Maybank Singapore inks novel hotel-backed Islamic finance deal

SINGAPORE's fledgling Islamic finance sector received a boost on Monday with Maybank Singapore announcing a first-of-its-kind Islamic financing deal worth S$260 million.

The deal, which has a hotel as the underlying security, was inked between the bank, part of Malaysia's Maybank group, and RB Capital.

The hotel, developed by RB Capital, is the 442-room, mid-tier Holiday Inn Express Singapore Clarke Quay.

Maybank Singapore said: "Hospitality-related assets are not typical in Islamic financing, which makes this the first to be done in a secular country, and also one of the biggest Islamic deals in Singapore."

Islamic financing bans interest, products with excessive uncertainty, gambling, short sales and the financing of prohibited activities considered harmful to society.

Asked how a hotel came to qualify as an asset for Islamic financing, a Maybank spokeswoman said that the bank had internal thresholds on non-Syariah-compliant sources of income.

"Based on the hotel's operations, Maybank was able to ascertain that the asset qualifies to be used as an underlying security for an Islamic financing facility," she said.

The Business Times understands that Holiday Inn Express Singapore Clarke Quay has one small restaurant, which limits the amount of non-Syariah-compliant food and beverage sold there.

With the global Islamic finance industry forecast to double to US$3.4 trillion by 2018, Maybank said that the deal shows the opportunities available for Islamic funds to diversify and invest in different asset classes, with Singapore playing a role as an international financial gateway.

Lim Hong Tat, Maybank Singapore chief executive, said: "As the largest Islamic banking player in ASEAN, Maybank has the deep expertise to structure financing deals tailored to our customers' needs, and to help them tap opportunities and new sources of funding.

"We are proud to partner RB Capital in making this progressive mark on Singapore's Islamic banking landscape."

He added that Maybank continues to look into growing its Islamic banking business in the region, especially in Singapore and Indonesia; each country now accounts for about 5 per cent of Maybank Islamic's revenue.

"Although the Islamic finance market here is relatively small, we plan to continue growing this market as long as we are able to create value for our customers and generate good returns," he said.

The Islamic finance market in Singapore had a tough first quarter this year; out of 37 bond deals, only one sukuk or Islamic bond was sold.

The deal represents RB Capital's first foray into Islamic financing.

Said Kishin RK, chief executive of RB Capital: "The deal is competitive to conventional financing. In addition, it provides RB Capital with the ability to further explore Islamic-compliant investments and financing regionally.

"We are delighted to have worked with Maybank to execute a first-of-a-kind deal in Singapore to meet the growing demand from Islamic investors."

Mr Kishin, who set up property and hotel group RB Capital in 2006, comes from the family behind the Royal Brothers property empire of the 1970s; his father Raj Kumar and uncle Asok were the founders.

Under a restructuring exercise that culminated in 2012, the brothers Raj and Asok swapped assets estimated to be worth S$1 billion, said a 2014 BT report. The move was part of their succession planning for their respective sons; Asok's son Bobby Hiranandani is Royal Group co-chairman.

Based in Singapore, RB Capital has an asset base exceeding S$4 billion. This year, the group is set to launch Farrer Square, a mixed development comprising the 300-room Park Hotel and Farrer Square Medical Suites. It will also open the 226-room Intercontinental Robertson Quay.

Maybank Islamic, the top Islamic bank in Malaysia and the largest Islamic bank in ASEAN, has a 28 per cent market share of Islamic assets in Malaysia. It was ranked fourth in the global sukuk league table for 2015, with a market share of 8.6 per cent from 106 issues totalling US$2.96 billion. For the year ended Dec 31, 2015, Maybank Islamic's total assets exceeded US$36 billion.

(Asia One Business / 05 April 2016)

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Singapore set to benefit from increased demand for Islamic financial services in Asia

SINGAPORE: Industrial real estate investment trust (REIT) Sabana is the largest Islamic REIT globally, in terms of assets - and it is based in Singapore. Overall, shariah-compliant assets under management here have risen by 22 per cent since 2010, while banking assets have grown by more than 73 per cent. This is expected to grow further, as more Islamic funds in the Gulf seek foreign investment opportunities, particularly in Asia.

Speaking at the 6th World Islamic Banking Conference Asia Summit on Wednesday (Jun 3), Ms Jacqueline Loh, Deputy Managing Director at the Monetary Authority of Singapore, said: "GCC (Gulf Cooperation Council) banks have already been expanding their operations in Singapore in recent years to support the deployment of Islamic funds to corporates in the region, through Islamic bank financing, and sukuk issuances.”

