The International Investor: Islamic Finance and the Equate Project

Harvard Business School Publishing, Case No. 9-200-012; Teaching Note: 5-200-013; Note: 9-200-002

Posted: 25 Oct 1999

Date Written: September 30, 1999


SUBJECT AREAS: project finance, emerging markets, valuation analysis, petrochemicals, Middle East, Islamic Finance, religion and business CASE SETTING: December 1995, Kuwait, petrochemicals, $2.0 billion investment, $700 million revenue, 900 employees

Equate Petrochemical Company (Equate) is a joint venture between Union Carbide Corporation and Petrochemical Industries Company (PIC) for the construction of a $2 billion petrochemical plant in Kuwait. The sponsors began construction in August 1994 using a bridge loan and are in search of permanent, non-recourse finance. As part of the permanent financing, the sponsors want to use a tranche of Islamic finance-funds that are invested in accordance with Islamic religious principles known as Sharia. According to Sharia, financing cannot be interest-based (i.e. debt), it must be profit-based where the lender accepts the risks and rewards of asset ownership.

The sponsors hired Kuwait Finance House (KFH is a Kuwaiti Islamic bank) which, in turn, approached The International Investor (TII is a Kuwaiti investment bank) to assist in structuring and underwriting the Islamic tranche. The case is set in early December 1995, as members of The Institutional Investor's Structured Finance Group are deciding which Islamic structure to use, how to resolve various conflicts between the Islamic and conventional tranches, and how large a commitment to make on behalf of their investors.

This case provides an introduction to Islamic finance in general and Islamic project finance in particular. It describes the primary instruments used by Islamic investors and challenges students to develop a financing plan that is consistent with Sharia's prohibition against the payment of interest (riba) while at the same time appropriate for a large, long-term greenfield project. The case also explores the complications of integrating Islamic and conventional Western financial instruments in a single transaction as well as some of the possible solutions. With more than a billion Muslims living primarily in regions with enormous infrastructure needs (the Middle East, Asia, and Africa), there is a growing need to understand Islamic culture, traditions, and financial systems.

There is also a note on Islamic Finance (An Introduction to Islamic Finance) that provides some background information on Islamic religious principles as they relate to banking and finance; a section on Islamic financial instruments and institutions; and an overview of recent developments in the Islamic capital markets.

Suggested Citation

Esty, Benjamin C., The International Investor: Islamic Finance and the Equate Project (September 30, 1999). Harvard Business School Publishing, Case No. 9-200-012; Teaching Note: 5-200-013; Note: 9-200-002, Available at SSRN:

Benjamin C. Esty (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

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