Despite having proved its resilience, particularly after the 2008 crisis, and being expected to grow 17% annually, Islamic finance is facing some interesting changes, such as Iran’s entrance to the market, Russia passing legislation to promote Islamic finance, and the enhancement of a strong presence in Europe. Within this context, CEO of Qatar's leading investment bank QInvest, Tamim Hamad Al-Kawari, discusses why investors should take a look at Islamic finance and where Qatar’s strengths lie. He also explains what makes Qatar and QInvest unique when it comes to shrewd investment, and what is behind the record results the bank is posting.
What is your mid-term expectation for the Islamic finance market?
We do not really think of the Islamic finance market being different from any other market. We are all going to go up and down, depending on the world market. The way we look at things and the way we would hope other treasurers, companies and actually anybody looking for funding or capital, is to look at Islamic finance as a different source of funding.
There are many sources of capital, and much of capital that is Shari’a compliant only. People should look at tapping that market when they need to raise capital—in the form of sukuk, or Islamic bonds or bank financing.
When we first started to invest, it took a lot longer to do any Islamic financing, be it sukuk or bank financing. Today it is much more accepted and the documentation is more standardized.
Thereby, treasurers looking to borrow should not discount borrowing in the Islamic market because it is a different source of capital. The same way you look at borrowing in dollars or borrowing in yen, why not look at borrowing in Islamic banking?
Qatar in particular is the fastest growing market in the region and much regulation has been implemented regarding Islamic finance after 2013, as it was not regulated before. What role has all this regulation played in the development of the Islamic market in Qatar?
QInvest has an important role in preserving Qatar’s reputation as an important destination to do business. Qatar is a young country and it is going through the changes that it needs to go through to become a major player on a regional and global level. It is also going in the right direction with the regulations to make this a more business friendly and attractive environment.
From my personal point of view, the developed regulations are intended to cover the full spectrum of finance. One thing that could be looked at is that regulation varies from country to country. Qatar is ahead of the curve in comparison to the rest of the world. For example, regulation states that if you want to be an Islamic bank, you cannot be a conventional bank – you have to pick one label or the other. It would be good to get such clear distinctions elsewhere and greater standardization across the industry.
What is being part of Qatar Islamic Bank like, and when it comes to expanding internationally is this a plus?
Qatar Islamic Bank (QIB) is our main shareholder. Their board’s chairman is the same person as QInvest’s. We work very closely with them in terms of what needs to be done.
Obviously, since they are a commercial bank and have retail clients as well as institutional, they view life differently. We are an investment bank and do not have retail clients; we only service institutional business, which means we have very different performance targets and differing client demands.
They leave us to do all the activities related to investment banking, including asset management principal investment as well as ECM, DCM and M&A advisory.
We do some lending, but our lending is very different from a commercial bank’s deployment strategy should be, for example our book is a lot more structured, usually more high-yield and in different geographies and sectors. We have a lot more structural flexibility just by our nature as an investment bank; our returns and risk criteria differ.
For that reason we do not compete; we work together and complement each other. It has actually been a huge benefit for us, to be part of the QIB Group. However at the same time, we also have the independence to be able to move at the necessary speed that an investment bank needs to, in order to remain well respected and competitive to meet the high standards and demands that our clients and co-investors require.
One of your main fields of expertise is real estate development, and Qatar is the Middle East’s largest global investor in this sector. The QIA is shifting its strategy from Europe to the US by establishing a branch in New York and is aiming to invest $35 billion in the next five years, strongly targeting real estate. What opportunities do you see? What role can QInvest play?
Whilst we cannot speak on their behalf, we do work very closely with the QIA and we have and will continue to advise them on US transactions. The QIA only pays fees for us adding value or originating transactions for them, so our role within real estate and other areas is to continue to actively identify attractive investments for them globally, including the US.
We continue to see opportunities of scale in multiple core markets that suit the size of sovereign balance sheet, including in the US. Yields have compressed globally to the point where further yield compression is difficult to call. On that basis, we remain opportunistic and continue to look for core, core plus and to some extent value-added transactions where the cash component of the total return remains compelling or not reliant on aggressive rental growth.
It is worth noting that at times the QIA has objectives which may differ from ours, and may include targeting larger transactions where there are fewer players, and that applies to both the number of deals and the number of people we have in the office. The QIA has always been a savvy investor, so if they are looking to invest in the US there is a good reason for it. QInvest has been investing in the US since 2011 and we don’t see that changing unless we strategically decide to focus elsewhere based on risk-adjusted returns. Given that we invest our own capital in the US, we clearly engage with players in the US that need capital and or partners, and at times the QIA is that party.
