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Sunday, 5 October 2014

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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