It can be costly to get back on SC's syariah- compliant list

PETALING JAYA: Getting back onto the Securities Commission (SC) syariah-compliant stock list can be costly for some public-listed companies affected by a new SC guideline, say industry experts.

Under the revised syariah-compliant guildeline, the SC has added a financial ratio benchmark rule, where companies’ cash and debts in conventional accounts must be less than 33% of their total assets.

Property developer SP Setia Bhd said yesterday that it was “disappointed” to be dropped from the revised list that was released last Friday.

The company, which is majority-owned by Permodalan Nasional Bhd, however, was taking “proactive steps” to regain its syariah-compliant status, SP Setia chief financial officer Datuk Teow Leong Seng told StarBiz in an email reply.

SP Setia is one of 158 companies on Bursa Malaysia that were excluded from the revised list given their failure to meet the more stringent financial criteria to qualify as a syariah-compliant counter.

For these companies, including Bumi Armada Bhd, complying with the new requirement will involve extra cost.

Teow pointed out that refinancing conventional loans for syariah-compliant debts might not always be a practical option as it could be quite expensive to do so.

“This is because any refinancing will, at the minimum, involve payment of fresh stamp duties and legal fees, on top of additional administrative costs,” he said.

The company, he said, would also need to refinance loans taken for ongoing projects. It is already taking Islamic-compliant loans for its Setia EcoHill 2 project.

SP Setia was probably excluded this time around based on technical grounds.

“Our total conventional debt over total assets of RM12.27bil was 31% as at July 31, 2013.

“Unfortunately, as this is not a full financial year audited figure, it did not qualify us for inclusion into the SC’s list,” Teow said.

The debt level under the 33% threshold puts SP Setia well in contention to get back on the list at SC’s next revision in May next year.

Bumi Armada, however, is facing a tougher challenge.

Executive director Rezza Hassan told reporters yesterday that the oil and gas contractor would only be looking to refinance conventional loans to syariah-compliant debt “if there’s opportunity and pricing is right”.

“We are keen on Islamic financing; it is not really expensive to switch from conventional to syariah-compliant debt, but there isn’t enough liquidity for project financing,” he said.

Experts said that converting conventional debts to Islamic loans was easier said than done.

“Refinancing conventional borrowings to Islamic financing is not a straight forward process as many variables need to be considered,” said Bond Pricing Agency Malaysia chief executive officer Meor Amri Meor Ayob in a telephone interview yesterday.

Another company that would be interesting to watch is SapuraKencana Petroleum Bhd.

The oil and gas company is a syariah-compliant stock, but that status could be under review unless the company can bring down its conventional debt level, which currently stands at 44% of its total assets following the completion of Seadrill acquisition earlier this year.