She added: “The asset-backed nature of Islamic finance makes sukuk ideal for financing of infrastructure projects and would complement ongoing work by Singapore to enhance the bankability of infrastructure projects in the region and involve more capital market participants."

Sukuks are securities that are similar to bonds but they comply with the Islamic law. In the past five years, there were 31 sukuk issuances in Singapore - more than in other conventional jurisdictions, with total outstanding issuance reaching a high of S$3.8 billion in 2014, compared to S$440 million in 2009.

Industry participants said growth in this segment can help support the financing needs in the region. In particular, an estimated US$60 billion will be needed annually until 2022 for basic infrastructure projects in Southeast Asia.

Growing infrastructure needs and cross border trade and investments are expected to drive demand for Islamic finance in ASEAN. Observers said markets in the region are well-positioned to meet the rising demand, and stock exchanges are working together to capture these opportunities.

Said Bursa Malaysia chief Tajuddin Atan: "Growth of the global Muslim population coupled with increase of global HNWI have been a factor to the rising demand for Islamic finance services and wealth management. Importantly, the ASEAN region will need to mobilise these funds.

“With this interesting fund size, the development of ASEAN economies, the infrastructure needs and the cross border activities in trade and finance, the outlook of future demand for Islamic finance industry, to me, remains bright," he added. "It is expected to almost double or grow by 98 per cent by 2018 to bridge the demand for Islamic finance and to support mobilisation of funds in Southeast Asia alone."

Mr Tajuddin said this will bring up the question of product innovation, to preserve and grow the wealth of the Asian and ASEAN population: “So what the exchanges of ASEAN have done so far ... Malaysia together with SGX, the Singapore stock exchange, and stock exchange of Thailand have collaborated in developing the ASEAN exchanges to facilitate more efficient cross border trading among ASEAN."

In 2012, the Malaysia, Singapore and Thailand stock exchanges established the ASEAN trading link, to allow investors easier access to each other's markets.

(Channel News Asia / 03 Jun 2015)

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Singapore Sukuk Hub Goal Leaves a Lonely Sabana

Sabana (SSREIT) Shariah-Compliant Industrial REIT is the sole entity in Singapore to have sold sukuk this year in a setback to the republic’s ambitions to become an Islamic finance hub.

The real estate investment trust raised S$100 million ($79 million) in September after selling S$90 million of the debt in March, according to data compiled by Bloomberg. While the city introduced rules allowing for Shariah-compliant bond sales in 2006, offerings have been limited to issuers such as Sabana, the Monetary Authority of Singapore and energy services company Swiber Holdings Ltd.

Singapore is among a growing number of countries that are trying to grab a share of the Islamic finance industry, whose banking assets Ernst & Young LLP forecasts will double to $3.4 trillion by 2018. Hong Kong, Luxembourg and the U.K. have sold debut sukuk this year, joining the dominant markets of Malaysia, Indonesia and the Middle East.

“Unless there are new incentives introduced, or a credit crunch affects conventional funding sources, sukuk issuance in Singapore will likely remain rather opportunistic or event-driven,” Suhaimi Zainul-Abidin, treasurer of the city’s Gulf Asia Shari’ah Compliant Investments Association, said in an e-mail yesterday. “Based on current circumstances, there does not appear to be any reason to expect a pick-up in sukuk.”

Tax Incentives

A lack of Singapore incentives and the absence of Islamic pension funds and bond investors that need Shariah-compliant investments are reasons for the slow sukuk issuance, Suhaimi said. Malaysia, the world’s biggest market for the debt, offers income tax and stamp duty exemptions to encourage sales.

Hong Kong, one of the region’s major financial centers along with Singapore, sold a debut dollar Islamic bond in September. The $1 billion of government securities attracted orders for 4.7 times the amount on offer and opens up the market to potential corporate issuers from China.

Sukuk sales in the city-state to date number 30 and total S$4.4 billion, according to an e-mailed statement yesterday from the Monetary Authority of Singapore, which didn’t provide specific details. That compares with 47.7 billion ringgit ($14.6 billion) this year in Malaysia, data compiled by Bloomberg show.

Singapore Muslims make up about 14 percent of the republic’s 5.6 million people, smaller than in Malaysia where 61 percent of the 30 million population are followers of the religion, according to U.S. government data.

‘Create Opportunities’

The Monetary Authority of Singapore set up a sukuk trust certificate program in 2009 and has since issued about S$459 million of the securities, all with one-year maturities, its annual reports show.

