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

18

Musharakah Bond (Sukuk)

• Development of Waqf S Omar Aljunied Mixed Development at Bencoolen Str – 2001

Before Refurbishment AfterRefurbishment

19

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

20

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

30

Using Istibdal, Sukuk Musharakahand Internal REITs structure

• Acquistion/Refurbishment New waqf 6-storey office building at Beach Rd – 2002

Before Refurbishment AfterRefurbishment

31

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

32

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