Account pledges are becoming a pivotal tool for Shariah project financing in Tunisia, giving lenders enhanced control along with visibility over cash flows and borrowers a flexible form of collateral in the North African state.
Account pledges have found real-world application in large-scale infrastructure and industrial project financing such as power generation, oil and gas as well as mining, Mohamed Ali Habboul, chief legal counsel at Tunisia’s state cases department, shared with IFN Investor.
An account pledge involves a debtor, typically the project company, granting security interest over its bank accounts to a lender.
It gives the lender priority rights over cash flowing into or held within these accounts, particularly in the event of a default. The borrower, meanwhile, retains access and operation rights of the account, making it a flexible form of collateral.
In practical terms, all project revenues are routed through the designated pledged accounts, managed by a mechanism that prioritizes payments for taxes, operational costs and senior debt service.
The structure provides lenders with control over cash flows, thereby reducing the risk of fund misappropriation by the borrower. It also does not hinder ongoing operations in a project.
“The account pledge … stands out as a particularly effective and flexible form of security,” Mohamed said, adding that in scenarios of default, account pledges offer “quick enforcement compared to court proceedings for real asset foreclosure”.
An array of big projects in Tunisia poised to benefit from account pledges
Tunisia’s pivot towards account pledges come as it embarks on major infrastructure projects.
The ELMED, or the Italy-Tunisia electricity interconnection project – designed to create a direct electricity link between Europe and North Africa – involves a total investment of approximately EUR850 million (US$909.5 million) to EUR920 million (US$984.4 million).
In the renewable energy sector, Tunisia has awarded contracts for 500 megawatts of solar projects valued at around US$400 million to companies including TotalEnergies, AMEA Power and TBEA.
On the public-private partnership front, Tunisia’s state-owned Onas has signed a 10-year concession contract worth EUR200 million (US$214 million) with Paris-based SUEZ for water infrastructure in its southern region.
The European Investment Bank has also agreed to invest EUR17 million (US$18.19 million) to bolster food resilience and the agricultural sector in Tunisia.
Each country must have its own safeguards to make account pledges work
The efficacy of account pledges, however, isn’t universal as their enforceability depends on local laws; jurisdictional and legal uncertainty can arise in some countries.
There are also risks tied to account banks – should the account-holding bank fail – as well as potential complications from debtor-friendly insolvency laws.
To navigate these challenges, Mohamed recommends specific best practices including appointing a security trustee in syndicated loans, securing an acknowledgment letter from the account bank and carefully integrating the pledge within intercreditor agreements to prevent conflicts among multiple creditors.
These pledges have proven effective in diverse applications, from independent power producers managing off-taker payments to public-private partnerships securing concession revenues and commodity-based projects streamlining complex sales.
While an account pledge does not substitute for strong project fundamentals, it enhances the lender’s security package by offering control, visibility and priority over cash flows. Additionally, successful implementation hinges on meticulous structuring, compliance with local laws and thorough documentation.
