HSBC builds Islamic base
To award a deal from
- Yemen a GTR Best Deal of 2006 accreditation might raise several eyebrows, but to award one that isn’t even connected to the oil or gas industry should certainly catch the market’s attention.
HSBC as sole arranger and lender put together a US$42mn five-year facility for Yemeni telecoms company SabaFon in September that is one of the first export credit agency (ECA)-supported transactions to be structured in compliance with Islamic shariah law. The deal also sets a significant benchmark for future financing in the Yemeni corporate sector.
“The structure and documentation developed for the transaction are likely to be used significantly in capital expenditure financing across the Middle East,” says Richard Hodder, director, project and export finance, at HSBC. “This represents an important step that will allow the increasing number of borrowers looking to Islamic finance to also tap the deep pool of funds available with ECA support.”
With the regional/international debt markets offering very limited appetite for medium-term corporate debt inYemen, ECA-supported financing proved to be a very attractive source of funds for SabaFon.
HSBC worked closely with Siemens (the equipment supplier) and Euler Hermes, the ECA of Germany, to structure an attractive financing package for SabaFon. HSBC and Euler Hermes offered SabaFon a facility that entailed a five-year repayment period following a grace period of six months.
The facility was extended on the basis of SabaFon corporate risk – no shareholder guarantees or offshore security was required from SabaFon and the facility ranked pari passu with SabaFon’s other corporate debt.
SabaFon wished to structure and document the facility in a shariah-compliant manner while continuing to benefit from the attractive terms offered by the Hermes-supported facility.
HSBC’s project and export finance team, together with Islamic financing specialists at HSBC Amanah devised a structure that was acceptable to Euler Hermes while also complying with shariah law.
The facility was documented as a murabaha facility governed by English law supported by promissory notes governed by Yemeni law.
HSBC is in discussions with several clients in the Middle East to structure future ECA-supported financing transactions in this manner, claims Hodder. “It is likely that an increasing number of HSBC’s future transactions in the region will be structured and documented in a manner that conforms to shariah principles,” he adds.
However, due to the limited market appetite forYemen risk, ECA support or other such risk mitigants will be required for transactions in the near future, claims Hodder.
With 1.15mn mobile subscribers and a penetration rate of just 6%,Yemen has one of the lowest rates of take up of mobile phones in the Middle East (where average penetration rates are 16.6%).
Considerable potential has been identified as the country has a higher per capita income level than other developing countries where mobile penetration rates are higher. Countries such asMongolia andUzbekistan have lower per capita income but mobile penetration rates of 13.3% and 6.9% respectively, states HSBC.
Sabafon is 55% owned by the Al Ahmar Group, a Yemeni company with activities in IT, oil and gas, engineering and the import of aviation equipment. Another principal shareholder is the Hayel Saeed Group with a 10% holding. The Hayel Saeed Group consists of industrial, commercial, agriculture, fishery, hotels, health, bank and insurance companies acrossYemen.
Sheikh Hamid Al Ahmar is Sabafon’s chairman. Within two years of the launch of its network in February 2001, Sabafon became the best known brand inYemen. It covers 80% of the population and it alone is able to offer mobile services in all 20 districts ofYemen.
Sole lender and MLA: HSBC
ECA: Euler Hermes
Tenor: 5 years
Law firms: Norton Rose, Dubai and Law Office of Sheikh Tariq Abdullah, Sana’a (lender); Jamal Ademi, Sana’a (borrower)
Date signed: September 2006