City Developments Ltd., a Singapore home builder, started a similar S$1 billion program to the one from MAS in 2008 and has S$275 million of the debt outstanding, according to data compiled by Bloomberg. Swiber sold S$150 million in August last year via private placement and Majlis Ugama Islam Singapura, a government religious affairs agency, has issued S$89 million since 2001, the data show.

“We can expect more sukuk issuance in the future, as there are sukuk programs established by Singapore corporates that have not been fully tapped yet,” the Monetary Authority of Singapore said in the statement. “We will continue to create opportunities for interaction and collaboration.”

Sabana Sukuk

Sabana, the world’s biggest Islamic REIT, has sold S$270 million of Shariah-compliant notes since 2012, data compiled by Bloomberg show. The trust’s shares have declined 6 percent this year to S$1.02, following 2013’s 5.3 percent drop. Singapore’s Straits Times Index has climbed 2.4 percent in 2014.

In Malaysia, which pioneered Islamic finance more than 30 years ago, Axis Real Estate Investment Trust (AXRB) has gained 25 percent to 3.65 ringgit this year. The nation’s biggest Shariah-compliant REIT is outperforming the FTSE Bursa Malaysia KLCI Index, which dropped 1.3 percent.

Singapore is rated the top investment grade of AAA by Standard & Poor’s, the same ranking as Hong Kong and six levels above Malaysia.

“Given the credit rating of Singapore, the government and government-related bodies should start issuing sukuk,” Abas A. Jalil, chief executive officer at Kuala Lumpur-based consulting company Amanah Capital Group Ltd., said in a phone interview yesterday. “That would surely attract more investors to Singapore and develop its market.”

Khazanah, IDB

The city-state has also attracted overseas issuers. Khazanah Nasional Bhd., Malaysia’s sovereign wealth fund, has sold S$2.1 billion via three sukuk sales. In its most recent offering in October last year, the company issued S$600 million. The Jeddah, Saudi Arabia-based Islamic Development Bank also raised funds from Singapore dollar Shariah-compliant bonds in 2009 and those have already matured.

Singapore has a total of S$2.8 billion of corporate sukuk outstanding, compared with $91.4 billion in Malaysia, data compiled by Bloomberg show.

“Singapore has to work closely with its neighbor Malaysia as they are the undisputed largest sukuk issuer in the world,” Bobby Tay, co-founder of Sabana Real Estate Investment Management Pte. Ltd., which manages the Sabana REIT in Singapore, said in a Sept. 30 e-mail interview. “The need for incentives and tax treatment will also be crucial for issuers.

(Bloomberg / 02 October 2014)

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Singapore struggles to establish broader Islamic finance market

The Southeast Asian financial hub of Singapore, which is competing with Hong Kong in establishing an Islamic finance market in the region, has suffered a setback this year as only one institution issued an Islamic bond (sukuk) and was just able to raise $150mn. The Sabana Shariah-Compliant Industrial Real Estate Investment Trust issued two tranches in March and September and remained the only sukuk issuer in 2014 in a nation which strives to join a growing number of non-Muslim countries jumping on the bandwagon of the Islamic finance business which is increasingly going mainstream.

Hong Kong, on the other hand, in September successfully raised $1bn in its debut sovereign sukuk – and not only this, the Islamic bond was almost 5 times oversubscribed and will subsequently be listed on Nasdaq Dubai. It was the world’s first US dollar-denominated sukuk issued by a government with an AAA credit rating.

Europe’s financial hub of Luxembourg raised $252mn in its first-ever sukuk issue on October 1, while the UK sold the first sovereign issue from a non-Muslim country when it issued a $324mn sukuk in June. By the end of September, South Africa raised $500mn in its first sukuk issue which was 4 times oversubscribed.

So what went wrong in Singapore? Analysts say it is mainly the absence of large-scale sukuks offered by the government or government-related institutions. Like Hong Kong, Singapore has an AAA sovereign credit rating and could easily attract more Islamic investors if it would introduce some incentives and tax exemptions for sukuk investors. This is exactly what its neighbour Malaysia does, a country that dominates the global sukuk market with a current total of $72bn of sukuk outstanding despite the country’s credit rating on the Standard & Poor’s scale is six levels below Singapore’s.

Unlike Malaysia, Singapore also doesn’t have Islamic pension funds or many businesses in need for Shariah-compliant finance vehicles, even though the country’s Muslim population accounts for 15% of the total.

Finance experts say that Singapore should learn from Malaysia how to attract more Islamic investors. Apart from its strong standing in the global sukuk market, Malaysia is now also starting to develop the widely untapped Islamic private banking market in Asia. High-net-worth individuals in Asia are estimated at 2.6mn who control a total fortune of some $8.4tn and of which a significant part is seen to be Muslims who have limited choice to invest and manage their fortune in Shariah-compliant financial instruments.

