.

Tear sheet
• Al-Ansari & Associates – Qatari law advisor
• White & Case – joint counsel for the buyer and seller

Dubai Group restructuring

A milestone in Dubai’s post-crisis comeback

This landmark transaction involved the restructuring of approximately $10 billion of debt lent under many different structures to Dubai Group, an investment company owned by the emirate's ruler and its subsidiaries.

The deal marked a milestone in Dubai's recovery from the 2009 debt crisis, which rocked global markets.

The lack of any effective cramdown in the UAE or elsewhere that could be utilised by Dubai Group meant that the restructuring could only close consensually.

Tear sheet
• Allen & Overy – committee of secured creditors
• Al Tamimi & Company – global facility agent and security agent
• ASAR – Al Ruwayeh & Partners – Dubai Group
• Clifford Chance – Dubai Group
• Conyers Dill & Pearman – committee of secured financiers
• Herbert Smith Freehills – secured financiers
• Karatzas and Partners – coordinating committee
• Linklaters – coordinating committee
• Maples and Calder – Dubai Group

Dubai Holdings Investments Group

A debt-for-asset swap in the UAE

Worth $1.5 billion, this deal was a true landmark, being one of the first major debt-for-asset swaps seen in the UAE. As a result, banks were given the option to exit the facilities – either at closing of the restructuring or during the life of the newly extended facilities – in exchange for their proportionate allocation of shares in a listed US company.

Dubai Holding is a diversified group whose portfolio includes the developers Dubai Properties Group, Sama Dubai and Tatweer, and the hotel operator Jumeirah Group.

This deal was another step forward in the resolution of Dubai's lingering debt commitments dating back to the 2009 global financial crisis.

The documentation contained a complex mechanism for when banks can exercise their individual parachute option, and when the company is permitted to sell the US shares if values increase, to repay the facility. The negotiations on this deal were complex and protracted, lasting for more than two and a half years.

Tear sheet
• Clifford Chance – Dubai Holdings Investment Group
• Conyers Dill & Pearman – banks
• Maples and Calder – Dubai Holdings Investment Group
• Norton Rose Fulbright – banks

Emirates Reit IPO

A shariah-compliant listing

In April 2014, UAE-based shariah-compliant real-estate investment trust Emirates Reit went to market with the first IPO in the UAE since the financial crisis erupted in the region in 2009. The landmark deal was also the first ever IPO of a regulated reit in the region.

The Emirates Reit IPO was a fully shariah-compliant IPO, which necessitated the restructuring of the underwriting and other elements. Throughout the deal, legal teams had to deal with two domestic UAE securities regulators: the Dubai Financial Services Authority and the Emirates Securities and Commodities Authority.

The bellwether listing marked numerous firsts. It involved one of the first filings made in the UK under the new EU Alterative Investment Funds Marketing Directive (AIFMD), and was the first IPO since the DFSA and Nasdaq rules were substantially rewritten.

To bring the deal to completion, the Dubai Financial Services Authority granted several rule waivers and modifications, including an annual related party transaction approval rather than a deal by deal specific approval.

Tear sheet
• Herbert Smith Freehills – sponsor
• K&L Gates – Emirates Reit

Etisalat - controlling stake in Maroc Telecom

A landmark in African cross-border M&A

In November 2013, Abu Dhabi-based Emirates Telecommunications Corporation (Etisalat) agreed to buy a 53% stake in Maroc Telecom from indebted French company Vivendi.

Worth €4.2 billion ($5.2 billion), the acquisition was one of the biggest cross-border M&A transactions in Africa in recent years. It was also Etisalat's biggest in terms of buying into an existing operation.

Because of its multi-jurisdictional nature, involving regulated businesses operating in various African countries, the transaction involved highly complex corporate and regulatory processes. Notably, the direct or indirect transfer of telecommunication operators required the clearance of multiple antitrust and telecom regulatory authorities.

The primary complexity of the deal arose from the fact that Morocco had a veto right on the acquisition, owning a 30% stake in Maroc Telecom. As such, and in order to preserve Moroccan interests in the transaction as well as consolidating Maroc Telecom's position on its markets, Etisalat agreed to sell all of its subsidiaries in francophone Africa to Maroc Telecom, making it a telecommunications hub in Africa with a presence in 10 countries.

Tear sheet
• Bennani & Associés – Etisalat
• Freshfields Bruckhaus Deringer – Etisalat

Gulf Marine Services IPO

A premium listing on the LSE

In March 2014, Gulf Marine Services (GMS), an Abu Dhabi-based oilfield provider and operator, listed on the London Stock Exchange (LSE).

