A number of Mediterranean Basin countries are promoting themselves as Islamic finance hubs in an effort to attract sukuk, trust and investment funds business. In Gibraltar, for instance, the first Shariah-compliant fund — the CL Global Property Fund — was launched in November 2009 with the aim of providing shareholders capital appreciation by investing in a diversified portfolio of real estate assets and projects, primarily student accommodation located in the major university cities of the United Kingdom.
Similarly, last year, the Malta Financial Services Authority (MFSA) launched a consultation document on “Islamic Finance in Malta — Application to Banking and Securities”. At an Islamic finance conference held in October this year in St. Julians, the government confirmed that Malta may become the first European Union country to introduce an Islamic finance legislative framework — an agenda being pushed by several professional bodies including the Malta Institute of Management, the Malta Employers’ Association and the Malta Union of Bank Employees. State aspirations for developing the Mediterranean island into an Islamic finance hub has been articulated no less by President George Abela during an official visit to Qatar in September 2009.
In November this year, the first Euro-Arab real estate finance conference was held under the aegis of Barcelona Meeting Point, a major real estate exhibition and convention. The main theme of the above inaugural conference was Islamic real estate finance with a special focus on urban regeneration, waterfront development and affordable housing. Italy too is in the consultation mode with events at the Central Bank of Italy over the last year or so.
In fact, while the UK has been the first mover in terms of facilitating Islamic finance under the financial inclusion policy of the Blair/Brown Labour governments primarily aimed at the country’s two million or so Muslim population and others interested in ethical finance, it is continental Europe with its much larger Muslim population that perhaps has greater potential for Islamic finance especially retail products such as mortgages, savings, insurance, pension products, SME financing, leasing and so on. The estimated Muslim population of the European Union is about 18 million, of which almost 10 million is in France.
Yet while individual countries ranging from the UK, Ireland, France, Luxembourg, Germany and now some of the Mediterranean Basin states have been following unilateral policies regarding Islamic financial inclusion, the European Commission itself has been conspicuous in its absence of engagement with the sector. International agencies such as the World Bank, the International Monetary Fund (IMF), the International Finance Corporation (IFC), the Bank of International Settlements and the Basel Committee, IOSCO and others have all been actively engaging with the Islamic finance sector and contributing to its development and potential role in the global financial system.
The hallmark of European Union involvement with Islamic finance is at best “work in progress” with most countries at the beginning of the learning curve, perhaps to the frustration of some market players who would like to see a much faster engagement with the sector.
Perhaps the establishment of the CL Global Property Fund PCC Limited may give a new-found impetus for new European entrants to the sector. The fund, according to Saadat Sultan Khan, the investment manager, is a Gibraltar private company established as a protected fund cell company and registered as an Experienced Investor Fund in accordance with Gibraltar’s financial services (experienced investor fund) regulations, 2005.
The fund will invest in a portfolio of student accommodation assets but may also add further value for investors through real estate developments which may be leveraged through Shariah-compliant facilities such as commodity Murabaha arrangements. Indeed the Bank of London and Middle East, an Islamic bank authorized by the UK’s Financial Services Authority (FSA), has already agreed in principle to allocate 25 million pounds in this respect to the fund. Other real estate segments that may be of interest to the fund include, residential property, distressed property developments, land and any other land and/or property as it sees fit.
According to Khan, student numbers in the UK have increased by 31 percent over the past decade and now total 2.43 million full-time and part-time students. This figure is expected to surpass 3 million by 2014. The total value of private sector student halls is 6.6 billion pounds, up from 3.5 billion pounds. Not surprisingly, demand for student housing is strong, with undergraduate applications rising by 9 percent in 2008/09. Nationally, student numbers are growing at 10 times the rate of new supply and 15 times in London.
The fund, according to the promoters, will seek to acquire investments at or below market value, and may invest directly into the real estate assets and projects or it may do so through the use of special purpose vehicles that will hold, develop or operate the real estate assets and projects. The fund may also invest in other funds that invest in United Kingdom real estate assets. The target IRR is 8 to 12 percent and the promoters stress that they have an immediate 90 million pounds income producing off market deal opportunity.
CL Global Property Fund has a target size of 200 million pounds with a minimum target size of 50 million pounds. The investment in the fund will be made under the form of issue of non-voting redeemable preference shares that are designated as “participation shares”. The investment period started on Nov. 1 and will close on March 31, 2010. The fund has a 7-year lockup period (until March 31, 2017) but the promoters have an option to close the fund after 5 years (March 31, 2015) or to extend the lockup period of the fund to 2017 and beyond.
The fund is essentially an institutional fund with a minimum investment of 100,000 pounds. It has its own Shariah board headed by Shaykh Haytham Tamim of the UK and Sheikh Abdulaziz Al-Qassar of Qatar. The fund administrators are Grant Thornton Fund Administration Ltd. and the auditors Deloitte. The financial adviser to the fund is Credit Suisse Gibraltar.
According to Grant Thornton Gibraltar, “The base currency of the fund is a matter for the directors to decide. The base currency for the cells can be different to the base currency of the company. The matters that decide the base currency of the cells are, generally, the wishes of the investors in the cell and the investment activities of the cell (i.e. if a cell is investing solely in the UK a pound base currency rate may be the most appropriate currency).”