CONTEMPORARY INVESTMENT AND … INVESTMENT AND DEVELOPMENT OF WAQF ASSETS IN SINGAPORE Presented By:...
Transcript of CONTEMPORARY INVESTMENT AND … INVESTMENT AND DEVELOPMENT OF WAQF ASSETS IN SINGAPORE Presented By:...
CONTEMPORARYINVESTMENT ANDDEVELOPMENT OF WAQFASSETS IN SINGAPORE
Presented By:Dr. Shamsiah Abdul KarimAt the Global Donors ForumRenaissance Hotel , Kuala LumpurMalaysia26 Apr 2012
Thanks to the prodigious developmentof the waqf institution , a personcould be born in a house belonging toa waqf , sleep in a cradle of that waqfand fill up on its food, receiveinstruction through waqf- ownedbooks , become a teacher in a waqfschool, draw a waqf financed salaryand at his death , be placed in a waqfprovided coffin for burial in a waqfcemetery” ( Yediyildiz 1990:5)
Presentation Flow
Features of Waqf
ADMINISTRATION OF MUSLIMLAW ACT
WAKAF WAKAF AM WAKAF KHAS
INVESTMENT OF WAQF
ASSETS
Assets
Asset Allocation• Property Based – Physical assets• Equities / REITs• Sukuk• Alternative Investment• Direct Business/JV• _____________________________________
_
MUISHarvard
Harvard
MUIS
MUISMUIS
MUIS
Kuwait (%)
Kuwait (%)
KuwaitKuwait
Kuwait
Harvard
Harvard
HarvardHarvard
Harvard
Comparison of Investment Portfolio
Waqf Assets Property /RealEstate(%)
Equities/ Sukuk(%)
Business/ others(%)
Singapore 79 5 16 ( cash /fds)
Kuwait 53 47 -
Trust ( OxfordFoundation)
23 46/13 16
Investment Challenges for Waqf
Capital Guarantee Non GuaranteedIncome Yearly
disbursementIncome ploughback to capital
InvestmentHorizon
Short term Long term
Asset classes High risk Low risk
Shari’ah and Decision Issues On Investmentof Wakaf Assets
• Permanent vs temporary• Movable vs immovable• Capital depreciation/appreciation• Capital guarantee• Risk and return profile• Income accumulation vs capital appreciation• Negative income• Istibdal and sale of waqf assets
Matching Investment Horizon WithInvestment Strategies*
Time Horizon What Matters
Immediate Market Values
Immediate Market Values andIncome
Perpetual Income
* (Nuffield , 5 Mar 2007)
Waqf – Formula for sustainability
• According to Nuffield , where time horizon is perpetual ,the importance of market value is reduced and henceincome is the utmost importance.
• Income has many meanings so he used the• ‘fecundity of the portfolio’ ie the amount of cash the fund
can provide for its current beneficiaries withoutendangering the fund’s ability to provide similar amountsof cash in inflation adjusted terms in perpetuity.
• Formula of endowment sustainability is computed asfollows: spend rate of 130% of dividends
• Therefore if S&P = 1.8%, then the fecundity should be130%x 1.8 = 2.3%.
• Can we apply this to waqf investment ?
Examining some Investment decisions(kuwait awqaf)
• Minimise risk and capital protection• Diversification of Investment instruments-
different portfolios• Diversification ins sectors eg. Financial real
estate and services• Diversification based on geographical
locations• Some investment ceilings for each sector.
FINANCING OF WAKAF
PROPERTIES
Traditional Method of Waqf Financing
• Hukr/Hikr - Long lease or perpetual lease usefor renting or leasing.
• Ijaratyn – two leases.• Khulluw – loan contract made to waqf .
Contract commonly used in Egypt for rentalof waqf properties.
