ApexAfrica Capital eyes Shariah-based investment products

Mr  Kassim Bharadia (left), ApexAfrica Capital Limited CEO, and CMA CEO, Ms Stella Kilonzo, during the launch of ApexAfrica Capital  Limited, on June 30, 2010. Photo/LIZ MUTHONI
Mr Kassim Bharadia (left), ApexAfrica Capital Limited CEO, and CMA CEO, Ms Stella Kilonzo, during the launch of ApexAfrica Capital Limited, on June 30, 2010. Photo/LIZ MUTHONI 

Newly rebranded ApexAfrica Capital is setting its sights on Islamic compliant investment products as a resurgent stock market presents new opportunities.

ApexAfrica Capital, which on Wednesday formally dropped the ‘investment bank’ tag line in its name, plans to launch Shariah investment vehicles as an untapped new frontier for market trading.

At a time when stock market players are slowly recovering from a two-year lull at the Nairobi Stock Exchange, the need to identify new revenue streams to shore up commission income has become a matter a priority for stock market intermediaries.

“We see Shariah investment products as an area with great promise, we have not only seen local interest, but we have attracted a lot of interest from international organisations to join us in our efforts to be successful,” said Kassim Bharadia, ApexAfrica Capital’s chief executive officer.

The need for innovative investment vehicles among stock market players became apparent as incomes for most investment banks and stock brokers fell considerably in line with a fall in fortunes for listed equities.

Stockbrokers earn a maximum brokerage commission of 2.1 per cent of the value of shares traded; meaning that the 18 NSE licensed intermediaries split the Sh1.6 billion they earned in commissions amongst themselves.

In an industry where an estimated 90 per cent of brokerage income is derived commissions, low trade volumes, a scarcity in new listings and a rush for fixed income securities had dealt players’ earnings a hard blow.

While stockbrokers with established fixed income trading desks were able to cushion their earnings through bond trading commissions last year, this revenue line is now coming under threat.

Commercial banks are pushing to be licensed bond dealers which will allow them to trade bonds among themselves.

The move will see investment banks and brokers who have acted as intermediaries lose out on hundreds of millions of shillings in bond trading commissions.

And while holding an investment banking license gives market players the latitude to engage in corporate finance services, the looming competitive threat from commercial banks is causing unease among stand-alone brokers and investment banks.

But as a Kenyan economy full of promise and flush with cash eyes new investments, listed equities are once again on the radar of local and global investors.

The expectation that economic growth rate can accelerate to above four per cent in 2010 from below two per cent in 2009 is a major confident boost to the outlook for corporate earnings.

For ApexAfrica, the Shariah compliant investment vehicles will primarily target shares in agricultural stocks that Mr Bharadia believes are safe and Shariah acceptable underlying assets.

Plantations stocks topped the leader board at the bourse in the first half of the year to whet investor appetite on the prospect of tidy earnings following the resumption of the rains, a recovery of global commodity prices, and a strengthening US dollar.

The Capital Markets Authority (CMA) is already evaluating the implementation of Shariah-based investment vehicles in other countries such as Malaysia with a view of how best to regulate the products.

“We need to evaluate how best to facilitate the roll-out of Shariah compliant products in the capital markets,” said Ms. Kilonzo.

ApexAfrica is currently undergoing the approval process for the product as required by CMA.

The product in a collective investment vehicle in the form of a unit trust will require a minimum of Sh25,000 for an investor to start off.

Among ApexAfrica’s clientele include fund managers, retirement schemes, insurance companies, high net worth individuals and a number of retail clients.

Plans for a framework to oversee the flotation of Sukuks or Shariah compliant bonds are already underway coming two years after the licensing of the first Islamic banks in Kenya.