The marine and aviation sectors have seen a growing pivot toward the utilization of Shariah compliant financing over the last few years for the acquisition, leasing and financing of related projects. DANIAL IDRAKI takes a look at some of the recent developments of logistics companies that have moved deeper across the Islamic finance market over the last 12 months.
Meethaq Islamic Banking, the Islamic arm of Bank Muscat, and Oman Shipping Company signed an agreement for long-term financing facilities of OMR78 million (US$201.89 million) to refinance the latter’s large crude carriers — Marbat, Manah and Mazyonah — in November 2015. In March, Abu Dhabi Islamic Bank acted as the exclusive sell side advisor to Egon Oldendorff, which is part of the Oldendorff Group, on the full sale of its subsidiary Emirates Ship Investment Company (Eships) to UAE-based Tristar Transport, a subsidiary of Agility Public Warehousing Company.
Toward the end of 2015, Gulf Marine Services secured a new US$620 million syndicated debt facility comprising Islamic and conventional financing. The six-year term facility, which extends the maturity of its debt profile with improvement in the borrowing margins, comprises a US$375 million term loan, a US$175 million committed capex facility and US$70 million for general working capital purposes, while a further US$300 million uncommitted facility was also agreed upon. Abu Dhabi Islamic Bank acted as the initial mandated lead arranger, global coordinator and sole bookrunner of the deal.
The National Shipping Company of Saudi Arabia (Bahri) announced in August that its unit, National Chemical Carriers Company (NCC), entered into a Murabahah financing facility agreement worth SAR181.7 million (US$48.42 million) with Arab Petroleum Investments Corporation. The 10-year facility will be used to finance 85% of the purchase value of two chemical vessels: NCC QAMAR and NCC MAHA, and will be paid over biannual equal installments. The firm had earlier announced that NCC secured a 10-year Murabahah financing facility worth US$133.2 million from Arab Petroleum Investments Corporation and BNP Paribas to purchase five chemical tankers.
Bahri had in June this year signed a Murabahah financing facility worth SAR472.5 million (US$125.94 million) with the Bank of Tokyo-Mitsubishi UFJ for the former to purchase two second-hand crude carriers, and the facility will be repaid over 10 years by equal quarterly installments. In May, Bahri inked an agreement with Alinma Bank for a 10-year Islamic credit facility worth SAR700 million (US$186.59 million) for the purchase of three crude oil carriers.
Over in Malaysia, Jasa Merin (Labuan), wholly-owned by Silk Holdings, secured RM55.27 million (US$13.81 million)-worth of Islamic financing facilities from Affin Islamic Bank to part-finance up to 70% of the acquisition of three oil/chemical tankers from BHIC Marine Carriers, BHIC Marine Ventures and BHIC Marine Transport in May this year.
Saudi Arabian Airlines has received a A330-300 Regional from Airbus this month, which will be leased in a Shariah compliant manner from the International Air Finance Corporation (IAFC), becoming Airbus’s launch customer and operator of the A330-300 Regional. It was revealed in June 2015 at the Paris Airshow that the airline will take delivery of 50 Airbus aircraft through the IAFC on a Shariah compliant basis.
Shariah compliant Qatar First Bank (QFB) made an investment in the global aircraft leasing industry in June this year, in partnership with Dubai-based Novus Aviation Capital (NAC), through the indirect acquisition and lease of two 2011 vintage Boeing 737-900ER single-aisle aircraft to Indonesia’s Lion Air. QFB was exclusively involved in the Islamic financing part of the transaction whereas NAC acted as the sole arranger for both the financing and leasing elements of the deal.
In May, the UK’s Investec Bank closed an aviation financing facility worth US$1 billion which saw the delivery, sale and leaseback of four jumbo Airbus A380-800s to Emirates Airline. The facility also saw participation from banks and institutional investors across the Middle East, Europe and Asia. Investec, which acted as the sole arranger for the financing and leasing elements of the transaction, also put in place Islamic financing on two of the deliveries.
Last November, Oman witnessed its first Shariah compliant aviation finance transaction when a US$127 million facility was extended by Meethaq Islamic Banking to Oman Air for the latter to acquire its second Boeing 787 Dreamliner aircraft. The facility employed an innovative structure comprising two stages of underlying transactions: the Waad-forward Ijarah and the conversion of forward Ijarah to Ijarah Muayyinah (to overcome certain restrictions of forward Ijarah).
According to a recent market report by Boeing Capital, it is anticipated that the aviation industry in 2016 will provide funding for approximately US$127 billion in new commercial aircraft deliveries, with the capital markets and commercial banks accounting for approximately two-thirds of that total.
Furthermore, the commercial aviation industry over the next five years is projected to require higher levels of aircraft financing due to healthy industry fundamentals and strong demand for new, fuel-efficient aircraft. In 2015, airlines and lessors took delivery of new aircraft worth approximately US$122 billion, and that total is expected to increase steadily to US$172 billion by 2020.
With the financing parameters and asset value characteristics of commercial aircraft and marine logistics in accordance with Shariah principles, the Islamic capital markets can expect a healthy pipeline of activities in the near term.