9th October 2013
KUALA LUMPUR: Financially troubled SILVER BIRD GROUP BHD will be categorised as a non-syariah-compliant company beginning next month. It has failed to meet a criterion of the new set of rules for syariah counters set by the Securities Commission Malaysia (SC).
Under the new rules, which take effect on Nov 1, a company’s cash and debts in conventional accounts cannot be more than 33% of its total assets in order to meet syariah standards. In terms of revenue, companies are only allowed to derive 5% to 20% from the various types of businesses which are non-syariah compliant such as gambling and brewers. The SC had announced the new rules in June last year.
More syariah-compliant companies are expected to face the same issue as Silver Bird. Currently, some 801 companies listed on Bursa Malaysia meet the existing standards.
With the new set of rules, syariah-compliant investment funds will be given a six-month grace period to realign their stock portfolios. This sparks concern that those stocks which could be reclassified as non-syariah compliant will succumb to selling pressure as institutional investors rejig their portfolios.
Among government-linked syariah-compliant funds are Lembaga Tambung Haji (LTH), Permodalan Nasional Bhd, Lembaga Tambung Angkatan Tentera and Pelaburan Mara Bhd.
In a note to clients dated Sept 13, Maybank Investment Bank Bhd director of equity research Desmond Ch’ng said there are 37 stocks with a market capitalisation of over RM500 million which breach the new rules of syariah compliance.
“We identified 17 stocks that had a cash-to-asset ratio of over 33% and 20 stocks with a non-Islamic debt-to-asset ratio of above 33% as at end-December 2012. Of the 17 stocks with a cash to asset ratio of over 33%, three are under our coverage: Felda Global Ventures Holdings Bhd, Petronas Chemicals Group Bhd and PADINI HOLDINGS BHD,” he said in the note.
Also, eight of the 20 companies with conventional debt-to-asset ratios of above 33% are under Maybank’s coverage. They are AIRASIA BHD, ANN JOO RESOURCES BHD, IOI Corp Bhd, MALAYSIAN AIRLINE SYSTEM BHD, S P Setia Bhd, TAN CHONG MOTOR HOLDINGS BHD, YINSON HOLDINGS BHD, and YTL POWER INTERNATIONAL BHD.
Nonetheless, Ch’ng said adhering to the SC’sse new syariah guidelines should be a relatively straightforward process. For companies with a cash-to-asset ratio of above 33%, he said they would need to shift sufficient funds into Islamic deposit accounts and interest income should not exceed 5% of total group revenue.
However, companies with a bigger ratio of conventional debts to total assets would need to convert some of those debts to Islamic debts Ch’ng said.
“There are some legal costs to be incurred in the conversion but we understand the process is relatively straightforward and it would be possible to structure Islamic debt instruments or sukuk that mirror the existing conventional debt without any disadvantage to the bondholders or the company,” he said.
Conventional banking is forbidden in Islamic context as it deals with interest.
Silver Bird, in a filing with Bursa Malaysia, said after considering its appeal, the SC has determined that the firm’s total conventional loans exceeded 33% of its total assets as at Oct 31, 2012.
“[Silver Bird] shares will be reclassified as a non-syariah compliant counter on Nov 29,” said the firm in the filing.
Silver Bird’s reclassification as a non-syariah compliant counter came on the heels of LTH selling off all its shares in Silver Bird at a loss.
The pilgrimage fund dramatically reduced its stake in Silver Bird from 21.9% in mid-July to 5.8% in early September and ceased to be a substantial shareholder on Sept 24 after reducing its stake to less than 5%.
[Source]
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