Norton Rose Fulbright acts for HSBC on unique USD 1 billion Islamic financing

Published by: Sandy Bhadare at 22 Apr 2020

International law firm Norton Rose Fulbright (NRF) has been called on to advise HSBC and Tokyo-headquarte...

International law firm Norton Rose Fulbright (NRF) has been called on to advise HSBC and Tokyo-headquartered Mizuho Bank, on an Islamic financing facility worth USD 1 billion.

The cross-border financing, which had to be compliant with Shariah law, is the first of its kind to align to the new requirements set by the United Arab Emirates Central Bank.

London-headquartered HSBC, which recently reported that the Chinese economy is beginning to enter the recovery stage after the hard-hitting effects of Covid-19, first introduced its Islamic finance offering in 2003.

The financing was structured as a dual tranche facility accordance with the Shariah financing standards, which were drawn up by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

Because it was set up as a dual tranche facility, the net was cast wide for the type of banks that were able to participate in the financing, encapsulating those adopting the AAOIFI structure, as well as those which had assumed the existing murabaha structure.

As a result, the book-runners could capitalise on liquidity by the increased flexibility, even while the economy is not in its best form.

The finance facility’s creation necessitated a deep understanding of the new rules surrounding commodity murabaha financing structures, which called on NRF’s Dubai-based banking team, representing the initial arrangers, book-runners and coordinators.

NRF’s head of Islamic finance in the Middle East and Africa, Mohammed Paracha, said in a statement: “The change in approach to commodity murabaha financing structures introduced by the UAE Central Bank required a fresh process for how commodity murabahas – a type of Islamic facility used where a user of funds does not have a specific asset to base the structure on – are structured.”

In steering the facility towards a successful outcome in the Covid-19 environment, he emphasised that this “required a flexible and innovative approach to overcome”, describing it as “truly a precedent-setting transaction.”

One of the banks involved, Mizuho, has also recently arranged its first project finance deal in Cambodia.