Islamic finance

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Contents

01 About Pinsent Masons LLP

03 A short introduction to Islamic finance

06 Islamic finance deal list

08 Key contacts

Pinsent Masons | Islamic finance

About Pinsent Masons LLP

Pinsent Masons offers clients the full range of legal advice, no matter the size or location of their business. All advice is provided in the context of the sector in which each client operates.

Our legal services are delivered in a way that makes legal matters more straightforward and ultimately less stressful.

An international law firmWe are a fast growing, international law firm that understands the pressures and opportunities facing businesses in the current market. We temper our technical expertise with considerable, in depth, practical knowledge to help create and sustain value, resolve issues and fulfil your commercial objectives.

We currently have 385 partners and over 1500 lawyers worldwide, with a total staff of 2,694 operating from eight different jurisdictions. This means that wherever our client’s commercial demands take them, we have the footprint and expertise to work with them.

Our strength lies in a combination of local presence with an excellent understanding of the local market. This is overlaid by our international expertise and ability to deploy a worldwide pool of resource to our clients.

35 years in the GulfWe have over 35 years of experience in the Gulf and have been permanently established in the region since 2004. Today we have over 50 lawyers based permanently in the Gulf, who offer a full range of legal services.

We offer legal, business and cultural fluency in English and Arabic in a way that makes the legal side of business as easy as possible for you. Understanding the way your business operates and the challenges you face is an important part of the service we provide. Our approach puts local conditions into context to match your strategies and aspirations.

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Our offices

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Islamic finance specialistWe are an established player in Islamic finance and have a dedicated team of Islamic finance specialists. Our experts in this field have been successful in developing the legal architecture needed by clients to break new ground in this specialised field.

Our commitment is to provide sound Shari’ah law advice, in a clear and coherent form, responding to today’s complex transactional challenges and legal obstacles through the development of Shari’ah scholarship and transactional innovation.

Our servicesWe offer a full range of services from preparing standard form documentation to structuring ground-breaking solutions for organisations seeking a real alternative to conventional financing arrangements. Our team is experienced in all Islamic finance contracts and Islamic finance techniques in a wide variety of industries. Pinsent Masons are in a prime position to meet each new challenge posed by the demand for Islamic products to service a global industry, with a proven track record of negotiating workable structures which anticipate and meet our clients’ needs in the most timely and cost-efficient manner.

SpecialismThe wide range of clients who have benefited from our substantial experience of working with many different Shari’ah committees include Islamic and international banks, corporates, regulators, and government agencies.

Our lawyers are well versed in the Accounting and Auditing Organization for Islamic Financial Institutions’ Financial Accounting Standards and Shari’ah Standards and have advised in relation to these standards.

One of our Islamic finance lawyers brings a deep knowledge of Islamic finance acquired through completing a thesis on legal aspects of Islamic finance transactions and has formed a key part of the Islamic finance team that won the Sheikh Maktoum endorsed Global Recognition in Islamic Finance Award in 2008.

In our team we have lawyers who have studied and practiced in both sophisticated common law and civil law jurisdictions and are able to apply this knowledge of civil and common law to the issues arising in legal documentation used in the Islamic finance transactions, including those agreements that are LMA based. Our lawyers have also been fortunate to have worked on transactions involving institutions which are supervised by the key Shari’ah scholars and advisors in the world.

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Pinsent Masons | Islamic finance

A short introduction to Islamic financeSources of law and different schools of thought There are five primary sources of Shari’ah law:• the Quran (the holy book of Islam)• the Sunna (the practices and traditions of the Prophet Muhammad (pbuh))• Qiyas (the application of existing principles to new cases on which the Quran and Sunna are silent)• Ijtehad (reasoning and logic used by scholars)• Ijmaa (consensus among scholars)• Different schools of thought exist within Islam (the madh’habs). There are four madh’habs in Sunni Islam (the most commonly

practiced form of Islam). These are:• Hanafi• Maliki• Shafi’i• Hanbali

All madh’habs agree on key principles, but sometimes hold differing views on their interpretation and application of certain issues. For example a sale and leaseback financing structure is acceptable in Bahrain, Malaysia and the United Arab Emirates, but not in the Kingdom of Saudi Arabia. Within each madh’hab there are minority and majority views.

