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1- NFC: NEW DECISIONS
2-
HOME REMITTANCES ON THE DECLINE
3- ISLAMIC FUND
4- STOCK MARKET: EMERGING TRENDS
5- MUSHARAKAH-BASED TFC

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THE FIRST-EVER MUSHARAKAH-BASED TFC

 

Al-Zamin Leasing Modaraba raising quarter of a billion rupee through this innovative instrument

 


By SHABBIR H. KAZMI
Dec 22 - 28, 2003
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All is set for the flotation of the first-ever Musharakah-based TFC issue by a company belonging to financial sector in Pakistan by Al-Zamin Leasing Modaraba. It is the first tranche, amounting to Rs 250 million, of the total issue of one billion rupee that the AZLM will be raising through this innovative instrument offering an opportunity to the investors to earn Riba-free return. An amount of Rs 200 million has been raised through private placement and remaining Rs 50 million will be offered to general public.

The prospects has been published in local newspapers on December 15, and subscription will be open on December 23 and 24 during banking hours. The TFC has been rated 'A-" (Single A Minus) by the credit rating company. AMZ Securities is the Structuring as well as Arranging Advisor to the issue.

Al-Zamin Leasing Modaraba (AZLM) has commenced its operations in August 1992 with a paid-up capital of Rs 100 million. It was listed at Karachi Stock Exchange (KSE) on August 18, 1992. The promoters of the Modaraba included reputed financial institutions, professional bankers and retired civil servants. As part of its growth strategy the AZLM acquired majority shareholding and management control of Ghandhara Leasing Company in 2001, which was subsequently merged with the Modaraba. Merger of First Professional Modaraba with the AZLM has also been completed in 2003. The AZLM has an equity of about Rs 318 million and asset base of about Rs 1,200 million.

As the current market scenario makes it imperative to ensure capital adequacy, effective risk management, diversified products and attractive payouts to the shareholders, the AZLM endavoured to enhance its capital base and business size by the above mentioned acquisitions and mergers. The AZLM aims at becoming a significant financial institution with multiple services and products to be offered to its clientele. Some opportunities to achieve such a position have been examined. Substantial resources have remained available from a large number of financial institutions. Capitalizing its goodwill and image particularly in the banking sector the AZLM plans to enter into business relationship with some of the financial institutions for expanding its operations into small to medium enterprises, smaller cities and industrial towns without having to establish its own branch offices in various locations.

The AZLM is a multipurpose and perpetual Modaraba and it undertakes diversified activities. These include leasing portfolio of varied nature, Musharakah-based investments, equity marketing operations, portfolio management, project financing, providing short and long finance and rendering consultancy and advisory services for syndication of leasing and project financing. While leasing is the core business of the AZLM other admissible modes include finance leveraged trading through Musharakah and Morabaha transaction, equity market operation, project financing, trading in Islamic finance instruments, providing venture capital.

EXPECTED PROFIT

A minimum of 8% per annum profit is expected on TFCs. The basis of profit sharing will be the sum of the revenue from AZML's lease and Musharakah investments portfolio after adjusting for operating expenses and provision for lease losses. This will not include financial charges and provision for diminution in value of investment and other provisions. If the AZML generates profit in excess of the 8% return, the TFC investors will have a share in the excess profit in the same ratio that is the basis of sharing minimum expected profit. Profit payments will be made on half yearly basis.

If the AZLM suffers any business loss in any given year during the tenor of TFCs, the loss will be allocated to the TFC investors in the ratio of capital provided by all the long-term funds providers to the AZLM including the equity holders. The share in loss of each TFC investor will be the first applied against the Takaful Fund maintained by the Modaraba for the purpose. However, at the time repayment of principal. If loss remains unadjusted, not fully covered by Takaful Fund, then the loss will be adjusted against the principal amount of the respective TFC.

 

 

Takaful Fund will be maintained by the AZLM to which a contribution of Rs 10 million has already been made. Additionally the Modaraba will contribute Rs 5 million in the first year of the TFC issue and Rs 7.5 million each in second, third and fourth year. The only purpose of the Takaful Fund is to mitigate the risk of losses attributable to TFC investors. The Modaraba will arrange to contribute on behalf of the TFC holders, to the Takaful Fund an amount equal to one-tenth of the minimum expected profit every year during which TFCs remain outstanding.

Private Placement
(Rs in million)

Investor

Amount

Atlas Investment Bank

30

Dawood Leasing

25

Jahangir Siddiqui Investment Bank

25

Pakistan Oilfields

20

The Karakuram Co-Operative Bank

10

Shirazi Investment

10

Atlas Income Fund

10

Security Leasing Corporation

10

National Investment (Unit) Trust

10

Jahangir Siddiqui & Co.

10

Fidelity Investment Bank

10

Escort Investment Bank

10

Faysal Bank

10

Union Leasing

5

First Standard Investment Bank

5

Total

200