Monday, April 27, 2009

Malaysia Eyes the Sharia Oil Dollar

Excerpt from Playing The REITs Game. If you are interested to read the whole book, please buy it from a bookstore, or read it from Google book.

Malaysia led the Asian move to embrace REITs in the early 1990s, but the fledgling market of three small "property trust funds" that listed at that time was marred by a lack of tax incentives for investors, relatively low yields and capital gains and asset overvaluation.

A property market crash during the 1997-98 Asian economic crisis, which still left vacancy rates of 18% at Kuala Lumpur offices and 16% at the city's shopping malls eight years later, worsened matters.

But with one look over the shoulder at neighboring Singapore, Malaysia decided in 2004 to try again to foster a REIT market, allowing local investors in trusts to be taxed on dividends at their personal tax rate rather than the previously uniform 28% REITs were also allowed to buy buildings abroad to enhance returns.

Authorities hoped a rush of property trusts would draw money from the Middle East to the market. But analysts said Malaysia, which is trying to carve out a niche for Islamic finance, would have to do away with the 28% withholding tax it charged on dividends paid to foreign investors before that would happen.

"For Arabs, tax is taboo," said Fazlur Rahman Kamsani, head of regional Islamic finance at property consultants DTZ. "They'll just come and say, `I don't pay tax in my country.' They love Malaysia, but the tax regime would have to be tailor-made to be competitive."

In late 2006, the Malaysian government reconsidered the tax issue, and was proposing to cut withholding tax to 15% for individual investors and domestic institutions and to 20% for foreign institutional investors.

With oil profits and much investment pulled from the US in recent years, analysts were saying in 2005 that the Middle East had around $750 billion of private assets scouring the world for new ideas. The Institute of International Finance estimated that Saudi Arabia, the United Arab Emirates, Kuwait, Oman, Qatar and Bahrain would export at least $450 billion of capital just in 2006 and 2007.

REITs, because they essentially pay rent to investors, are an attractive option because the listed securities are a natural fit for sharia, or Islamic law, which shuns interest payments and speculation. Trusts that want to be sharia compliant cannot have tenants involved in manufacturing and handling pork products, banking and insurance, alcohol, tobacco, weapons or pornography. As a result, serviced apartments or industrial trusts tend to present fewer problems than shopping malls and offices.

In Malaysia, the first trust to list after the 2004 rule changes was Axis REIT, which originally owned five commercial industrial buildings in Petaling Jaya and Shah Alam, housing multinational companies such as Fuji Xerox, Johnson & Johnson and Electrolux. Unlike previous Malaysian trusts, Axis set out from the beginning to be an active REIT, promising to increase its assets rapidly after listing on the stock market by buying up warehouses yielding 7-8%.

By September 2006, Axis had seen its share price increase 42% from its IPO in early 2005, with the addition of four buildings to bring its net asset value to 400 million ringgit ($109 million). At that time, the trust was trading at a 7% Yield, about 280 basis points above 10-year bonds.

Stewart LaBrooy, executive director of Axis REIT's management firm, said the trust planned to double its assets by the end of 2007 to about one billion ringgit.

“We've consistently bought below market prices, around 10% below,” LaBrooy said, “ Our directors are well linked and are always finding nuggets.”

Axis would concentrate its acquisition efforts on Malaysia, where business and logistic park properties were yielding about 7%. But Indonesia, where some buildings are giving 15% yields, was also enticing, La Brooy added.

"There are some nice properties in Jakarta and the yields are phenomenal,” he said, "But there's a huge currency risk issue."

Although the Malaysian market is small, worth about $650 million in later 2006, it had some of the most interesting issuance.

The Al 'Aqar KPJ REIT owns hospitals and Boustead Holdings, and its property arm was planning in late 2006 to sell 500 million ringgit worth of palm oil plantation assets into an Islamic REIT. Hotel owner Tradewinds Corp. Bhd. and YTL Land, which owns shopping Centers and the JW Marriot hotel, were both mulling spinning off trusts.

In December 2006 Singapore's CapitaLand also stepped into the fray, saying it planned to raise as much as $42.2 million in a Kuala Lumpur REIT listing of Malaysian commercial buildings The developer had teamed up with Malaysian real estate firm Quill Group to form the Quill Capita Trust, which was expected to generate an initial distribution yield of 7.14%.

“It’s getting to be a reall potpourri,” LaBrooy said.

Monday, April 20, 2009

Maybank, PNB Launch Online Facility for ASB Investors

Tuesday April 21, 2009

PETALING JAYA: Malayan Banking Bhd (Maybank) and Permodalan Nasional Bhd (PNB) have jointly launched the country’s first online facility for making additional investments in Amanah Saham Bumiputra (ASB) units.

With this facility, ASB investors can top up their ASB account online via, without the need to visit a Maybank branch or Amanah Saham Nasional Bhd office.

The new service was launched by Prime Minister Datuk Seri Najib Tun Razak, after the official opening of the Minggu Saham Amanah Malaysia in Johor Baru yesterday.

A unique feature of this service is that it accepts additional investments to third party ASB accounts, thus allowing family members or guardians to invest for their loved ones.

PNB chairman Tun Ahmad Sarji said in a statement that the new service underscored PNB’s commitment towards making unit trust investment accessible to all. “The digital generation is comfortable with using the Internet for all manner of transactions, so this step is timely in capturing the evolving needs of a new generation of Malaysians,” he added.

Investors who wish to use the online service must register as a customer and have an active ASB membership number.

The investor is only required to enter the ASB membership number, a security Transaction Authorisation Code and select his savings or current account to pay for the additional purchases.

The minimum investment amount is RM1 and the maximum is RM200,000.

Monday, April 13, 2009

First Batch of Sukuk Bonds Open for Sale

Tuesday April 14, 2009

PETALING JAYA: The first batch of the dual-series RM2.5bil Islamic bonds, which offer returns of 5% per year, is open for sale today.

Applications can be made at any commercial or Islamic bank, or development financial institution in the country from today to May 13. Allocation is on a first-come, first-served basis.

The minimal allocation is RM1,000, while the maximum value is capped at RM50,000.

The first series of this Islamic bond, called Sukuk Simpanan Rakyat (SSR) 01/2009, is part of the Government’s RM60bil stimulus package announced on March 10, where up to RM5bil in saving bonds will be issued this year for people aged 21 and above, and with a maturity period of three years.

This programme is designed for Malaysian citizens as an alternative savings vehicle providing double the current fixed deposit rates, with option for account holders to withdraw their money any time.

Features include flexibility for holders to redeem as early as the first quarterly profit payment, including profits, and without an early exit penalty.