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Legal Update

Shariah Index for Thai Stock Market

1 June 2009
Mayer Brown JSM Legal Update


FTSE International Limited, the global index provider ("FTSE"), and the Stock Exchange of Thailand ("SET") have teamed up to create FTSE SET Shariah Index (the "FSTSH") as a basis for index-linked products. The FSTSH made its official debut on the SET on 25 May 2009.

FSTSH opens up the Thai capital market to investors looking for Islamic investment products. The index includes a wide range of products including Exchange Traded Funds, funds and other index-linked products.

Full Update

FSTSH is the seventh index in the FTSE SET Index Series (the "Series") jointly created by the SET and the FTSE. The Series is especially designed to measure the performance of the Thai capital market and serves as a basis for index-linked products. The first six indices in the Series are segmented by market capitalisation.

The launch of FSTSH addresses the expanding Shariah investment market. According to Moody's report, Islamic finance has been growing at an impressive rate of 15 % per year for the past three years. This is a result of the economic strength of Islamic countries and the promotion of Islamic finance products in many countries such as Indonesia, Malaysia and Singapore. In Thailand, four Islamic funds have been established to date.

Securities to be included in FSTSH must pass the following two Islamic Finance screenings:

1.Business Activities Screening

The business activities of the issuers of the securities must be consistent with Shariah law. This means that they must not involve any of the following:

  • Conventional finance (e.g. non-Islamic banking, finance and insurance, etc.)
  • Alcohol
  • Pork-related products and non-halal food production, packaging and processing or any other activities related to pork and non-halal food
  • Entertainment (e.g. casinos, gambling, cinema, music, pornography and hotels)
  • Tobacco
  • Weapons, arms and defence manufacturing

2.Financial Ratios Screening

The issuers of securities are then further screened on a financial basis. The requirements of the financial ratio are as follows:

  • Debt less than 33% of total assets;
  • Cash and interest bearing items less than 33% of total assets;
  • Accounts receivables and cash less than 50% of total assets; and
  • Total interest and non Shariah-compliant activities income not exceeding 5% of total revenue.

The strict enforcement of the above screenings assures investors of the stability of the issuers, thus enhancing investor confidence in the FSTSH. While catering to domestic and international investors looking to invest in a transparent and Shariah-compliant manner, FSTSH aims to encourage issuers to create structured investment products tailored to the global Islamic market.

For more information, please contact:

Sathaporn Jumsuk ( )

Athicha Vuttiviroj ( )

Learn more about our Thailand office, Corporate, Corporate Finance, Finance, Financial Services Regulatory, Infrastructure & Project Finance and Private Equity practices.

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