Safi project kick-starts Islamic financing in Morocco

12 October 2014

$2.6bn independent power project reaches financial close

The use of cross-border Islamic project financing is expected to increase in Morocco, following the financial close of a $2.6bn coal-fired independent power project (IPP) near the port of Safi.

The multibillion-dollar project financing to fund the construction of a 1,386MW plant in southwestern Morocco includes a €90m ($114m) sharia-compliant tranche, provided by the Saudi-based Islamic Development Bank (IDB).

The debt portion, which is underwritten by IDB, is now being sold down to other Islamic banks based in the Gulf.

It is the first multi-tranche cross-border Islamic financing to be extended to the country and several Moroccan corporate borrowers are now said to also be considering tapping cross-border sharia-compliant funding.

“Off the back of this deal, we are doing two other Islamic financings in Morocco. Those deals are going ahead as a direct consequence of this closing,” Qudeer Latif, Dubai-based partner and global head of Islamic finance at UK law firm Clifford Chance, tells MEED, adding that the two forthcoming cross-border transactions are in the real estate and energy sectors.

Due to the power plant being developed as an IPP, the deal also had be structured differently from the traditional sharia-compliant project financing, which typically involves the purchase and long lease of an asset for the tenor of the financing.

The potential for Islamic funding is growing across Africa, with a growing pipeline of infrastructure projects likely to need financing.

“There is going to be a need for Islamic finance to fill that liquidity gap,” says Latif, with much of that funding likely to come from the Gulf.

The Safi IPP financing also features a local currency tranche provided by a syndicate of Moroccan banks, a US dollar and euro tranche provided by international banks, and funding backed by Japan Bank for International Cooperation (Jbic), with some financing coming from Japan’s Nippon Export and Investment Insurance.

There are three sponsors comprising the project company. Japan’s Mitsui has a 30 per cent stake, with French/UK GDF Suez and Morocco’s Nareva both holding 35 per cent stakes each.

The long-awaited Safi plant is essential to meet Morocco’s growing power demand and is set to provide about 20 per cent of the country’s total consumption. It is due to be completed in 2018.

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