“We are an established international hub for sukuk and Islamic banking, (…) thus it is possible for us to steer ahead new and innovative initiatives in this area,” said Dr Rozali Mohamed Ali, chairman of the Kuala Lumpur-based International Center for Education in Islamic Finance, at a private banking conference in the Malaysian capital held on October 1.

That way, Malaysia’s foray into the Islamic private banking market with innovative financial solutions could grab a share of rich Muslim Asian clients including the Middle East’s – people who use the services of Singapore’s huge wealth management industry which attracts foreign millionaires in droves but whose Shariah-compliant banking solutions remain somehow limited and overshadowed be the well-established traditional banking industry in the city state.

(Gulf Times / 04 October 2014)

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Singapore: Sun shining on Islamic finance, says MAS chief

Islamic finance is developing rapidly but more work needs to be done if Singapore is to fully benefit from its growth.

As experts in the field gather here for the 5th World Islamic Banking Conference Asia, the consensus is one of promising prospects, but with gaps to plug.

"The sun is shining on Islamic finance," said Ravi Menon, Monetary Authority of Singapore managing director, in a keynote address.

The central banker highlighted three promising global developments for Islamic finance, which forbids the charging of interest. First, Islamic finance has grown at double digits last year, as it has for the previous five years, despite global economic uncertainties and market volatility. Global Islamic financial assets are estimated to have reached US$1.8 trillion by the end of last year, from US$1.5 trillion in 2012.

Second, global regulatory standards and best practices are being established for Islamic finance. Common standards are good for facilitating cross-border transactions, helping to address risks that are idiosyncratic to Islamic finance, such as Syariah non-compliance risk, he noted.

Third, more countries are catering to Islamic finance.

In Asia, Indonesia has set out to significantly grow its Islamic banking sector and develop its Islamic capital markets. India started introducing Islamic financial products and services last year.

There is growing cross-border sukuk or Islamic bonds issuance within Asia as well as between the Middle East and Asia.

"Singapore has benefited from this favourable global environment for Islamic finance," he said.

Singapore is the only non-Muslim-majority country among the top 15 countries for Islamic finance. Islamic assets under management have surged nearly fourfold over the last five years to US$3.5 billion in 2012. More than 40 per cent of the Islamic assets in Singapore are managed by the asset management industry.

Fifteen banks are involved in Islamic banking, double the number five years ago; they hold about a third of the Islamic assets in Singapore. The rest of Islamic assets are in outstanding sukuk and takaful or Islamic insurance.

Singapore has had nearly 30 sukuk issuances worth S$4.3 billion to-date, compared to seven in 2013.

And more funds continue to be established here, to meet demand from clients in Asia as well as from the Middle East. Several corporations have established sukuk programmes in Singapore to tap the market over the next few years, said Mr Menon.

Still, despite the impressive growth, industry players say Islamic finance here needs more depth - in a non-Muslim-majority environment, Islamic finance has yet to really take off.

Most Islamic banks tend to be retail-heavy, as seen in the more than 60 per cent retail weightage in Malaysia and 80 per cent in Indonesia, noted Syed Abdull Aziz Syed Kechik, OCBC Al-Amin Bank Berhad chief executive.

"This is invariably linked to a domestic centrism," he said.

"While organic growth remains a reality, the gap between Islamic banks on one side and conventional regional and global players on the other is widening. Bolder moves by Islamic banking players to expand via regional mergers and acquisitions would be the key to fast-tracking capacity and building scope," he said.

Other challenges include the lack of familiarity with Syariah structures, with Middle East investors and companies venturing offshore heading mainly to London.

According to Clifford Lee, DBS Bank's head of fixed income, much education still needs to be done on structuring Syariah-compliant deals.

"In the last 12 months, people I've spoken to say Islamic financing of a plane can't be done because it serves alcohol onboard; oddly enough, it could be done for the engine," said Mr Lee.

As for sukuk issuances in Singapore, companies which have done so in order to broaden their investor base have found that the benefits of diversification weren't obvious.

"Just making a bond Syariah-compliant does not mean there are investors tripping over themselves to get it," pointed out Mr Lee. Funds in the region may not also have the mandates to invest in these products.

As commercially driven entities, most banks would be wary of the added cost from ever-increasing regulatory requirements when investing capital into a nascent market that currently offers low prospects and has limited governmental support, said OCBC Al-Amin's Syed Abdull Aziz.

He suggested the government could do more to promote the sector. The government could consider the merits of developing a strategic plan with appropriate incentives for the key industry stakeholders, he said.

