Updated List of Securities Approved by SC’s Syariah Advisory Council

The Securities Commission (SC) today released an updated list of securities approved by its Syariah Advisory Council (SAC). The list of approved securities, which are listed on the Kuala Lumpur Stock Exchange (KLSE), will take effect from 25 April 2003.

Twenty-five companies, newly classified by the SAC as approved securities, have been added to the list (Table 1). Five companies which were in the previous list have been excluded (Table 2). The complete list of the 704 approved securities as well as a breakdown of these securities according to sector are provided in the Appendix.

Table 1
Newly-classified approved securities

1. AKN Messaging Technologies Bhd. 14. Lion Industries Corporation Bhd.
2. Baswell Resources Bhd. 15. Mycom Bhd.
3. Discomp Bhd. 16. Ornapaper Bhd.
4. FACB Resorts Bhd. 17. Pan Pacific Asia Bhd.
5. Fraser & Neave Holdings Bhd. 18. Portrade Dotcom Bhd.
6. Hua Yang Bhd. 19. SKP Resources Bhd.
7. Hytex Integrated Bhd. 20. South Peninsular Industries Bhd.
8. IGB Corporation Bhd. 21. Sri Hartamas Bhd.
9. Insas Bhd. 22. Suiwah Corporation Bhd.
10. Isyoda Corporation Bhd. 23. Symphony House Bhd.
11. Karensoft Technology Bhd. 24. UBS Corporation Bhd.
12. Kinsteel Bhd. 25. Yeo Aik Resources Bhd.
13. Kuala Sidim Bhd.

Table 2
Newly-classified non-approved securities

1. Bright Packaging Industry Bhd. 4. Tongkah Holdings Bhd.
2. Malaysian Resources Corporation Bhd. 5. YTL E-Solutions Bhd.
3. MGR Corporation Bhd.

In classifying these securities as approved securities, the SAC has applied a standard criterion in focusing on the core activities of the companies listed on the KLSE. Hence, companies whose core activities are not contrary to the Syariah principles are classified as approved securities. The securities that are excluded from the list of approved securities are based on the following criteria:

(i) operations based on riba (interest) such as activities of financial institutions like commercial and merchant banks and finance companies;
(ii) operations involving gambling;
(iii) activities involving the manufacture and/or sale of haram (forbidden) products such as liquor, pork, and meat not slaughtered according to Islamic rites; and
(iv) operations containing elements of gharar (uncertainty) such as the conventional insurance business.

For companies with activities comprising both permissible and non-permissible elements, the SAC applied several additional criteria, which are:

(v) the core activities of the company must be activities which are not against the principles of Syariah as outlined in the four criteria above. Furthermore, the haram element must be very small compared with the core activities;
(vi) the public perception or image of the company must be good; and
(vii) the core activities of the company are important and considered maslahah (‘benefit’ in general) to the Muslim ummah (nation) and the country, and the haram element is very small and involves matters such as ‘umum balwa (common plight), ‘uruf (custom) and the rights of the non-Muslim community which are accepted by Islam.

The SAC also takes into account, the level of contribution of interest income received from conventional fixed deposits or other interest bearing financial instruments by the company, as part of the criteria in the analysis of approved securities.

Approved securities include ordinary shares, warrants and transferable subscription rights (TSRs). This means that warrants and TSRs are classified as approved securities from the Syariah perspective, provided the underlying shares are also approved. On the other hand, loan stocks and bonds are non-approved securities unless they are issued based on Islamic principles.

In classifying these securities, the SAC received input and support from the SC. The SC gathered information on the companies from various sources such as company annual financial reports, company responses to survey forms and through inquiries made to the respective company’s management. The SC, through the SAC, continues to monitor the activities of all companies listed on the KLSE to determine their status from the Syariah perspective.

As a guide to investors, the SAC would like to advise investors on the timing for the disposal of securities which have been classified as Syariah non-approved.

i) “Approved securities” which are subsequently considered “non-approved”

This refers to those securities which were earlier classified as approved securities but due to certain reasons, such as changes in the companies operations, are subsequently considered non-approved. In this regard, if on the date this updated list takes effect (25 April 2003), the value of the securities held exceeds the original investment cost; investors who hold such non-approved securities must liquidate them. Any capital gains arising from the disposal of the non-approved securities made at the time of the announcement can be kept by the investors. However, any excess capital gains derived from the disposal after the announcement day at a market price that is higher than the closing price on the announcement day should be channelled to charitable bodies.

On the other hand, investors are allowed to hold their investment in the non-approved securities if the market price of the said securities is below the original investment costs. It is also permissible for the investors to keep the dividends received during the holding period until such time when the total amount of dividends received and the market value of the non-approved securities held equal the original investment cost. At this stage, they are advised to dispose of their holding.

In addition, during the holding period, investors are allowed to subscribe to:

(a) any issue of new securities by a company whose non-approved securities are held by investors, for example rights issues, bonus issues, special issues and warrants [excluding securities whose nature is non-approved e.g. irredeemable convertible unsecured loan stock (ICULS)]; and
(b) securities of other companies offered by the company whose non-approved securities are held by the investors,

on condition that they expedite the disposal of the non-approved securities. For securities of other companies [as stated in (b) above], they must be Syariah-approved securities.

ii) Non-approved securities

The SAC advises investors who invest based on Syariah principles to dispose of any non-approved securities which they presently hold, within a month of knowing the status of the securities. Any gain made in the form of capital gain or dividend received during or after the disposal of the securities has to be channelled to charitable bodies. The investor has a right to only obtain the original investment cost.

Note: Original investment cost may include brokerage cost or other related transaction cost.

24 April 2003