Islamic Finance

Islamic Finance

Islamic finance involves the application of Shari’ah principles to financial activity. The Kingdom of Saudi Arabia derives its laws from the Holy Book, the Quran, and the Sunnah, which is a collection of statements made by the Prophet Mohammed (PBUH). In practice, judges normally refer to archaic statements of established scholars of Islamic theology (commonly known as Shari’ah) to ascertain and apply the true intentions of the sacred texts. Shari’ah principles can impact financing structures in a number of ways; the most widely known issue is the prohibition on interest, but other principles, such as the non-permissibility of both speculation and uncertainty, can impact a wide range of areas, such as the enforceability of warranties and indemnities, recoverable damages, and events of default. Shari’ah and other Saudi law issues, such as the possibility of applying foreign governing laws and international arbitration, will apply equally to conventional financing structures adopted in Saudi Arabia.

Working with Linklaters’ specialist Islamic Finance team, Z&Co. has worked extensively on such structures in both the banking and capital markets spaces. Examples of our recent experience include:

  • Arranging Saudi Arabia’s expansion of a USD $10 billion international loan to raise USD $16 billion. The deal introduced a Shari’ah-compliant tranche alongside the conventional loan facility;
  • Arab Petroleum Investments Corporation on the SAR 300 million murabaha facility for Global Environmental Management Services LLC as purchaser;
  • HSBC Saudi Arabia as agent on the refinancing of Al-Waha Petrochemical Limited’s debt through a SAR 1,964 billion ijarah facility and SAR 375 million murabaha facility;
  • Arab National Bank and The Saudi British Bank on the SAR 2.7 billion murabaha project financing to Port Development Company for the development and operation of King Abdullah Port in King Abdullah Economic City; and

The dealers on a proposed USD $3 billion trust certificate issuance programme sukuk adopting a Wakala (agency) structure.