Sabana 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 $100 million in September after selling $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.
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 US$3.4 trillion ($4.3 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 interview yesterday. “Based on current circumstances, there does not appear to be any reason to expect a pick-up in sukuk issuance.”
Trust Certificates
Sukuk sales in the city-state to date number 30 and total $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 47.6 billion ringgit ($18.4 billion) this year in Malaysia, the world’s biggest Islamic bond market, data compiled by Bloomberg show.
Singapore Muslims make up about 14% of the city’s 5.6 million people, smaller than its Southeast Asian neighbor, where 61% of the 30 million population are followers of the religion, according to U.S. government data.
The Monetary Authority of Singapore set up a sukuk trust certificate program in 2009 and has since issued about $459 million of the securities, all with one-year maturities, its annual reports show.
City Developments Ltd., a Singapore home builder, started a similar $1 billion program to the one from MAS in 2008 and has $275 million of the debt outstanding, according to data compiled by Bloomberg. Swiber sold $150 million in August last year via private placement and Majlis Ugama Islam Singapura, a government religious affairs agency, has issued $89 million since 2001, the data show.
Create Interaction
“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, the world’s biggest Islamic REIT, has sold $270 million of Shariah-compliant notes since 2012, data compiled by Bloomberg show. The trust’s shares have declined 6% this year to S$1.01, following 2013’s 5.3% drop. Singapore’s Straits Times Index has climbed 3.1% in 2014.
In Malaysia, which pioneered Islamic finance more than 30 years ago, Axis Real Estate Investment Trust has gained 26% to 3.69 ringgit this year. The nation’s biggest Shariah- compliant REIT is outperforming the FTSE Bursa Malaysia KLCI Index, which dropped 1.2%.
Tax Incentives
Singapore is rated the top investment grade of AAA by Standard & Poor’s, 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.”
The city-state has also attracted overseas issuers. Khazanah Nasional Bhd., Malaysia’s sovereign wealth fund, has sold $2.1 billion via three sukuk sales. In its most recent offering in October last year, the company issued $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 $2.8 billion of corporate sukuk outstanding, compared with US$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, 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.”
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