Worth £165 million ($260 million), the IPO comprised an offering of existing and newly-issued shares. The IPO was sold on a Reg S basis outside of the US and pursuant to an exemption under Rule 144A of the Securities Act within the US.

As part of the preparation for the landmark IPO, the GMS group implemented an extensive corporate reorganisation in respect of entities incorporated in jurisdictions including Panama, Scotland, the Cayman Islands, Saudi Arabia, Qatar and the UAE.

By using free-zone companies, asset transfers and intra-group arrangements, the majority of the group's operations, assets and revenues were moved outside the UAE, minimising shareholder risks and enhancing the attractiveness of the IPO on the London market.

Tear sheet
• Al Tamimi & Company – GMS
• Clifford Chance – Coordinating and book-running bankss
• Gibson Dunn & Crutcher – GMS
• Linklaters – GMS
• White & Case – Shariah-compliant lenders

Mesaieed Petrochemical IPO

Qatar’s first IPO since 2010

This highly successful initial public offering (IPO) was five times oversubscribed and the first in Qatar since 2010. It was also the first IPO under the current listing rules of the Qatar Financial Markets Authority, as well as the first since Qatar to be upgraded from frontier to emerging market status in 2013.

The Decembr 2013 IPO incorporates an innovative incentive share scheme that was designed to encourage the development of a personal savings culture in Qatar. Investors who retain at least 50% of their IPO shares also purchased the right to receive two sets of additional shares at no further cost – in five and 10 years' time – provided that they hold 50% of their original shares by that time.

The Mesaieed Petrochemical IPO is expected to be the first of a series of equity offerings in Qatar designed to enable Qatari nationals to participate in the country's hydrocarbon wealth and to boost liquidity on the Qatar Exchange.

Tear sheet
• Latham & Watkins – sole legal advisor

Ooredoo airtime sukuk

Showcasing innovation in Islamic finance

This deal saw Ooredoo establish a $2 billion airtime sukuk programme, and issue $1.25 billion trust certificates under the programme.

These were the first sukuk certificates to be issued in the Gulf Cooperation Council (GCC) with the innovative manafae structure. The structure was developed to allow Ooredoo to use the airtime on the telecommunications network as an asset for the purposes of the sukuk structure. In order to bring this deal to market, both the lawyers and Ooredoo had to work closely with the telecoms regulator in Qatar, Qtel.

The deal's significance lies in its demonstration of innovation in Islamic finance and the ability to structure a sukuk based on the assets that an underlying obligor has available to it. The transaction was almost four times oversubscribed, representing the significant demand for this new form of sukuk structure. Because of the nature of the asset, Ooredoo has the benefit of significant capacity to generate more assets to back future sukuk issues.

Tear sheet
• Clifford Chance – arrangers, dealers and delegate
• Eversheds – arrangers
• Latham & Watkins – Ooredoo
• Maples and Calder – Ooredoo

Ras Abu Fontas seawater desalination project

A step forward for Qatar

This market-leading transaction represented two notable firsts. It was the first project in the power and water sector in Qatar to be arranged and led by Qatari banks. It was also the first Middle Eastern project financing to include an innovative co-hedging structure, comprising pari passu Islamic commodity-based profit rate swaps in place alongside the conventional interest rate swaps.

The project will construct and operate a 36 million gallon per day desalination water facility in Ras Abu Fontas, which is situated about 10km south of Doha. This represents 10% of Qatar's national water production. The power required for running the facility will be supplied from the 597 megawatt RAF B2 power plant.

The project's output will be sold to the Qatar General Electricity and Water Corporation under a long-term water purchase agreement. Construction will be carried out under an engineering, procurement and construction contract.

Tear sheet
• Arab Law Bureau – Qatar Electricity and Water Company
• Eversheds – KAHRAMAA
• Norton Rose Fulbright – Qatar Electricity and Water Company
• Simmons & Simmons – Qatar National Bank, Barwa Bank, Masraf al Rayan and Qatar Islamic Bank

Saudi Aramco Cogeneration IPP

An innovative way to minimise cross-default

The $650 million Saudi Aramco cogeneration projects comprise the development and financing of three different greenfield industrial steam and electric cogeneration plants. It involved an innovative structure designed to minimise the cross-default between the three plants, while using a single special purpose vehicle for the financing.

This necessitated complex account and security mechanics with a heavily negotiated covenant package.

