Indonesia’s $10 bln haj fund to invest in Saudi hotels this year - official

Tuesday, April 13, 2021

JAKARTA – Indonesia’s Haj Fund Management Agency (BPKH) this year will invest in hotel operators in Saudi Arabia, executive board member Hurriyah El Islamy, told Salaam Gateway.

BPKH is an independent body that overlooks Indonesia’s haj savings scheme that requires prospective pilgrims deposit money in appointed Islamic banks. Law number 34/2014 that governs the management of the haj fund mandates the agency to explore investments including with international institutions.

BPKH held more than $10 billion in haj funds at the end of December 2020, less than 1% of which was invested in international institutions.

The fund is considering investments either in Saudi hotel equity or in rooms. It expects minimum returns of approximately 8%, rising to as high as 20%, and is targeting either Makkah, Jeddah or Madinah.

“Smart investors should enter the (hotel) market now to gain bigger yields,” said Hurriyah.

“The window to enter the market is small. Currently, the King of Saudi Arabia allows umrah activity for pilgrims, 14 days after they take the first dose of the COVID-19 vaccine, and it is just a matter of time before they declare haj open with tight health protocols,” she added.

Funds were sitting idle during the pandemic as Saudi authorities closed their borders for most of 2020, including to umrah and haj international pilgrims.

This pushed down hotel occupancy rates to record lows, making investment in hotels good value for money.

BPKH will invest in establishments that show strong fundamentals, such as good cashflow and have ready contracts with renters, said Hurriyah.

The strategy is also to target hotels near cities to leverage umrah and umrah plus tourism for when the pilgrimage re-opens to international visitors.

BPKH opened its Foreign Investment and International Cooperation unit in April last year to explore more options abroad.

It most recently placed $4.9 million into the Awqaf Properties Investment Fund, part of the Islamic Development Bank, in June last year. That deal earned the Indonesian agency 4.63% returns ($112,320) on its investment within six months.

Hurriyah said the fund will look to invest in foodservice, particularly catering for ready meals, and buses after it closes the deal with hotel operators. It expects ROI of 17% on foodservice and 8.16% on buses.

Investing in buses could be done via a joint venture with Indonesian state-owned company Damri, she said.

The fund sees value that can be added through investing in Saudi hotels, foodservice and buses, including the creation of more jobs across the value chain, and export opportunities for Indonesian ingredients to be used in the preparation of ready meals.