Key principles of Shari’ah lawIslamic financing arrangements must not contain any elements prohibited by Shari’ah law. The principal prohibitions in Sharia’h law include:• Riba (usury and interest):

A key concept under Shari’ah is that money must not be made from money. Money must be used to create real economic value. As such, Islamic finance structures are often asset or commodity based

• Gharar (uncertainty, speculation):Certainty of terms is a key issue. The terms and conditions of transactions must be clearly documented and there must be a clear delineation of rights and obligations between parties

• Equitable sharing of risk and reward:Shari’ah law requires that, within any commercial arrangement, there should be an equitable sharing of risk and reward depending upon the nature of the financing

• Prohibited activities:Islamic financing arrangements must be for productive endeavours and not for prohibited activities. For example, it is not permissible to finance the construction of a brewery or a casino as a result of the prohibitions against alcohol and gambling under Shari’ah law.

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Main financing structures and techniques

The principal financing structures and techniques used in Islamic finance include:• Murabaha and Tawarruq• Musharaka• Ijara• Mudaraba• Istisna• Sukuk

Case StudiesWe have included several examples of certain basic Islamic financing methods:

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Murabaha

1. Financier buys goods from Supplier for cost price (x).

2. Financier sells goods to Customer for cost price (x) plus profit (y) on deferred payment terms.

Financier

Supplier

Goods

Goo

ds

Deferred Price (x+y)

Pric

e (x

)

Customer

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Pinsent Masons | Islamic finance

1. Financier buys asset from Seller for the original purchase price (x).

2. Financier rents asset to the Customer in return for periodic rental payments under an Ijara (lease). The aggregate rental payable underthe Ijara is equal to the purchase price (x) plus a profit margin (y).

3 Financier provides asale undertaking to the Customer to transfer the asset to the Customer upon payment of all amounts due under the Ijara. The Customer provides a purchase undertaking to the Financier undertaking to purchase the asset on demand (e.g following an event of default) for an amount equal to the outstanding amount under the Ijara.

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1. Financier buys commodities, typically precious metals on a recognised metals exchange, from a commodities broker (Broker 1) for a cost price (x).

2. Financier sells commodities to Customer for cost price (x) plus profit (y) on deferred payment terms.

3 . Customer sells directly (or alternatively appoints the Financier as its agent under a Wakala to sell) the commodities to another commodities broker (Broker 2).

Financier

Broker 1 Broker 2

Commodities

Com

mod

itie

s

Deferred Price (x+y)

Cos

t pri

ce (x

)

Cos

t pri

ce (x

)

Com

mod

itie

s

Customer

Financier

Seller

Asset

Sale and Purchase Undertakings

Ass

et

Rentals (aggregate of purchase price (x) plus profit (y))

Purc

hase

Pri

ce (x

)

Customer

Reverse Murabaha

Ijara

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Islamic finance deal list

Confidential Confidential Confidential ENOC

Advising a major sovereign owned GCC based oil and lubricants manufacturer in respect of USD 60 million Shari’ah compliant facilities made available using Murabaha and Istisna financing methods.

Advising an international contractor JV in relation to certain Islamic facilities made available by a club of banks using a Commodities Murabaha structure for the construction of the landmark regional metro project.

Advising a major Abu Dhabi investment bank on a range of Islamic transactions including reverse Murabaha, Wakala, Murabaha and investment agency agreements with a number of major GCC banks.

Advising Emirates National Oil Company Limited (ENOC) LLC in relation to a multicurrency Islamic financing made available for the construction of a major fuel terminal and underground pipeline between Jebel Ali and Dubai Airport.

Confidential The Saudi British Bank & Banque Saudi Fransi Confidential IRTIBAAT Consortium

Advising a bidding consortium on the Muhraaq Sewage Treatment Plant and Sewerage Conveyance System PPP project, Bahrain (including Islamic financing Commodities Murabaha options).

