The National Bank of Kuwait (NBK), Kuwait’s leading bank, which has one of the most-established stable Islamic leasing funds, has launched its third offering, the Wafra Ijara KWD Fund II since the launch of the first one in May 2009.

This is the 19th Islamic Ijara fund offering of NBK and the third in the current Kuwaiti dinar series. The fund expects to repay the principal by the end of the 5-year fund term with the option of a two-year extension, and to provide an annualized fixed yield of 6.50 percent, which is quite competitive in current market conditions.

These funds, which are five-year closed-end funds, generally guarantee an annualized monthly distribution of 6.25 percent to investors. As with the previous two offerings, NBK expected this latest offering also to be fully subscribed within days of the launch.

According to Nabil Maroof, managing director of asset management at NBK Capital, “The Islamic KD Ijara Fund III was launched owing to the success of the previous NBK Ijara (leasing) funds, and specifically the Islamic KD Ijara Fund I and II, which provide reliable monthly returns and relatively low risk. The fund was created to grant NBK private banking clients the opportunity to invest in a diversified portfolio of leasing contracts that are structured according to the principles of Shariah.”

The fund like the previous two will invest all of its assets in the purchase of equipment or portfolios of equipment which will in turn, be leased to diversified high quality lessees with a particular focus on “Fortune 1000” companies and those that are found to be of high credit quality. These contracts involve the leasing of various types of mission critical equipment including manufacturing; IT hardware including mid-size and mainframe computers and peripherals, storage equipment, software, copiers, machine tools, automotive, testing equipment; construction materials; telecommunication equipment; networking equipment; material handling and other types of equipment to credit-worthy companies. The five-year fund has a minimum investment of KD30,000 with multiples of KD10,000. The tenor of the fund however can be extended with a possible two one-year extensions.

“Ijara transactions,” explained Nabil Maroof, “have shown that they typically outperform during economic recession as companies decrease their capital expenditure, preferring to lease critical equipment instead. Lessees also tend to retain equipment for longer periods, offsetting increased credit losses that result from a typical recession.”

NBK in fact launched its Islamic KD Ijara Fund II earlier in September 2009 offering annualized monthly distributions of 6.25 percent.

The first one, the KD40 million Islamic KD Ijara Fund I was launched at the end of May 2009, and was fully subscribed within two days of launch.

NBK regards the Shariah compliance of the funds as very important. Its Shariah board comprising Sheikh Khalid Mathkor Al-Mathkor, Sheikh Essa Zaki Shakra and Sheikh Abdul Aziz Khalifa Al-Qassar, scrutinize the structure and documentation thoroughly before the fund is marketed in Kuwait.