The International Islamic Trade Finance Corporation (ITFC) arranged a US$25mn structured murabaha warehouse financing transaction for Indonesian raw sugar refiner PT Angels Products in October 2009.

The deal supported the import of raw sugar, and it is the first time a structured warehouse financing has been closed according to Islamic financing principles.

The deal has a maximum tenor of three months on a revolving basis, and carries a margin of 6.5%.

“Although similar warehousing structured financing have been undertaken by conventional banks in Indonesia, the ITFC was the first to carry it out in a shariah compatible financing structure,” comments Waleed Al Wohaib, ITFC’s CEO.

“No Islamic bank in Indonesia has undertaken these structures, given that Islamic banking is still in its infancy.”

This structured trade finance deal means that the financier (acting as a trader as required by a murabaha structure) calculates and charges varying mark-up or profit for the raw sugar sold to the buyer.

In this way, the financier is directly involved in the purchase and then sale of the raw sugar in small quantities to the client. Unlike in conventional banking, whereby the goods are pledged to the financer, in this deal, ITFC is the actual owner of the physical goods with warehouse receipts issued in the name of ITFC.

Risks are managed and mitigated in various ways including via comprehensive insurance covering both transportation by ship and overland of the commodity until storage in the warehouse.

ITFC also appointed a collateral manager to safeguard the commodity until it is released. A 20% deposit from the client gives ITFC a 125% safety/collateral margin against the financing.

This transaction is an important deal for ITFC as it looks to tap into the vast potential of the Indonesian commodities market.

According to Al Wohaib, the group will be looking to sign further similar deals over the course of 2010.

“The ITFC will evaluate and enter into similar shariah compatible structured finance solutions as this will offer our potential customers an alternative financing option that increases competitiveness and reduces the cost of financing for them,” he remarks.

Yet the deal will not only help ITFC but will act as a template for other institutions keen to offer structured Islamic financing solutions in Indonesia.

Al Wohaib adds: “This transaction will be an example for other institutions to emulate and will help in adopting similar financing structures. We at the ITFC will leverage our more than 30 years of heritage in order to champion Islamic financing as it is the vehicle for sustained growth and economic development and we will look into and structure similar transactions in future.

“This operation has opened the door for Islamic banks to tap into the vast commodities market and for Islamic finance structures to take hold whether in Indonesia, in Asia or elsewhere across the (Islamic) world.”
Deal information





Borrower: PT Angels Products
Amount: US$25mn
Mandated lead arranger: ITFC
Collateral manager: Peterson Mitra Indonesia
Tenor: 3 months maximum on revolving basis
Margin: 6.5% per year
Date signed: October 1, 2009