Islamic Finance in PPPs

John DavieChairman, Altra Capital

5.11.2019

Africa is huge…..

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l Kinshasa

lCape Town

lCape Town

l Cairo

Beijing l

Shanghai l

l Hong Kong

l Mombasal Mombasa

l Delhi

l Mumbai

Madras l

l Kinshasa

PopulationWorld 7,713 billionUSA 326 millionChina 1,388 millionIndia 1,343 millionUK 65.5 million (0.85%)Africa 1,317 billion (16.96%)

GDP Nominal ($ billions)World 89,265USA 18,561China 11,391India 2,250UK 2,649 (2.97%)Africa 2.253 (2.78%)

Source: www.worldometers.info

l Gaborone

lAccral

Accra

l Gaborone

l New York

l Los Angeles

Washington ll Seattle

lLagos

lLagos

Islamic finance and the UK 2019

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“IamcommittedtostrengtheningandmaintainingBritain’spositionastheworld’spreeminentcentreforfinancialservices”

Global trends in IF 2019

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Shariacompliantbankingassetsmakeup6%oftheworld’sbankingassets,butglobally,approximatelyoneinfourpeopleareMuslimThescopeforgrowthisobvious.

TheIslamicfinancesectorneedsresearchandpeer-reviewedjournalsinordertodiscoveranddevelopsolutionstoproblems,createnewproductsandservices,andbringknowledgeanddepthtothebusiness.

Sharia-compliant PPPs• PPPmodelinvolvescreativetensioninducedbyprivatecapital

atrisk• Tomirrorthissimplybyeliminatinginterestismissingan

opportunity• Islamicfinanceismorethaneconomiccomponents;soisPPP• Islamicfinancecarriesethical,social,politicalandreligious

dimensionsthatinformitsstructure• Islamicfinancialinstitutionsshouldfostersocialjusticeaswell

asgeneratewealth:acommonpositionwiththewiderobjectivesofmanyofthecommissioningagentsofPPPprojects

• Generallytheinfrastructureinvestorcommunitybringsalongtermmindsettowardsassetownership

• Willingtoinvestinassetsthroughouteconomiccycleandhaveadesiretoengagewithregulatorstoensurepublicneedsareproperlymet

• Ofthecapitalraisedbyinfrastructurefundssince2006,48%hasbeenbyvehicleswithamaturityofover10years 4

theasset-backed,ring-fenced,andproject-specificnatureofIslamicfinancestructuresandtheiremphasisonsharingrisksmakethemanaturalfitforinfrastructurepublic-privatepartnerships(PPPs).

Where is the finance?• Todaytheproblemisthatofmatchingthesupplyof

financefromtheprivatesectorwithinvestableprojects• Themainformsoffinancinginfrastructureremain:

• governmentfunding• traditionalprocurement• design-build-operate

• corporate oron-balancesheetfinance• corporatefinancing– whichwouldinvolve

gettingfinancefortheprojectbasedonthebalancesheetoftheprivateoperator

• themechanismusedinlowervalueprojects• projectfinance

• “limitedrecourse”or“non-recourse”financing

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Non-recoursefinanceisatypeofcommerciallendingthatentitlesthelendertorepaymentonlyfromtheprofitsoftheproject

Typical Islamic Finance PPP

• Repaymentprofiledependsuponeachparticulardebtobligation.Typically,therewillbe:

• aconventionalloan• anIslamicloan• anequitybridgeloan

• Allprojectsaredifferent,butatypicaldebtrepaymentprofilemightbeasfollows:

• conventionaltermfacility– 20years

• Islamictermfacility–10years(withcreditenhancement)

• ECAfacility– 14years

• equitybridgeloan– bulletpayment,repayable5yearsafterfinancialclose

• revolvingcreditfacility 6

Sukukraisesallthefinancingonthedayofsubscription.ThisisnotidealforinfrastructurePPPprojects,duetothedynamicnatureofgreenfieldprojectswhichoftenhaveanunevenpatternofexpenditurecallingforfundsatdifferenttimesduringconstructionandoperation

Case Study

• QueenAliaInternationalAirportinJordaninvolvedrehabilitatingtheexistingairport,constructinganewterminalwithacapacityof12millionpassengersperyear,andoperatingtheairportovera25-yearconcession

• ThisprojectisconsideredthefirstMiddle-EastPPPusingconventionalandIslamicfinance

• TheIslamicstructureofthisprojectwasaUS$100millionIstisna’acombinedwithaforwardleaseundertheIjara structure. 7

The PPP Book

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UnderstandingPPPissetoutinmoredetailinthe

ThePPPBookPublic-PrivatePartnershipsunbundled

InspirePublishing

www.pppbook.co.uk

TITLE HERE

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Altra Capital Limited

Altra Capital is a high level independentadvisory group established to review, design, implement, and finance strategic and complex projects.

Altra Capital specialises in the provision of procurement, management, capacity building, financial and legal advisory services for the financing of infrastructure in all sectors; and especially to support public sector clients in the international market.

www.altracapital.com

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