UAE banks arrange $350 million murabaha syndicated loan for Pakistan

This undated photo shows UAE based Ajman Bank in Dubai. (Photo courtesy: Social media)

• Financing arranged by Ajman Bank and Commercial Bank of Dubai
• Murabaha is a cost-plus-profit arrangement which complies with Islamic finance standards

KARACHI: UAE-based Ajman Bank along with the Commercial Bank of Dubai have arranged financing of $350 million for the government of Pakistan, the banks said this week.
A murabaha is a cost-plus-profit arrangement which complies with Islamic finance standards. It is common in consumer financing where a markup is known in advance by both parties to help reduce the ambiguity in the transaction, a key concept in Islamic finance. Unlike interest-based financing, the buyer is not charged an extra amount for missing or delaying a payment under the Shariah-compliant mechanism.
“Originally mandated for $200 million, the Islamic Syndication Facility attracted more than 75 percent oversubscription driven by strong demand from local, regional and international investors,” a statement by Ajman Bank said, adding that several UAE banks participated in the transaction and acted as key investors.
“We are delighted by the success of this murabaha financing deal in Pakistan in collaboration with the Commercial Bank of Dubai,” Mohamed Amiri, chief executive officer of Ajman Bank, said. “The phenomenal accomplishment endorses our reputation and distinguished position regionally and internationally.”
Amiri said his bank always aimed “to strengthen and diversify our financial resources through strategic investments in developing economies while adapting to the current economic situation in the world markets.”
The Commercial Bank of Dubai also termed the syndicated facility a “landmark transaction” for Pakistan.
“This achievement is a prime example of our focus on providing financing solutions for cross-border counterparties, and will provide substantial benefits to both the issuer and the institutional investors,” Dr. Bernd van Linder, the chief executive officer of the bank, said.
“The government of Pakistan needed funding and approached Islamic banks for financing that is free of interest. The syndicate of Islamic banks offered them a Murabaha facility,” Ahmed Ali Siddiqui, director at the Center for Excellence in Islamic Finance in Karachi’s Institute of Business Administration, said. “In a Murabaha facility banks sell a real and marketable commodity to the customer and the customer can either use the commodity or resell to generate funds.”
Pakistan’s central bank and finance ministry declined comment for this story. It is unclear how the government intends to use this facility or benefit from it.
The country needs about $20 billion in external financing for the current fiscal year, according to the State Bank of Pakistan.
The government successfully raised an additional $1 billion in July through a tap issuance of its Eurobond that fetched $2.5 billion in March. Pakistan’s reserve buffers are also expected to rise by another $2.8 billion in August through the International Monetary Fund’s revised global Special Drawing Rights allocation.
Ajman Bank also arranged a syndicated financing of $275 million for the government of Pakistan in May 2019. A number of banks participated in the one-year Islamic loan, which had a murabaha structure and was solely arranged by Ajman Bank.
The Pakistani government in April 2019 signed a $375 million syndicated loan with UAE banks which included conventional and Islamic tranches.