First halal PE fund sees opportunities

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KUALA LUMPUR: As Europe remains mired in one of the biggest food fraud scandals in recent times, this side of the globe is seeing the world’s first private equity (PE) fund specialising in the halal industry being set up.

For Azka Capital Sdn Bhd executive director Darhim Dali Hashim, halal does not only reflect the practice of how foods are prepared but more importantly the integrity of ingredients used.

“A few years ago when there was a foot and mouth epidemic in Canada, a lot of people moved over to halal and went to halal butchers. There was a perception or understanding that halal beef or meat did not go through the same industrialised process which is one of the causes of mad cow disease and foot and mouth disease. So, that was a real opportunity,” he told The Edge Financial Daily in an exclusive interview.

Although he admitted that even halal products are subject to food fraud from time to time, cases of horse meat being found in beef products in Europe did present an opportunity for a push towards halal products.

The fund, which was launched by former prime minister Tun Abdullah Ahmad Badawi last month, aims to raise US$500 million (RM1.51 billion) over the next three years and will be going on a preliminary roadshow this month.

“For the first class of shares, about US$100 million will be issued, and the remainder will be offered over the next two to three years. Being a first time fund, if we raked in too little then we wouldn’t get any attention but we didn’t want to be too ambitious,” said Darhim.

The fund’s target companies will be from the entire halal supply chain but specifically meat and poultry, which “have the most resonance when it comes to Halal”, he said.

At the initial stage, Azka will be investing in target companies with an enterprise value of between US$5 million and US$20 million.

“We’re looking at enterprise values of roughly US$10 million as a benchmark to start off with, although we wouldn’t do too many at the US$20 million level. Also, we’re looking at anything from a 20% stake up to a controlling share,” said Darhim.

Meanwhile, the minimum investment for investors is US$1 million.

“Pension funds probably wouldn’t look at it but a family-run office would perhaps consider it as well as those who might see it as an alternative investment strategy,” said Darhim.

“Non-Islamic agnostic funds have actually come up and said ‘this looks interesting to me’. They’re looking at it from a commercial angle, from a growth angle and targeting emerging markets.

“Emerging funds that are looking for these kind of funds are interested but of course there is some education needed and we’re working on those leads already. So, these are our primary focus,” Darhim explained.  

He pointed out that the vast majority of halal food producers are from non-Muslim countries and owned by non-Muslim shareholders.

“So, we assume they take a very agnostic view, then surely it must be a lucrative sector, so why aren’t we as Muslim investors going into the sector?” he asked.

Essentially, the idea to set up a PE fund investing in companies which produced halal goods was first mooted after managing director Rushdi Siddiqui, through his capacity as Thomson Reuters Global head of Islamic Finance & OIC Countries, introduced the Socially Acceptable Market Investments Halal Food Index (SAMI) in 2011.

The SAMI comprises non-cyclical consumer companies involved in food processing, distribution, fishing, farming and other related activities.

Currently, the index has some 270 stocks from six sectors, from 15 Muslim countries, with nearly half of the companies from Malaysia.

The biggest Malaysian stocks on the SAMI include Sime Darby Bhd, Nestle (M) Bhd, and Genting Plantations Bhd. The index boasts a market capitalisation of some US$115 billion.

At present, stocks are confined to those which are based in Muslim majority countries but in the future will include those from OECD countries such as the UK, the US, Canada, Brazil, France, and the Netherlands.

“Before this, there was no such index. After SAMI was launched, halal for the very first time was an asset class on its own and in a way that is easy to understand,” he said.

“Now, we could bring both the halal industry and Islamic finance together — two industries based on the same values and principles of syariah but very different in development. Azka Capital is trying to bridge this gap,” he said.

This article first appeared in The Edge Financial Daily, on May 6, 2013.

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