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World's First Islamic Marine Fund To Launch

by Carla Johnson, Investors

03 October 2007

Asian Finance Bank Berhad (AFB) and AmanahRaya Investment Bank Limited Labuan (ARIBL), have entered into an agreement to launch the world's first Islamic Marine Fund.

A memorandum of understanding (MoU) between the two institutions has committed them to an Islamic Forward Binding (AFB-i) transaction, and pledges to jointly establish, sponsor, manage and administer an Islamic Marine Fund, which expects to raise $250 million.

AFB, an Islamic bank, is backed by a consortium of leading Middle Eastern investors, namely Qatar Islamic Bank (70%), RUSD Investment Bank Inc of Saudi Arabia (20%) and Global Investment House of Kuwait (10%). ARIBL is a wholly-owned subsidiary of Amanah Raya Berhad, and has been granted an offshore banking licence by the Labuan Offshore Financial Services Authority (LOFSA).

In a joint statement, the banks said the the AFB-i is a contractual obligation by two contracting parties to pay, on a forward value date, the price of commodities purchased on the transaction date, in order to facilitate the exchange of currencies between the two contracting parties.

The transaction is based on the shariah contract of Bai Muajjal, in which the bank's customer purchases assets with a deferred payment at a specific time in the future, and the delivery of the assets on spot basis.

"For AmanahRaya, this transaction is important in order for us to book in future foreign currency receivables at a favourable exchange rate as part of the hedging mechanism," explained Tan Sri Datuk Arshad Ayub, Chairman of ARIBL.

Although there are Islamic hedging instruments in the market, AFB-i is the first such product to adopt the Bai Muajjal principle.

"We are very pleased to have this opportunity to work with a strong partner like AmanahRaya to launch an innovative product like AFB-i" announced Faisal Al Showaikh, CEO of AFB.

AFB and ARIBL also sealed an understanding to develop an Islamic Marine Fund to invest in completed and non-completed marine vessels covering dry bulk carriers, tankers, anchor handlers, crew boats, equipment barges and other support vessels for marine activities, both on the local and international arenas.

The Islamic Marine Fund is designed as a 'core plus' marine fund, investing in performance-proven vessels that show characteristics for capital and income enhancement through re-deployment strategies.

It endeavours to achieve medium to long term stable income and capital growth by acquiring high quality and income generating marine vessels backed with charters from major oil companies and credible operators.

The fund is a fully-fledged investor-managed fund based on the Ijarah-backed structure, the first of its kind, and is expected to generate an internal rate of return (IRR) of 12-15%.

"The Islamic Marine Fund will provide opportunities for institutional and sophisticated retail investors globally, to participate and take advantage on the growth of the marine sector. Through this fund, investors will have access to a diversified portfolio of Shariah compliant marine vessels that could potentially generate attractive medium to long-term returns" announced Datuk Abdul Latif Abdullah, Chairman of the Islamic Marine Fund.

"The investment objective is to assemble a portfolio of quality ocean-going as well as coastal vessels operating within Malaysian waters as well as worldwide," continued Faisal Al Showaikh. "This fund, is indeed the first of its kind in Malaysia and the region, and it is reflective of AFB's objective to introduce new Shariah compliant products. We further plan to leverage on our ready access to the GCC market to bring in Middle East investors into this fund."

"The fund will be of a ten-year tenure, extendable for two periods of one year each and is targeted to raise up to $250m to finance the purchase of the first identified initial fleet. We are working closely with the technical adviser to identify good potential fleets to purchase," he concluded.

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