25 March 2024

Islamic Finance Integration With Project Finance

Milbank LLP


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The Islamic finance industry continues its growth path, with Islamic finance assets expected to rise to US$3.69 trillion, displaying an upward trend from US$2.88 trillion in 2019...
Worldwide Finance and Banking
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The Islamic finance industry continues its growth path, with Islamic finance assets expected to rise to US$3.69 trillion, displaying an upward trend from US$2.88 trillion in 2019 (' The Growing Global Appeal of Islamic Finance' ( The increasing Islamic finance investment appetite has led to innovative practices in the project financing space, where parties have sought to finance projects, at least in part, in accordance with Islamic finance principles. MUNIB HUSSAIN and NOOR MARAGHI delve further.

Conventional project finance structures had been developed in western Riba-based financial systems and, as a result, had not previously contemplated compliance with the principles of Shariah. The integration of conventional project finance structures with Islamic finance-based facilities has been made possible through a reassessment of risk allocation and thoughtful structuring considerations, including in relation to intercreditor matters, where the lenders could have different priorities and requirements.

Multi-sourced transactions in which Islamic finance facilities are integrated as part of a wider conventional structure still remain more common than single-facility transactions comprising of only Shariah compliant funding. The reason for this is that project financings tend to be large in scale, and the liquidity of Islamic banks and the capitalization requirements of such banks means that, at least for now, they cannot alone finance such projects.

This has been evidenced in recent multi-sourced transactions where conventional and Shariah compliant sources of funding are integrated into a single financing. For example, in 2023, ACWA Power signed an US$8.5 billion financing for the NEOM Green Hydrogen Project, with the syndicated financing facility including an Islamic tranche ('ACWA Power signs US$8.5 billion financing for NEOM Green Hydrogen Project' (

Islamic finance and clean energy

It would come as no surprise that the development of clean energy projects in the Middle East has gone hand in hand with Islamic finance investment. The trend of ESG financing in the wider financial context aligns well with the development of Islamic finance, given the synergies between sustainability and Islamic finance. Societal values, long-term stable investments and positive and sustainable environmental and social outcomes are at the forefront with Islamic finance, just as they are with ESG investing.

In addition, Shariah restrictions on activities or industries that are not in the public interest are consistent with the negative screening that forms part of the ESG approach. The natural alignment is also exemplified by green Sukuk, which are issued to finance sustainable, climate-resilient and environmentally friendly projects, generating returns in line with Shariah principles.

Islamic project bonds

The Milbank London team recently advised on the design, structuring and successful issuance of the US$1.5 billion first-of-a-kind project Sukuk issuance by TMS Issuer (as part of a total US$4.5 billion issuance, together with GreenSaif Pipelines BidCo (GreenSaif)) for the refinancing of the bridge facility entered into in connection with GreenSaif's acquisition of a minority stake in Aramco Gas Pipelines Company. This was an AAOIFI-compliant share-based Sukuk structure which was nearly 16 times oversubscribed by Islamic investors. This new structure, as demonstrated by the successful GreenSaifSukuk issuance, highlights the considerable investor appetite for high-quality Sukuk issuances with reliable underlying cash flows. The GreenSaifSukuk issuance also represents a new financing solution for energy and infrastructure developers seeking to raise a combination of Islamic and conventional facilities ('Milbank Advises on US$1.5 billion First-of-a-Kind Project Sukuk Issuance by TMS Issuer and US$3 billion Issuance Under Newly Established US$11.5 billion GMTN Programme by GreenSaif Pipelines BidCo').

Global Islamic finance

Another key development in the Islamic finance space is the dilution in the geographic concentration of the Islamic finance industry, which is partly due to rising awareness and increasing standardization in Islamic finance practice. For example, Africa has recently risen as a player in the global Sukuk market: in 2023, Egypt raised US$1.5 billion in its debut sale of its sovereign Sukuk (' Egypt to raise US$1.5 billion with debut Sukuk at 11% yield', Reuters); Tanzania's Imaan Finance, KCB Bank and Amana Bank all sold Sukuk in 2022; there have also been issuances from Nigeria, South Africa and Gambia. It is likely that the number of Africa-based issuances will increase over the coming years, especially as a much-needed source of additional long-term capital.

In the UK, the Islamic finance industry continues to strengthen as a result of the government's approach of establishing a regulatory level playing field for Islamic finance products and conventional finance instruments, thus ensuring that Islamic finance is not commercially disadvantaged through any regulatory means. The lessons learned with respect to integrating Islamic financing into conventional project finance structures will no doubt allow the capital raised to be invested through a wide array of global opportunities in the project finance space.

Originally published by Islamic Finance News.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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