Abstract
The purpose of this research is to provide a conceptual framework for Islamic institutional and retail investment in maritime assets. Our objectives are to provide an introduction to seaborne trade and analyze trends in institutional interest in alternative assets and international shipping as well as highlight Islamic and conventional equity structures for institutional and retail investors. Our findings reveal that an Islamic private equity framework involving an unlevered, tax-free investment in maritime assets provides a real alternative to conventional lending and even successful tax-efficient conventional equity structures, since they are not entirely without issues given the significant presence of debt financing from maritime banks. There is a demand for alternative sources of finance, such that Islamic equity finance, rather than conventional lending or structured debt can develop international shipping involving Islamic institutional and retail investment in maritime assets.
Highlights
Seaborne trade is fundamental to globalization: 84% of global trade, representing 11,128 million tonnes, is carried by international shipping totaling 1.75 Bn DWT, 87% of which, is carried by the primary shipping segments involving are bulkers (43%), tankers (31%) and containerships (13%): 75% of ship-finance is financed on a conventional basis and Malaysian Islamic financial institutions (IFIs) and investors have essentially no exposure to international ship-financing (Abdullah, 2016)
The current practice by IFIs is to mobilize investment account holders (IAH) with equity savings from retail investors and given suitable product disclosure, funds would be channeled into projects that have been credit evaluated by the IFIs, and in the case of the IAP, by the Rating Agency of Malaysia (IAP, 2016)
We provided an introduction to seaborne trade and have established that 84% of global trade, representing 11,128 million tonnes, is carried by international shipping totaling 1.75 Bn DWT, 87% of which, is carried by the primary shipping segments involving are bulkers (43%), tankers (31%) and containerships (13%), such as capesize bulkers, VLCC tankers and panamax containerships
Summary
Seaborne trade is fundamental to globalization: 84% of global trade, representing 11,128 million tonnes, is carried by international shipping totaling 1.75 Bn DWT, 87% of which, is carried by the primary shipping segments involving are bulkers (43%), tankers (31%) and containerships (13%): 75% of ship-finance is financed on a conventional basis and Malaysian Islamic financial institutions (IFIs) and investors have essentially no exposure to international ship-financing (Abdullah, 2016). In order to determine the willingness and ability to finance maritime assets, investors must understand the associated risks and rewards with regard to international shipping associated with equity structures, as an alternative to risk-free debt finance. In order to facilitate an understanding of international shipping, we begin with an overview of the importance of global seaborne trade and identifying the primary shipping segments involving bulkers, tankers and containerships (section 2). We provide some concluding remarks and recommendations (section 8)
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