The deal also involved multi-jurisdictional and multi-recourse financing (including an export credit agency, conventional and Islamic financing) from financiers located in the US, Japan, Europe and Saudi Arabia.

The projects are set to lower emissions and improve energy efficiency by using advanced cogeneration technology.

Tear sheet
• Allen & Overy – The Export-Import Bank of the United States,
• Ashurst – commercial and Islamic banks supporting the consortium
• Hatem Abbas Ghazzawi & Co – commercial lenders
• Herbert Smith Freehills – sponsors
• White & Case – Saudi Aramco

Saudi British Bank tier 2 Basel III sukuk

A Basel III first for the GCC

This December 2013 deal is significant because it was the first transaction in both Saudi Arabia and the Gulf Cooperation Council (GCC) to incorporate Basel III write-down features (at the point of non-viability) that were approved by the Saudi Arabian Monetary Authority (Sama).

The deal is an example of the way in which Islamic banks are looking to issue Basel III-compliant sukuk to satisfy the revised capital standards. The Basel III terms in the transaction were the product of more than six months of dialogue between law firms Clifford Chance and Al Jadaan & Partners on the one hand and Sama on the other, to understand and document Sama's interpretation of the Basel III accord with its regulated banks. This involved discussions on write-down, conversion to equity and statutory loss absorption. As a result of this deal, Sama became the first GCC regulator to actively implement Basel III. Every Saudi Arabia regulatory capital transaction since this groundbreaking deal has copied the structure. conditions.

Tear sheet
• Al Jadaan & Partners – HSBC Saudi Arabia
• Allen & Overy – Saudi British Bank
• Clifford Chance – HSBC Saudi Arabia
• Zeyad S Khosaim – Saudi British Bank

Saudi Clean Fuels project

Promoting the clean fuels agenda

This $1.4 billion deal is a first-of-its kind clean fuels project in Saudi Arabia, involving the financing of a development in Yanbu, Saudi Arabia.

The clean-fuels project is part of a shift by Middle Eastern refiners to produce cleaner fuels for export markets. It is expected to reduce sulphur levels by more than 98% in the short-term and 98% in diesel fuel by 2016. The complex project is split into two phases. Phase one will install a grassroots de-sulphurisation train to treat 60,000 barrels of gasoline per day.

The project will also have an extensive brownfield component to revamp the 98,000 barrels per day distillate hydrotreater and refinery utilities infrastructure. Phase two will be executed separately from phase one. The scope could include a new high pressure distillate hydrotreater, hydrogen manufacturing, sulphur recovery, and off-sites and utilities infrastructure.

The refinery is co-owned by ExxonMobil and operated by Saudi Aramco Mobil Refinery Company (SAMREF). The deal reached completion in July 2013.

Tear sheet
• Clifford Chance – Riyad Bank

Shuweihat 2 power project bond

A new refinancing option for projects in the Middle East

Worth $825 million, this was the first power project bond refinancing in the Middle East. It was an extremely complex project bond and one of just three to come out of the region.

The structuring of the July 2013 bond required negotiation of a complex covenant package and interplay with the existing bank financing in place for the project. It was also a 144A issuance that added an extra layer of complexity to the deal. The success of the transaction shows that project bonds are a viable refinancing option for energy and infrastructure projects in the Middle East. The deal is expected to set a new path for the optimisation of the debt in project financing assets in the region.

The proceeds of the issuance will be applied to partially pay Ruwais Power Company's existing commercial loan and export credit agency loan facilities, as well as to fund a special distribution to shareholders.

Tear sheet
• Latham & Watkins – joint lead managers
• White & Case – sponsors

Sohar Refinery Expansion

A transformational project for Oman

This complex transaction was transformational for the Oman Refineries Petrochemicals Company (Orpic) and the oil and gas sector in Oman. It was particularly innovative because, in addition to the refinancing and large-scale expansion and improvement of the operating Sohar refinery, it involved the refinancing of the existing Oman polypropylene plant and the financing of Mina Fahal refinery, which is owned by Orpic.

The three financed facilities are co-dependent. This meant that the interfaces between them had to be taken into account, and the resulting project-on-project risk had to be mitigated in the financing structures.

The $2.8 billion project financing was provided by a diverse group of 19 regional and international commercial bank lenders, as well as three Asian and European export credit agencies.

Overall, the refinery expansion is set to increase capacity by roughly 60,000 barrels per day above the existing 116,000 barrels per day capacity.

