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.