Halal meat meets halal finance in an innovative Abu Dhabi-based investment scheme.
Abu Dhabi Equity Partners (Adep) has raised US$25 million from investors to fatten 70,000 cattle in Brazil.
The Sharia-compliant programme is providing Brazil’s top 40 feedlot operators with money to buy cattle to maximise their capacity. Typically, feedlot operators buy one-and-a-half year old cattle that weigh 300 to 360 kilograms and feed them corn until they weigh 500kg. Then they are then sold to meatpackers.
“A cattle rancher has feedlot capacity of say, 12,000 cattle heads, but is only using 4,000 of it due to other commitments,” said Muneef Tarmoom, Adep’s founder.
“This is where Adep comes in. We provide the rancher the balance sheet to buy more cattle and pay for their ongoing feed and other costs.”
The deal allows Arabian Gulf investors to buy and take title of cattle, which are registered through a global investment bank. The investors also have certificates in their name on BMF Bovespa, Brazil’s biggest exchange. During the grazing period the cattle are covered by insurance, they are stored physically in separate feedlots and investors are provided surveillance services through a global monitoring company.
Investors –financial institutions and wealthy people – “can actually watch their cattle grazing in the feedlot all the way from their offices here,” said Mr Tarmoom.
Once the cattle reach their ideal weight, Adep appoints the rancher to sell the commodity at principal plus the agreed profit rate to beef processing companies. The remaining profit goes back to the rancher.
Adep and a handful of Arabian Gulf banks have ramped up their presence in the commodity trade business, which until recently has been dominated by French banks, such as BNP Paribas and Crédit Agricole.
They are part of a trend that includes the entry of Abu Dhabi’s Aabar Investments and Qatar Holding into the mining and commodities trading giants Glencore and Xstrata, which consummated a $32bn merger last May.
Next month, Abu Dhabi is hosting the Global Forum for Innovations in Agriculture, where the billionaire and philanthropist Bill Gates is expected to deliver the keynote speech.
Adep’s programme follows a series of similar Islamic finance deals made by the Abu Dhabi-based boutique investment bank since its inception with sugar, soya and ethanol.
Mr Tarmoom worked for the Abu Dhabi Investment Authority for 14 years. In 2005, he became the chief executive of the Dubai sovereign wealth fund Istithmar. After that he briefly offered independent private equity consulting before founding Abu Dhabi Equity Partners in 2010.
The unique business has been widely welcomed by Mr Tarmoom’s investors, which include a niche of prominent Islamic banks in the GCC. In an interview last year, Mr Tarmoom said he was looking to capitalise on $400bn worth of assets in Islamic financial institutions, a quarter of which is currently parked in cash and cash equivalents.
“There’s a huge mismatch between the Islamic banks’ sources of funds and how they are deploying these assets,” Mr Tarmoom said. “If you look at their balance sheets, their sources of funds are in the form of short term, usually less than three months, and they are placing it in long-term assets with the excess liquidity sitting in the central bank, earning them almost nothing.”