"This would help to nurture a comprehensive sizeable Islamic finance sector in Singapore, taking into consideration the long-term benefits of active participation in the Islamic finance channel within the context of the overall Asean integrated economic growth framework," said Syed Abdull Aziz.

Yeo Wico, Allen & Gledhill LLP partner, noted that due to the efforts of Singapore's regulators, there is a level playing field between Islamic finance and conventional finance.

"Singapore's attraction as an international finance centre in an economically vibrant region is key to the future growth of Islamic finance in Singapore," said Mr Yeo.

The Gulf Cooperation Council (GCC) region is transforming rapidly and Singapore companies should also seize opportunities there, said Zainul Abidin Rasheed, Singapore Ambassador to Kuwait and Foreign Minister's Special Envoy to the Middle East. The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Many may not be aware of the strong development and growth phase that the GCC is experiencing now. "The main cities of the GCC will be transformed, and Singapore should be part of this transformation," he said.

(BT Premium / 04 June 2014)

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Singapore sees bright prospects in Islamic finance

SINGAPORE: Singapore's prospects in Islamic finance look bright, with more funds establishing themselves here to tap the Islamic debt market, the Monetary Authority of Singapore's (MAS) top executive said on Tuesday (June 3).

"Singapore is the only non-Muslim majority country among the top 15 countries for Islamic finance," MAS Managing Director Ravi Menon said at the opening of the 5th World Islamic Banking Conference Asia Summit that is being held in the city-state.

"More funds continue to be established here, to meet demand from clients in Asia as well as from the Middle East, while several corporations have established sukuk programmes in Singapore to tap the market over the next few years," he added.

Sukuks are bond-like structures that comply with Islamic investment principles, which prohibit the charging or paying of interest.

Mr Toby O'Connor, the CEO of Islamic Bank of Asia said: "There is a lot of liquidity in the conventional space that the new Islamic products are competing with, but it's a huge opportunity. When you look at the wealth management space, there's a lot of liquidity coming into Singapore, a portion of that will go to Islamic finance, (and) when you look at sukuk, we've seen a number of issuances, programmes being set up".

Syed Abdull Aziz Syed Kechik, Director and CEO of OCBC Al-Amin Bank Berhad added, "Sukuk has arisen to become a key instrument for cross-border capital flows, driven by the ever-growing demand for Shariah-compliant investments that transcend borders. The sobering reality, however, remains that the current demand for sukuk outweighs supply about twice over".

Islamic finance has been growing by double-digits in recent years, making it one of the star performers in international finance. The industry has also become more international, as seen from recent sovereign Islamic bond issues by newcomers Britain and Hong Kong.

According to Mr Menon, global Islamic financial assets are estimated to have reached US$1.8 trillion by the end of 2013, up from US$1.5 trillion in 2012.

This is a sector that saw double digit growth last year, with more players jumping in to tap growing demand.

"As more countries cater for Islamic finance, the scope for cross-border Islamic finance increases. We are beginning to see more cross-border sukuk issuance within Asia as well as between the Middle East and Asia," he said.

In Singapore, Mr Menon said Islamic assets under management have surged nearly fourfold over the last five years.

There are now 15 banks in Singapore involved in Islamic banking, double the number five years ago. The city-state also had nearly 30 sukuk issuances to date, with seven in 2013 alone, he added.

However, Kuala Lumpur is currently the world leader in Islamic sukuk market, accounting for 60 percent of the global total.

To tap growing demand, Hong Kong and the UK have recently taken steps to facilitate sukuk issuance.

"These are very important initiatives from an Islamic finance perspective. When you have a sovereign taking the lead, you then have private sector also following suit. It would lead to other UK corporates looking to raise sukuks, (and then) lead to other corporates from other parts of the world looking to issue sukuks in London and similarly out of Hong Kong," said Mr Wasim Saifi, the Global Head of Islamic Banking in Consumer Banking and CEO of Standard Chartered Saadiq in Malaysia.

Industry players say the increase in trade flows between Asia and the Middle East as well as growing support for Islamic finance will provide significant opportunities. A key to tapping these opportunities lies in driving greater connectivity between the different markets.

According to the latest EY report, global Islamic banking assets are expected to grow to 3.4 trillion US dollars by 2018.

In particular, EY identified six rapid growth markets - Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (QISMUT).

The consultancy expects Islamic banking assets with commercial banks to grow at a compound annual growth rate of 19.7% over 2013-2018 across the QISMUT countries, to reach US$1.6 trillion by 2018.

(Channel News Asia / 03 June 2014)

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