THE Philippine Stock Exchange, Inc. (PSE) is adjusting its guidelines in screening companies’ compliance with Islamic principles of finance, removing some previously imposed restrictions.
The PSE released an April 20 memorandum in line with the amended Shari’ah Rulebook. The new guidelines immediately took effect.
“This is to further align the PSE Shariah Guidelines with the recent change in the guidelines of our screening provider, IdealRatings Inc., to its Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shariah Rulebook,” it said.
For one, hotel operators that source their income from accommodations will now be accepted among Shari’ah-compliant securities. Only if a hotel business gets more than 5% of its income from pork, alcohol, gambling and casinos will it be considered non-compliant.
Businesses engaged in embryonic stem-cell research were also removed from the list of prohibited securities. The PSE said this was not covered in the amended AAOIFI Rulebook.
For financial screening, the PSE will no longer require that a company’s accounts receivables not exceed 67% of its 12-month trailing average market capitalization. It said the AAOIFI guidelines exclude cash and liquidity ratios from the financial screening requirements to be Shari’ah compliant.
These adjustments mean companies that used to have these characteristics may now be entertained by Muslim investors. If they follow all other requirements, these companies may be included in the PSE list of Shari’ah-compliant securities where Muslims refer to when investing in the local bourse.
The other requirements to be Shari’ah compliant are that a company has less than 5% of its income derived from businesses in adult entertainment, alcohol, cinema, defense and weapons, financial services (insurance, conventional banking, conventional financial institutions, derivatives, mortgage, among others), gambling, gold and silver hedging, interest-bearing investments, music, pork, and tobacco.
Its cash or interest-bearing deposits or investments must also not reach more than 30% of its market capitalization, and its interest-bearing debt must not go beyond 30% of its market capitalization.
The PSE releases the list of Shari’ah-compliant securities every quarter through a memorandum on its website. The latest was in early April, which included 52 listed securities. — Denise A. Valdez