Contemporary Sharia’Method
• Sukuk• Musharakah• Ijarah• Intifa’a
• REITs• Istisna
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Musharakah Bond (Sukuk)
• Development of Waqf S Omar Aljunied Mixed Development at Bencoolen Str – 2001
Before Refurbishment AfterRefurbishment
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Case Study 2: Bencoolen
Proceeds
MUIS (waqf)
Investors
MUIS (Baitumal) WareesFinancial resources of
S$35mLand & financial resources
Bencoolen StDevelopment
Managerial and financialresources
Issues S$35mMusharaka Bonds
MusharakaArrangement
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Investors
MUIS (Baitumal) Warees
Profit sharing
ServicedApartments
Coupon Payment onMusharaka Bonds
~3.5%
Ascott InternationalIjarah Contract
Guaranteed Income
For 10 years
Case Study 2: Bencoolen
Sukuk Issues for Development of WaqfAssets• Mortgage /collaterals - Baitulmal• Guarantee income -( need to sign the lease
agreement upfront )• Period of work in progress –Baitulmal and
contractual agreement• Lag time from selling the property to the time
of investment - ( a bridging finance)
Case Study 3: Sukuk Intifa’aZam Zam Towers• The Waqf of King Abdul Aziz in Mecca• Munshaat- a Kuwait based International Lease
Investment Co.• 24 year reversionary ground lease with the
waqf• Concept of time –share vacation facilities and
fractional ownership
Fractional Ownership
• Land belong to waqf• Building belongs to Munshaat ( IDB)• The munfa’a or benefit of space sold for 24
years• Munshaat entered BOT contract with a builder-
US$390 million contract• Contract funded by Islamic securities.• Shares were price according to season, unit
location and view.• Shares made fully exchangeable and rep. 24-
year guaranteed right for a specific time and
Zam –Zam towers
• Securities sold prior to construction• Sukuk represents a forward lease of the
property
REITs
• REITs started in 1960s• Islamic REITS – I- REITs started in 2006• Islamic Property Funds- US$9 billion*
• real estate - 30%• Private equities – 70%
First I- REITs issued on 1st Feb 2007-Hadharah Boustead REITs ; plantation based.
Successful structuring of REITs
Consideration for Structuring of REITs
Issues in Waqf REITs
Overcoming issues
Issues
Assets- perpetuity - quality assets
Sell the waqf assets to the REITs mgtco. on a leasehold property Consider cross border Reits
Ownership
No problem as it is sold on a leaseholdbasis
Mgt Control - Pte vs Public To go private first solely based on costand the sensitivity dealing with waqfproperties
Investors concerned A lot of public education needed
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Using Istibdal, Sukuk Musharakahand Internal REITs structure
• Acquistion/Refurbishment New waqf 6-storey office building at Beach Rd – 2002
Before Refurbishment AfterRefurbishment
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Case Study 1 (Asset Migration):11 Beach Rd- Islamic Bond
Asset Migration
(5 years programme)
20 units – 34,000 sf 1 building - 34,000 sf Income: Increase 5 foldYield 1% Yield 3.9%
Shophouses
Many Low Quality AssetsSingle High Quality Asset
Office Bldg
Participationfrom 45 awqaf
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Waqf Development– Case Study : 11 Beach Rd
Investors MUIS waqf Fund
SPV1
SPV2
IjaraAgreementBuilding Expenses
$0.31 mil
Advance $34 milReturn$1.19 mil
Rental $1.19 mil
EBITDA $1.5 mil(Aft Rental $0.31 mil)
Musharaka Partnership
MUIS as Bond Issuer
$0.875mil
$0.315mil
Gross Revenue $1.8 mil
EBITDA $1.19 mil
$25 mil $9 mil73.5% Share
Internal REITs• Participation from 45 awqaf• Each waqf owned the building through share
ownership in the company holding theproperty
• Income distributed to the waqf shareholdersbased on the amount contributed
• Valuation based on market valuation of shareupon participation
• Advantages- owning property through shareownership.
Investment of Waqf Assets
• Property• Equities• Sukuk• Alternative invt /structured products• Cash/cash equivalents ( fixed deposits )
Conclusion• There are wide ranges of opportunities and
availability of investment products for waqf toinvest in to suit waqf nature of investment
• Financing and development is possible forwaqf assets and should not be a deterrent forthe further development of waqf
• Where trusts have thrived , waqf could alsomirror the manner trusts have evolved in itsinvestment and its legal advancement.
• More creativity should be exercise as waqf isbased on ijtihadi laws