The investment banking arm of Bank Muamalat — Muamalat Invest Sdn Bhd — may not be as established as other local investment banks. However, unknown to many, it is breaking new ground in the Middle East.
It is setting up a joint venture to issue a fund in Bahrain and is providing technical assistance to set up a full-fledged investment bank in Saudi Arabia.
Being one of only two Islamic asset management companies in Malaysia, one would expect Muamalat Invest's services to be in high demand. However, this has not been the case. "I knocked on all doors here but was turned down," says its executive director Nor'Azamin Salleh.
"Fortunately, we have people in the Middle East who trust us," he adds.
"To compete locally is difficult… (we) cannot compete with the big boys... so my idea is to go to the Middle East and set up a distribution channel by working through a smart partnership. In Saudi, we will assist them and then when it (investment bank) is set up, we can push our products. We will also help them develop products," Salleh tells The Edge.
He reckons that the Saudi venture should start bearing fruit by mid-2008 as the company is slated to start by January. "We are going to be based in Saudi because it controls 70% of the wealth of Gulf Corporation Council countries," Salleh says, adding that about US$6 billion (about RM20.8 billion) will be spent in Saudi Arabia over the next 20 years to build new cities, which will provide ample opportunities for the investment bank.
The Saudi investment bank that Muamalat Invest is helping to set up — Portfolio Brokerage and Financial Services — will have a paid-up capital of 500 million riyal (about RM465 million). Muamalat Invest has an option to purchase 10% of Portfolio Brokerage's share capital. The shareholders of Portfolio Brokerage are all Saudi private investors, which include the owner of the biggest fast food chain in Saudi Arabia — Herfy Food.
"To attract money from the Middle East, you must be there," Salleh points out. That's why they are there and they want the Muamalat name to be there, he adds.
In fact, Muamalat's joint venture with American firm Calyx Financial in Bahrain is called Calyx Muamalat. "We want a presence there, so that they know us," Salleh says.
Calyx Muamalat is an offshore company that is scheduled to launch the Calyx Muamalat Fund after Hari Raya. Salleh says the company targets to have a fund size of RM1.3 billion by the middle of next year. "Our strategy is to tap money outside Malaysia."
On the initiative under Budget 2008 to attract foreign investors to the Islamic asset management industry here, Salleh reckons that the measures announced are not sufficient.
"For Islamic asset management to be a success, we must have a strong local player. And how to have that? Assist them, give them money to manage... to attract talent, and then they can establish themselves locally before going overseas to get foreign funds to come here. The RM7 billion should only be for local players so that it can be used to build a track record," he points out.
Salleh's reasoning is simple. He feels size is important. "We have no size. What we have now is a mandate from a takaful company to manage its funds," he says.
Not many investors put their money in funds managed by Islamic asset management companies because of a view that the returns are lower than for funds managed by conventional asset management companies.
However, Salleh says this is not entirely true. "I've done research. In a rising market, conventional looks better, but in a stable market, it works out evenly."
Muamalat Invest was born when Avenue Capital Resources Bhd merged with ECM Libra Bhd, and the Islamic asset management unit was sold to Bank Muamalat. Bank Muamalat paid a five sen premium per share for the shares of the licensed Islamic asset management arm.
With Muamalat Invest in the Middle East, Salleh says the company is also looking at the process of setting up an Islamic syariah screening concept. "This is important. It identifies the stock. When a company wants to sell products in the Middle East, it must cater for the Middle East's interpretation of the syariah," he adds.
Undoubtedly, Muamalat Invest's foray into the Middle East is an ambitious one. "It will be a new beginning for us," says Salleh.