By Mark Bendeich
KUALA LUMPUR (Reuters) - Three Islamic banks are teaming up with Malaysian utility Sarawak Energy (SARA.KL: Quote, Profile, Research, Stock Buzz) to set up an Islamic energy fund to finance up to $6 billion in projects in Malaysia's Sarawak state, one of the banks said on Tuesday.
The parties are due to sign a memorandum of understanding in Sarawak, on Borneo island, next week and hope to set up the fund with an initial size of about $1 billion this year, Asian Finance Bank Chief Executive Faisal Alshowaikh said.
"We will start with a $1 billion fund and then move towards the rest of the $6 billion as we go along," he told the Reuters Islamic Finance summit.
The other two banks involved in setting up the fund are RHB Islamic, a unit of Malaysian bank RHB Capital Bhd (RHBC.KL: Quote, Profile, Research, Stock Buzz), and Bahrain-based Unicorn Investment Bank, Alshowaikh said.
Sarawak Energy could not be immediately reached for comment.
Sarawak state is building one of the largest hydro-electricity complexes outside China. Its 2,400 megawatt Bakun dam is nearing completion and the state plans to develop another 2,000 megawatts in hydro-electric capacity by 2013.
Asian Finance Bank, controlled by Qatar Islamic Bank QISB.QA, and Unicorn Investment Bank are looking to channel Middle East money into Asian investments that comply with Islamic or sharia law, which bans investment in activities such as gambling, alcohol, tobacco, pork and weapons manufacturing.
NEW ISLAMIC MARINE FUND
The banks and Sarawak Energy would be proposing to contribute up to 30 percent of the initial fund capital, Alshowaikh said, though he stressed the deal was in its early stages and that the next step was to form a working group to draft a firm proposal.
"The devil is in the detail, so we need to sit down and work through the details of this," he said. If all went well, he added, the fund could be active in six to nine months.
Gulf investors would provide a large part of the fund, he said, noting that investors were looking for sharia-compliant investments other than real estate, which has captured a big chunk of the Gulf money that has flowed to Asia.
On Monday, Bahrain's central bank governor, Rasheed al-Maraj told the Reuters summit that the bank was concerned about concentration of risk, citing real estate in particular.
Asian Finance Bank, with Malaysian state investment fund Amanah Raya, also plans to set up a 1 billion ringgit ($310 million) Islamic Marine Fund by the end of next month, to purchase ships and lease them to the oil-and-gas industry.
"This is the first Islamic Marine Fund in Asia," Alshowaikh said.
Financial leases are a popular form of sharia-compliant finance. Instead of lending money to a customer to buy an asset, an Islamic bank buys the asset and leases it to the customer. At the end of the lease, the customer ends up owning the asset. Continued...
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