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country report
Singapore
Forging ahead — Singapore’s Islamic
finance story
By Yeo Wico and Suhaimi Zainul
2012 marks yet another important year in the Islamic finance
growth story for Singapore, as the Singapore market
witnessed a number of significant and historic transactions,
alongside encouraging growth in interest in Islamic finance
among the financial and investment industry.
In his opening address at the 3 rd Annual World Islamic Banking
Conference: Asia Summit, Ravi Menon, managing director of
the Monetary Authority of Singapore stated that “Islamic finance
must become more integrated with the global financial system….
This means that Islamic finance must strike roots in the key
international financial centres of the world. These centres can
contribute to Islamic finance in several ways”.
the purpose of the Sukuk. This transaction heralds a return to
the international Sukuk market of convertible Sukuk, which was
last seen in 2009, and signals the acceptance by the market of
sophisticated and hybrid Sukuk structures.
Apart from Islamic capital market transactions, there appears to
be significant growth in interest in Islamic finance in Singapore
in 2012, with Islamic financial institutions like CIMB Islamic
strengthening their Islamic retail banking business offering in
Singapore with the launch of new Islamic retail banking products.
These are encouraging signs of the gradually evolving Islamic
finance ecosystem in Singapore. Having said that, there are
still many opportunities for product offerings in the Islamic retail
banking space, with the areas of home and auto financing and
credit cards being the most obvious gaps to fill.
Singapore is certainly commonly regarded as one such
international financial centre. Increasingly, Singapore’s role in the
global Islamic finance marketplace is evolving into an intersecting
node where Islamic financial institutions collaborate with their
conventional partners to jointly grow the industry.
In November 2012, it was reported that Singapore investors
accounted for 23% or US$3.5 billion of the US$15.6 billion
order book for Abu Dhabi Islamic Bank’s Tier 1 perpetual Sukuk,
although allocations were scaled back to 18% of the issue. The
strong interest and participation by Singapore investors in this
transaction signifies a solid appetite among Singapore investors
for Islamic financial instruments, and willingness to partake
in Islamic financing transactions on the international stage,
notwithstanding its small domestic market.
Singapore issuers have also been venturing out to tap the Ringgit
Malaysia Sukuk market. Singapore mainboard listed Golden Agri
Resources, the world’s second largest palm oil plantation company
announced the issue of a RM1.5 billion (US$481.98 million)
Islamic medium term note program in the middle of November
2012. Singapore listed palm oil company First Resources tapped
the ringgit Sukuk market twice in 2012, issuing first a RM600
million (US$192.79 million) Sukuk in July and later in December
a RM400 million (US$128.52 million) Sukuk under its RM2 billion
(US$642.58 million) Musharakah Program established in July
2012. This could very well be a sign of a more regular pattern of
Singapore issuers taking advantage of the depth of the Malaysian
Sukuk market which is buoyant with ample liquidity.
In what was perhaps the most significant Islamic finance
transaction in Singapore in 2012, Sabana Shariah Compliant
Real Estate Investment Trust (“Sabana REIT”), the first Shariah
compliant real estate investment trust (“REIT”) to be listed in
Singapore and currently the largest Shariah compliant REIT
by market capitalization worldwide, issued the first ever Sukuk
to be convertible into REIT units. The transaction involved
a combination of Murabahah, Ijarah and Wakalah, tailored
consulting
specifically to facilitate the acquisition of new real estate assets by
Sabana REIT, and of course includes complex features allowing
convertibility into REIT units. The Sukuk issuance facilitated
the acquisition by Sabana REIT of new real estate assets in
Singapore, which were then used to create Ijarah cashflows for
Singapore’s strategy has always been based on the adage that it
cannot be a truly global financial centre if it does not offer Islamic
financial services. Singapore’s strengths are well documented -
as an international financial hub, it has a wealth of human capital,
a transparent tax structure, and a solid regulatory regime, with
the necessary legislation and regulation in place to ensure
conduciveness for Islamic finance. Add to that Singapore’s
strategic position between two natural harbours for the growth of
Islamic finance - Malaysia and Indonesia.
Increasingly, Singapore’s
role in the global
Islamic finance marketplace is
evolving into an intersecting
node where Islamic financial
institutions collaborate with their
conventional partners to
jointly grow the industry
Singapore Deputy Prime Minister Tharman Shanmugaratnam,
in his speech at the 8 th World Islamic Economic Forum held in
Malaysia in early December mentioned that the next 10 to 15
years is expected to offer significant opportunities for the growth
and diversification of Islamic finance. It is imperative for Singapore
to participate in, and contribute to this growth. To do so, it must
stay tuned and plugged in, to the quickly evolving Islamic finance
market globally, as well as facilitate and encourage Islamic
finance in and through Singapore. The Sabana convertible Sukuk
issuance is the latest milestone for Islamic finance in Singapore,
and a vivid demonstration of her potential as an Islamic finance
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Yeo Wico and Suhaimi Zainul Abidin are partners at Allen &
Gledhill. They can be contacted at yeo.wico@allenandgledhill.
com and suhaimi.zainul@allenandgledhill.com respectively.
February 2013 47