Who Are The Prime Shareholders Of An Ijara Company?

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1.      Ibdar Bank ofϐloads real estate arm with decent returns BAHRAIN By Dr Hatim El Tahir Last month’s news that Ibdar Bank, a Bahrain-based Islamic wholesale investment bank, has disposed of its real estate company Sakan Development Company, was met with mixed views. On one hand, the bank successfully exited from its US$30 million investment in the real estate sector but on the other hand, it is now probably left with slim options to invest its oĝoaded funds given the market condition challenges that loom in the region and elsewhere internationally. Historically, Islamic investment banks have rather limited options in longterm Shariah compliant asset classes. Nevertheless, investment bankers were evidently very innovative in structuring Shariah compliant investment assets — be it equity or debt-based asset classes. Regional and international economic factors have also helped improve creativity within the Islamic investment space. Fortunately, perceptions of the markets’ outlook are positively strong by investment analysts and industry leaders. In a way, the prospects for an imminent rebound of the real estate industry in Bahrain seem great. Several developers have come back to inject more capital into ‘uncompleted’ projects or venturing into new projects. Incidentally, Bahrain’s real estate sector was not immune from the recent ęnancial crisis which have paused several reasonably big projects in the country. Many observers say that the residential as well as commercial property market in Bahrain and elsewhere in the Gulf ideally makes a reasonably good asset class for ęnancial institutions which are investing in accordance to the Shariah. However, for the bank’s leadership and co-investors, it may be a maĴer of choice or strategy to look for other investment opportunities as evidently expressed by the bank’s CEO: “We are pleased with our successful exit from Sakan Development Company and our ability to have generated strong returns for our co-investors. This result is even more gratifying given the challenging market conditions faced since [the] Saar Central project was ęrst launched in 2008.” Talking about the challenging markets, one cannot rule out the possibility that the oil price decline coupled with other political and social issues in the region may slow the overall shape of economies in the region. While Ibdar Bank wait for these market conditions to reverse, the bank and its co-investors may have other longer-dated alternative investment asset classes such as the infrastructure projects that the Kingdom has recently announced. Dr Hatim El-Tahir is the director and Islamic ęnance group leader at Islamic Finance Knowledge Center, DeloiĴe & Touche, Bahrain. He can be contacted at heltahir@ deloiĴe.com. Who are the prime shareholders of an Ijarah company? LEASING By Youssef Aboul-Naja In summary, the answer is: Strategically aligned investors. When seĴing up a company, various tenets are required to provide this future entity with the best possible start. Though not an exact science, these variables, which ultimately make up a company’s DNA, are far too long to enumerate or identify with certainty; to name a few, they may include: sensible feasibility and market studies, experienced management, sound policies and guidelines, suĜcient capital, and a realistic funding strategy. The goal, of course, is to establish a foundation, out of which a winning formula emerges. Keep in mind that success, as viewed by the shareholders, is whatever they deęne it to be. To be more specięc, the following building block has to be stressed upon: ‘types of shareholders’ for Ijarah companies, particularly the ones whose primary objective is proętability. As with any company, its shareholders © must possess certain qualities for them to add value; for example, they must be: reputable, ęnancially stable, able to provide capital injection, etc. But in the case of Ijarah companies, their shareholders must bring more to the table; they must be engaged in its operations. regular shareholder involvement. This would be seamless when operational interests are aligned between the company and its shareholders. Bear in mind that shareholder composition is not the only factor required for success, nor is such a presented premise exclusive to Ijarah companies. Examples of such suitable shareholders include the following: (1) A bank whose lines of ęnance provide the necessary leverage to maintain leasing operations, (2) An equipment supplier whose clients ensure an ongoing stream of Ijarah business and, (3) An advisory ęrm whose insights aid management’s every decision. Experience has shown that when shortlisting factors necessary to establish an Ijarah company, the quality of its shareholders should top that list, which makes sense. If the company wants to increase the chances of having its shareholders stand by it through thick and thin, focus has to be on the selection process. It was Henry Ford who said: “Coming together is a beginning. Keeping together is progress. Working together is success.” Such investors would be best suited as shareholders for an Ijarah company; as their vested interests extend beyond that of the returns on capital contribution. Undoubtedly, this conjointly beneęcial relationship may only thrive by adhering to a governance framework. The point is, since Ijarah companies exist in a competitive space, carving out a sustainable market position will require 18 Any public opinion or media appearance is the author's independent personal opinion and should not be construed to represent any institution with whom the author is aĜliated. Youssef Aboul-Naja is an Ijarah specialist at a supranational banking institution. He can be contacted at yaboulnaja@gmail.com. ͳͻ–Š —‰—•– ʹͲͳͷ