Assalamu Alaykum.
I bought shares in companies that were sharia compliant a few months ago. However, after recently reviewing these companies I see that that interest bearing debt has exceeded 30% making them non-compliant.
What do I do with the shares? I want to sell the shares and reinvest into sharia compliant companies. Do I give the profits I made to charity?
JazakAllah khair
Assalaamu alaykum,
If you are investing through a Shariah compliant broker and stock screener, I would advise referring the matter to Shariah board of that platform.
Is the change in the compliance before the Covid-19 shock?
Wa’alaykum Salaam,
JazakAllah khair for the quick response. The change in compliance happened this month so after the Covid-19 impact.
Has the interest bearing debt increased as a result of increased borrowing or drop of the market cap?
I’m not sure to be honest.
Can you re-perform your screening and try the following two:
Let us know if it impacts the compliance.
I get 31.1% for total borrowing as % of total assets for Pfizer. And 12.9% for ExxonMobil. This is going off the latest annual report? Do you have some other data?
I’ve been using the Zoya app. It shows interest bearing debt for Pfizer as 30.48% and ExxonMobil as 37.13%. Their calculation for interest bearing debt is total debt / market cap
Interest-bearing debt is probably best measured against total assets, not market cap. My calcs were vs total assets.
Would you classify shares in both companies permissible based on your calculations?
I’d personally be fine with it, and Mufti Faraz did suggest recalculating using total assets also in his post above. I’ll let him opine if he disagrees with me, but I generally use total assets as the marker anyway.
Although this case has been solved, what are the guidelines when a once Halal company you own becomes Haram? One example is AVGO, which had a 30% debt/Total assets ratio 2 years ago when I bought it. Now however, the ratio is above 40% and the company has issued preference shares. AVGO did this because of an acquisition. Nevertheless, it is now impermissible to purchase.
In this case, you would have to liquidate your holdings and purify the increase in value from the moment it became non-compliant to the day you liquidate. Likewise, any profit earned in this period must also be given in charity.
What if the stock is value is less than when I bought it, can I wait till it increases or not?
If first question’s answer is yes, what happens if it turned permissible during waiting? Do I need to do any kind of purification then?
@Mufti_Faraz_Adam
اَلسَّلاَ مُ عَلَيْكُمْ وَرَحْمَةُ اللهِ وَبَرَكَا تُهُ
When a stock turns non compliant, we are told all the profit must be given into charity.
As a short term trader, Can we take into account losses that we have made when trading that stock before or after the stock Turned non complaint.
For example, I am trading a stock whilst it was shariah complaint and I made losses of £10 and then I brought the stock again.whilst holding, the stock turns non complaint and sold it straight away and made profit of £20. This was during The same month. Do I have to give the £20 in charity or can I take into account the loss and give only £10 in charity.
If you can take losses into account, what interval can we take losses into account e.g Daily weekly monthly Yearly.
جزاك اللهُ خيرًا
Wasalam wr wb
May Allah bless you.
Everytime you sell shares then you should check, how much of the profit has been earned through the haram portion. For example, if a company generates a haram income of 10% of the total gross revenue, then it is 10% of your profit that must be given away.
And Allah knows best!