Advising The Saudi British Bank and Banque Saudi Fransi in respect of a SAR400 million Islamic financing (Commodities Murabaha).

These Facilities were being provided to Al Qasr Mall Company for the construction of a shopping mall in Riyadh.

Advising the prospective lenders (including ECAs and Islamic) to a bidding consortium in respect of the USD 2 billion IPP in KSA.

Advising the IRTIBAAT Consortium on Islamic financing related to the USD 3.5 billion highway project in the Abu Dhabi (including Commodities Murabaha).

Confidential Confidential Confidential Confidential

Advising a bidding consortium on the Riyadh Water Privatisation Project, Saudi Arabia (including Islamic financing options).

Advising a syndicate of Saudi banks on the Islamic finance documentation relating to USD 125 million facilities agreement (including Commodities Murabaha option)made available to a MENA company backed by guarantees from a major GCC corporate.

Advising the financing banks and agents in relation to SR 3.2 billion multi-option Islamic and trade finance facilities made available to Saudi Binladin Group to assist with the financing of the construction of the King Abdullah University housing project.

Advising a major sovereign owned GCC based oil and gas company in relation to USD 250 million Islamic and conventional facilities made available by a club of banks. The Islamic tranche was provided through a Mudaraba structure.

Confidential ConfidentialBNP Paribas, GIB, Unicorn

Investment Bank and JP Morgan

Commerzbank

Advising a local sovereign on the AED 400 million project financing, including Islamic financing options, for a landmark leisure development in the UAE.

Advising on a member of a bidding consortium on the Ras Az-Zour desalination project, Saudi Arabia (including Islamic financing options).

Advising a syndicate of banks on the finance documentation relating to a USD 800 million Islamic finance facilities made available to Barwa Real Estate Company.

Advising Commerzbank on the finance documentation relating to a Islamic facility made available to a GCC entity.

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Pinsent Masons | Islamic finance

Islamic finance deal list

Al Jazeera Bank Confidential Confidential Confidential

Advising a major Saudi Arabian bank on the development and documentation of a suite of Shari’ah compliant treasury products.

Advising a regional bank in relation to its proposed privatisation and Islamic financing of an electricity distribution network in Kosovo.

Advising 50 percent of the sukuk holders in relation to their settlement and restructuring arrangements with Nakheel and the terms attaching to the 2011 Nakheel Sukuk issuance.

Advising a major UAE developer in relation to its Islamic financing arrangements with a total value of AED 215 million with one of the UAE’s largest Islamic financial institutions.

Confidential Confidential Confidential International Bank of Azerbaijan

Advising a Canadian real estate company in respect of a sukuk issuance in the GCC.

Advising on a USD 125 million Islamic finance facilities between an Abu Dhabi bank and a Qatari bank (including Commodities Murabaha).

Advising a GCC carrier in respect of the Islamic financing options of its A340-600 aircraft.

Advising International Bank of Azerbaijan in relation to setting up its Islamic banking unit including drafting the suite of documentation used by the bank.

Taib Bank Taib Bank Taib Bank GMR

Advising a regional investment bank acting as the arrangers on a proposed sukuk issuance for a regional airline.

Advising Taib Bank in relation to its proposed Islamic financing of two electricity plants in the region

Advising Taib Bank in relation to its Islamic financing of a mining operation in the region.

Advising GMR in relation to Islamic financing options relating to Male Airport PPP

Confidential Deutsche Bank Confidential

Advising the winning consortium on the Queen Alia International Airport PPP project, Jordan, the first PPP to be financed through Islamic funds.

Advising the bank on Shari’ah solution and documentation issues relating to the bank’s template Islamic profit rate swap agreements.

Advising a Saudi owned real estate holding company in relation to Shari’ah compliant facility being made available by Bank of London and The Middle East plc to refinance its property portfolio in England.

Acting for a major Islamic bank in Dubai in relation to AED550 million Mudharaba financing for a major GCC oil and trading company

Confidential

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