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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Sharia Compliant Shares: the reason why PC House, Odel and Bairaha like dud shares are moving

Sharia Compliant Shares: the reason why PC House, Odel and Bairaha like dud shares are moving

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MarketSIRA


Senior Equity Analytic
Senior Equity Analytic
Rauff of ADL Capital had said his firm used a Sharia advisor from South Africa who helped resolve debatable cases. Among recent initial public offers, Odel, PC House, Pan Asia Hydro Power were deemed to be Sharia compliant by his firm.-reported LBO (www.lbo.lk)

Guys there had been talk about BFL and PC House moving high..was it the reason?

On the other hand Expolanka's Osman Kassim and Hemas is running businesses such as Amana Takaful and Hemas Hospital (related to healthcare of people) are they sharia compliant.

Amana Takaful is yet to start a bank that means if they wanna give loans they have to charge interest and if they gonna accept public deposits they have to offer interest...apart all since they raised money via private allotment of shares.

And Leisure sector is not sharia compliant because hotels are serving liquor...that means Esufally family cannot run Dolphin Hotels if they are gonna be sharia compliant...


What are your comments...

Welcome everyone's comments on this 'So called Sharia Rule'

this means Prince Faisal cannot invest in Union Bank of PLC as a largest shareholder if he is going to be Sharia compliant.

Lets have a Sharia Talk!

million


Senior Equity Analytic
Senior Equity Analytic
http://www.expolanka.com/expo_lanka/expolanka_profile.html


"We will always follow Shari'ah business principles in transacting & managing business"

and i personally know they are following the sharia rule.

Chabbi

Chabbi
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@MarketSIRA wrote:
And Leisure sector is not sharia compliant because hotels are serving liquor...that means Esufally family cannot run Dolphin Hotels if they are gonna be sharia compliant...
Lets have a Sharia Talk!

Hi Thanks for Talking on this..

There was a Program for CSE investors regarding how to create a portfolio with Sharia Law. That was coordinated by As Shaik Yusoof Mufthi

At there he commented that We can invest in hotel & tourism industry. But there should be certain adjustments. Just looking a we cant neglect them.

Further as i knw Amana Bank is going to be compliance with Sharia Law. and there not going to deal with Interest. So dont worry to invest in there.

Sharia Compliance not only for Islamic companies. we can invest in Other religion companies but you should monitor there P&L accounts & Finance structure.

It is highly better to consult a Mufthi or a Ulama for further information.

DISCLAIMER: THE ABOVE IS ONLY FOR DISCUSSION PURPOSES. PLEASE PERFORM YOUR OWN STUDY BEFORE PURCHASING ANY SHARE

Monster

Monster
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Recently Lanka securities has introduced a methodology to ensure the stocks which satisfy sharia compliance. This will enable both local and foriegn islamic investors to participate in CSE.

http://www.lbo.lk/fullstory.php?nid=564943745

Many countries introduced sharia compliance investment recently. But I don't know how far it has been success. Recently Bombay stock exchange introduced sharia compliance stocks. Out of 6,000 BSE listed companies, approximately 4,200 are Shariah compliant. The market capitalization of these stocks accounts for approximately 61% of the total market capitalization of companies listed on BSE

http://www.indianexpress.com/news/bse-to-launch-shariahcompliant-index/728946/

There can be many companies. Not only BFL, PCH, Expolanka and Hemas fall in to this category.

Chabbi

Chabbi
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Monster wrote:
There can be many companies. Not only BFL, PCH, Expolanka and Hemas fall in to this category.

to Sharia Compliance companies no need to becomes muslim ownership. they should do a business which allows in our religion. which free from Alcohol / Interest & Other reasons.



TuskerLK

TuskerLK
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@MarketSIRA,

I was at that workshop which was co-organized by BAR association and CIMA.

Sharia Compliance in shares is something about scanning and filtering the companies that to ensure those shares shortlisted are inline with the certain set of ethical and social values.

This screening process (as per ishrath) will involve following steps,

1.Sectorwise/universal filtering

This involves identification of sectors that are not in-line with the sharia guidelines, for example conventional banking and finacne is one such example, the next best example could be distillers.

There are many buddist I have seen, who do not put money in BFL and other poultry stocks just because of the nature of the business.

Likewise those who are willing to adhere to certain ethical values chooses not to invest in con.finance companies.

2. At this stage the individual stocks are been evaluated, their core business model will be analysed and understood.
Thereafter following screening steps will be applied

a. Quantitative
b. Qualitative
c. Tradability

Under qualitative the managements stratagic motives and the direction of the company will be evaluated.

Quantitative screening will focus on fin statements with emphasis on following ratios.

Debt to mkt cap of equity

Interest bearing deposits to mkt cap of equity

Income non permissible by sharia to total revenue

At present due to the evolving nature of the industry following tolerance levels are set

30% for first two ratios
5% for the last ratio

However Ishrath pointed out that with the future development of the Islamic Finance these ratios can be zeroed as the tolerance level.

Tradability is established based on the fact that only assets can be traded not the cash, in simple terms you list a company with 1bn capital which is totally in cash not invested in revenue generating risk bearing venture, in such case the shares can only be traded at per(book value).

The applicable ratio would be

(Cash+recievables+advances) /mkt cap of equity

The tolarance level of this ratio is 30%, however he agreed on the fact that this ratio can change based on the mature of the business-low ratio for capital intensive sectors and higher ratio for businesses like trading.

The shares which successfully passes all these screens are considered to be Sharia Compliant and as per Ishrath there are about 42 companies.

White list/sharia compliant is nothing of such miracle but just an screening process applied to shortlist the investment options.

Not all the investors who has muslim names are focussed on sharia compliance, thus eusufaly and family can have there own investment preference.

Amana bank which is to commence banking services is based completely on sharia principles not having any interest income or expenses. in case if you wonder how it could happen, please search the net for islamic finance products.

Since sharia totally prohibits interest the islamic finance has emerged as the alternative to the conventional banking and finance.

Muslims who are causes about their source of income and the religious values and those non muslims who are looking for some ethical framework in investing sees sharia compliant shares/whitelist as their ideal choice.

This is nether manipulation nor promotion of set of shares, just sticking into set of ethical values.



Last edited by tinyman on Tue Mar 29, 2011 8:41 am; edited 1 time in total (Reason for editing : correction)

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