Tear sheet
• Al Busiady Mansoor Jamal & Co – Oman counsel to Allen & Overy
• Allen & Overy – borrower
• Clifford Chance – lenders
• Trowers & Hamlins – borrower

The Investment Dar restructuring

Using Kuwait’s financial stability law

The Investment Dar (TID) was the first Kuwaiti entity to be granted court protection under the financial stability law in Kuwait to help implement its restructuring plan. This resulted in a court-agreed repayment schedule for the creditors and various restrictions on TID.

TID is a shariah-compliant company that was set up in 1994. It was one of several financial firms in the region which struggled to refinance debt as the global financial crisis struck in 2008. TID's complex debt restructuring lasted for four years as the Kuwaiti firm resisted selling prize assets.

TID had invested in Islamic insurance, construction, real estate, logistics and manufacturing. In 2006, it completed one of the UK's biggest-ever Islamic finance deals with the purchase of London's Grosvenor House Apartments. In 2007, it led the consortium that bought Aston Martin from Ford Motors. The landmark deal was worth £479 million ($571 million).

TID encountered difficulties both in its ability to achieve fair value for its assets and in making repayments under the court-agreed repayment schedule. A settlement-in-kind offer was therefore put together for the creditors with the option to stay within the current restructuring plan for creditors who did not wish to participate.

The offer was for the creditors to settle their existing principal for a combination of a cash closing fee and 50% of their original debt in a new shariah-compliant debt instrument. The Islamic component of the debt made this a particularly complex deal, in addition to the need to structure it in a way that was acceptable to the Kuwaiti court and to not render the protection that TID has under the financial stability law void.

Tear sheet
• Al Markaz Law Firm - Kuwaiti counsel
• Allen & Overy - investment agent and security agent
• ASAR - Al Ruwayeh & Partners - participating creditors
• Freshfields Bruckhaus Deringer - TID
• Ogier - Jersey counsel
• Tribonian Law Advisors – TID

Topaz marine

A rare high-yield issuance from the GCC

This deal saw Topaz Marine, a prominent oilfield services company, come to market with an inaugural high-yield notes offering of $350 million 8.625% notes, due 2018.

This was the only New York law-governed, true high-yield deal out of the Middle East in 2013, involving a complex covenant package. The innovative deal was done on a 144A and Reg S basis.

High-yield bond offerings from the Gulf Cooperation Council are rare because companies in the region can access bank finance at a much more affordable rate. High-yield does, however, mean that borrowers can secure longer-term money and diversify sources of funding.

The deal was also the debut issuance for a sub-investment grade issuer in difficult market conditions. Despite this, it was very successful, opening the market for a number of similar deals. Topaz will use the money raised from the bond to repay existing debt, increase cash on its balance sheet and fund an expansion of its fleet of offshore support vessels.

Tear sheet
• Latham & Watkins – initial purchaser's counsel
• Shearman & Sterling – Topaz Marine
• Stibbe – Topaz Marine

Zain restructuring

A secured financing landmark for Saudi Arabia

This deal involved the refinancing of Zain's $2.4 billion murabaha financing facility made available by a syndicate of regional and international banks. The refinancing was documented by way of an amendment and restatement of Zain's existing murabaha facility.

This was one of the first major secured financings in Saudi Arabia to obtain registration of security under the Unified Centre for Lien Registration in Saudi Arabia.

Negotiation of the restructuring was protracted – taking almost two years – and very difficult, with payment to creditors deferred a total of 11 times. Zain originally took the Islamic debt facility out in 2009. It had repaid part of the loan using internal cash reserves, leaving $2.3 billion to be restructured over five years.

The five-year facility will be restructured on an amortising basis. The new facility arrangement will also carry a decreased profit margin by around 18%, equivalent to 75 basis points compared to the previous agreement. There is also the possibility for further reduction.

Tear sheet
• ASAR – Al Ruwayeh & Partners – Financiers
• Clifford Chance – Zain
• Latham & Watkins – financiers


The magazine

April/May 2019

SURVEY: Opening the gate of China

After decades of domestic growth, the PRC is gradually letting the international community in. Here lawyers and country heads at some of the world's biggest banks and asset managers explain what others need to know

International briefings

Quick Poll

Is consolidation a good thing for the EU financial sector?

Women in Business Law Group

IFLR's Wibl networking group provides a platform for inclusive debate around fostering female talent in the profession.

Visit its LinkedIn page to find out more, and IFLR's awards page for details on the annual ceremonies.