We continue to believe that the risk-adjusted yields are much more attractive in the US, especially in the financing space. By way of example, we have just agreed a mezzanine financing construction deal in the US, simply given the spreads are wider than we can find in other tier 1 markets given the current state of the capital markets. In conclusion, we are very commercial in our approach and do not have political reasons for doing anything other than trying to get the best returns for our shareholders.
Last year, you experienced the most important growth rates in terms of net profits since the inception of this company.
Yes, 2015 was a record year for QInvest. We have previously announced another year of robust growth recording the highest revenue since inception of QAR 393 million ($108 million) and net profit of QAR 154 million ($42 million). We have generated consistent performance throughout 2015 despite challenging global economic conditions and regional volatility, culminating in an increase in both revenues and net profit of 32% and 76% respectively. Additionally, we recommend doubling the dividend to shareholders for financial year 2015.
To what do you attribute this growth, particularly taking into account that you have been fostering a rapid internationalization of the company in the meantime?
QInvest is unique in the region, in the sense that investment banks here either have the capital but not the right culture, or have the right culture but lack the capital. Our uniqueness comes from the fact that we have the right culture and the right expertise, a blend of local knowledge and world-class experience – all backed by a solid shareholder base, led by QIB, and well-connected board of directors. Most of us have worked in international banks before working here.
The cultural aspect is derived from the fact that we work very well and share a common incentive with our shareholders. Also, if things do not go right, restructuring takes place really quickly. This has a strong impact on the adaptive capacity of the organization.
Additionally, the results are a reflection of our ability to continue achieving consistent growth in the coming years, backed by the implementation of the strategy launched in 2013 that has been proving its success. The bank has previously announced the conclusion of a five-year $200 million Murabaha facility with a syndicate made up of local and international investment banks, demonstrating the bank’s strength and setting an excellent benchmark for future borrowing.
To summarize: we have the right culture, we have the permanent capital, the board of directors, regional execution capabilities through our world-class team and unparalleled reach. These factors set us apart from local, regional and international peers.
You also have one of the most solid networks worldwide. I am thinking about the cooperation with Pramerica, Pioneer and other US and European companies.
Initially this came from the fact that we have people who have worked all around the world and have strong networks and reputations that we leveraged to build our business network. As the firm has grown we find it easier to partner with people as we have a solid reputation and are known to respond quickly and efficiently, and people see that we are not difficult to work with. At the end of the day, it is all about people talking to each other. We are good people to work with and we have the capital. Moreover, we are fair to our partners and we also have personal relationships that we have cultivated over the years. That is the difference between us and the rest of the banks.
What is the role you are playing in terms of community development?
Obviously, the sector is very much human capital driven, and we are committed to support the communities in which we operate. Therefore, we have developed a corporate social responsibility (CSR) program that includes a variety of activities, such as organizing educational, social, cultural and sporting events. Also, we back conferences, seminars and other initiatives by offering our expertise to participate and speak. These initiatives support the growth of Shari’a-compliant financial services, locally and across the region, and further enhance the status of the State of Qatar as the leading financial center in the Middle East.
Additionally, we have also launched a formal employee engagement initiative in April 2014. Known as QNITED, the initiative is spearheaded by QInvest’s management team and organizes and promotes a broad range of activities and initiatives for staff. The purpose of QNITED is to strengthen QInvest’s six core values, The Six Cs, among our employees. These values – commitment, clarity, confidence, cohesion, community and creativity – shape and define the culture of the firm, and were developed over time with an understanding that business success is built upon an appreciation of the needs of all our stakeholders.
During 2015, we launched several corporate social initiatives, further committing to developing the industry and supporting the communities in which we operate. In partnership with Luxembourg for Finance (the agency for the development of the Luxembourg financial center), we hosted an Islamic Finance Workshop in Luxembourg. Additionally, we signed a Memorandum of Understanding (MoU) with Carnegie Mellon University in Qatar (a branch of Carnegie Mellon University in Pennsylvania, USA) to cooperate in the fields of research and education. For the second consecutive year the bank welcomed a group of graduates from the Executive Master’s Program in Islamic Finance from Paris Dauphine University.
That is also why we have open conversations with QFCRA, with the QCB, with the QFMA, trying to help with the new laws being implemented. There is a lot of consultation that goes on between us, and that is also part of our CSR.
Do you feel like part of a new generation that is taking the lead and helping Qatar to move forward?
There is an important distinction between the old generation and the new generation. In a way, I feel like I am between both, because I remember when Qatar was not what it is today, and the new generation sometimes forgets that.