Marketing is expected to start in the next few months for two new Islamic equity funds which aim to raise a total of $1,500 million to invest in Muslim countries.
The Islamic Development Bank (IDB) is backing a fund to raise $1,000 million for investment in telecommunications, power, toll roads and water treatment. The second fund, set up by the London-based WorldTel, is expected to start raising $500 million in April to invest in telecommunications.
The IDB board approved plans for the infrastructure fund at a meeting in Damascus last November. Since then, Islamic Investment Company of the Gulf (IICG) has become a co-investor in the fund and Emerging Markets Partners (EMP) of the US has been selected to manage it, according to the February issue of the Islamic Banker magazine.
A source close to the fund tells MEED that the IDB and IICG have already put up $250 million. The other $750 million is expected to be raised from institutional investors, mostly from the Muslim world. The fund would raise a further $500 million in Islamic debt finance. In a typical investment, the fund might put in about 25 per cent of the equity cost of a project with the project’s backers providing the rest. Islamic banks could join in the financing of a project’s debt component, the source says.
Some details still have to be worked out – such as the question of whether other sponsors should be brought in – but marketing is expected to begin during the first half of this year. Once the fund is up and running, the idea is that Islamic financial expertise will be provided by the IICG and IDB, while EMP will provide investment skills.
The US company manages about $3,000 million in Asian infrastructure funds backed by American International Group (AIG), the US insurance giant, and $1,000 million in a Latin American infrastructure fund backed by AIG and GE Capital, the financial arm of General Electric Company of the US.
The second fund is being set up by WorldTel, a private company created in 1995 to raise finance for investment in the telecommunications industries of developing countries. The company was founded by the International Telecommunication Union, a UN agency, but is run commercially. Its shareholders include AIG, GE Capital, Greenwich NatWest (formerly NatWest Markets) and Kuwait’s International Investment Group (IIG).
N Ravi, projects director for WorldTel, says the company is in the process of getting the fund listed and registered in an OECD country. It is also talking to some core investors in the Muslim world. IIG will market the fund in the Middle East through its newly established offshore bank in Bahrain, Investors Bank. ‘We plan to start serious marketing in April.’ Ravi says other institutions could be selected to market the fund in the West.