The Treedom Group, an oud oil manufacturer, supplier and investment manager with assets under management of around $60 million, has launched a Shariah-compliant investment product and opened an office in Dubai.
The company decided to create the Oud Asset Agreement to take advantage of investment demand from consumers of the end product — oud oil is widely used across the Middle East region — and is currently in talks with two Dubai-based banks and Thai bank thinking about investing in the new Shariah product, according to Anthony Bell, business development manager, Treedom Group.
Treedom currently sells three to six-year forward purchase agreements (FPAs) involving the sale and buyback of Agarwood trees to individual and corporate investors based in Thailand, Singapore, Malaysia and Indonesia. Outside of Thailand the investments are usually made through independent financial advisors, said Bell.
Treedom sells FPAs in two different structures. The Treedom 36 pays out a dividend worth 36 percent of an investors’ return after three years and the remainder after six years. This relates to the three-year timeframe needed to grow mature trees and six-years for young saplings. There is also the Straight 6 product which pays out after six years.
Trees are bought for $194 to $232 each depending on the size of the deal and are all sold for $427 each, according to new parameters introduced earlier this year. This makes the returns on investment for Treedom 36 between 14 percent and 20 percent and for the Straight 6 product, 16 percent – 25 percent.
Treedom altered the standard FPA to comply with Sharia laws such as separating each stage of the deal — such as the initial acquisition, the tree management and the sale — into different contracts. The normal guarantee to buy back the trees from the investors was also swapped into a promise letter because Shariah law bans any future contracts.
The maximum investment made so far is $250,000, and the average size is about $22,000, although the firm has the bandwidth to sell in a bigger size, according to Bell.
“We have talked to a few institutional investors including a Canadian pension plan and a Dutch development bank about investing with us as we could provide an investor of that size with their own plantation where we process the trees for them,” he said. “They did some due diligence but decided against proceeding at this stage.”
Treedom guarantees the health of all trees purchased and grows an extra 30 percent of trees to replace any that die or grow poorly.
The group receives around $7 million in investment from Thailand each year and about $3 million from elsewhere in Southeast Asia.
The parent company is located in Hong Kong while the plantations are all based in Thailand.