The Shariah View of investing in the City Lodge Hotel Group
Question:
Is it permissible to buy shares in a company such as City Lodge hotels. Although they do sell non halal food and drink this does not make up more than 30% of business revenue. Can one do so and if one can then, does one clean the investment by giving a portion of the dividend and capital growth in charity or only dividend ? Jzk
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
There are certain criteria which must be fulfilled when investing in a company in order for such an investment to be Shariah Compliant. There are essentially two stages involved in the Shariah screening process. It is important that the holding company including the subsidiary company fulfils the industry screen. For example, a vehicle asset manufacturing company may have a vehicle asset financing subsidiary which generates impermissible income via conventional and interest bearing lending practices, therefore investing in the holding company would be impermissible.
Sharia Industry Screen
The following business activities are impermissible:
1.1) Conventional Banking and Insurance
1.2) Alcohol
1.3) Pork and all non-Halal food items
1.4) Gambling
1.5) Tobacco
1.6) Adult Entertainment and all other impermissible actions as decided by the Shariah Supervisory Board
1.7) Conventional derivatives
1.8) Weapons
1.9) Impermissible biological and medical activities as decided by the Shariah Supervisory Board
Shariah Financial Screen
The Shariah Financial Screen monitors the impact of non-Shariah Compliant practices of a company and its potential impact on corporate performance. The investment companies must be compliant with the Shariah Financial Ratios as decided by the Shariah Supervisory Board.
Screen:
2.1) Conventional Debt/Total Market Capitalization – 33%
2.2) (Cash +Interest Bearing Deposits)/Total Market Capitalization – 33%
2.3) Total Interest/Revenue -2%
The contemporary scholars have also advised that the primary nature of the business should not be involved in any impermissible activities and the company should have some illiquid assets as trading in liquid assets only for cash investment will be impermissible. Moreover if the company does have any element of conventional and impermissible activities of a negligible nature, then you should voice your concern and objections at the Annual General Meeting (AGM) of the company and expose the directors to the Halal and Shariah compliant principles of business, finance and economics.
With regards to your specific query, the City Lodge Hotel Group is listed on the Johannesburg Stock Exchange with the ticker symbol CLH. The City Lodge Hotel Group provides hotel, lodging and accommodation services. This service also entails impermissible food and beverage served to customers of the City Lodge Group. We also understand that the company has a separate line item for food and beverage in the annual financial statements and recorded as such. The company also has a high level of conventional financial gearing and leverage in the form of loans and overdraft facilities based on their latest annual report and audited financial statements. The issue is therefore not only related the activities of the company but the underlying financials of the company also. You may seek further guidance from the external auditor of the Group to review their financials in line with the shariah screening criteria outlined above.
Since one of the primary activities of the City Lodge Group entails serving impermissible food and beverages in serving their guests, then such an investment in the City Lodge Group will be impermissible.
Kindly refer to the following article for further information on Shariah compliant investments: https://www.shariahbusiness.com/shariah-insights/what-is-a-shariah-compliant-investment
and Allah Ta'ala Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee
Darul Iftaa, Durban, South Africa
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