Case Study: National Bank of Kuwait – Islamic Global Real Estate Securities Fund – Class A
Summary
The objective of the fund is to provide its shareholders with long term growth through investing in portfolio of global real estate securities.
The features of the funds are as follows:
Well diversified Global Real Estate Securities
Monthly liquidity
Two different classes of shares
All investments are sharia-compliant
Solutions
I have chosen to answer question 1 and 2 and the detailed solution are setout below:
(1) How NBK can raise the funds in a Sharia-compliant way. In order to obtain financing for the open-ended fund at hand, NBK may form a Sharia-compliant collective investment undertaking (CIU) in the form of Real Estate Investment Trust (REIT). REIT will enable the fund to actively purchase, develop, sell, rent and manage real estate assets as stipulated by the Central Bank of Bahrain. (Central Bank of Bahrain)
Based on the investment requirements of the funds as stated in NBK fund website, NBK can make the fund either “Expert” or “Exempt” given that the minimum investment is $250,000 (above the minimum $100,000 for exempt and well above the $10,000 for expert). Opting for exempt CIU will reduce the legal requirements to the minimum. (Central Bank of Bahrain)
According to the CBB, the initial capital required should comprise of:
At least two real estate properties constituting 80% of the initial investment
At most 20% of the initial investment should be invested in development and other activities.
All other assets should be in the form of cash and cash equivalents.
Additionally, the CBB requires that the amount of equity capital be at least 40% of the total value.
All of the legal requirements as stated above require NBK to provide substantial funding at the onset of the joint venture. There are many options available:
NBK may elect to form a separate SPV to raise levered capital required as equity in the CIU.
NBK may invest in the CIU formation from unrestricted investments. NBK can
The objective of the fund is to provide its shareholders with long term growth through investing in portfolio of global real estate securities.
The features of the funds are as follows:
Well diversified Global Real Estate Securities
Monthly liquidity
Two different classes of shares
All investments are sharia-compliant
Solutions
I have chosen to answer question 1 and 2 and the detailed solution are setout below:
(1) How NBK can raise the funds in a Sharia-compliant way. In order to obtain financing for the open-ended fund at hand, NBK may form a Sharia-compliant collective investment undertaking (CIU) in the form of Real Estate Investment Trust (REIT). REIT will enable the fund to actively purchase, develop, sell, rent and manage real estate assets as stipulated by the Central Bank of Bahrain. (Central Bank of Bahrain)
Based on the investment requirements of the funds as stated in NBK fund website, NBK can make the fund either “Expert” or “Exempt” given that the minimum investment is $250,000 (above the minimum $100,000 for exempt and well above the $10,000 for expert). Opting for exempt CIU will reduce the legal requirements to the minimum. (Central Bank of Bahrain)
According to the CBB, the initial capital required should comprise of:
At least two real estate properties constituting 80% of the initial investment
At most 20% of the initial investment should be invested in development and other activities.
All other assets should be in the form of cash and cash equivalents.
Additionally, the CBB requires that the amount of equity capital be at least 40% of the total value.
All of the legal requirements as stated above require NBK to provide substantial funding at the onset of the joint venture. There are many options available:
NBK may elect to form a separate SPV to raise levered capital required as equity in the CIU.
NBK may invest in the CIU formation from unrestricted investments. NBK can