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 3rd 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”.
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 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 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’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.
Singapore Deputy Prime Minister Tharman Shanmugaratnam, in his speech at the 8th 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 hub.
Yeo Wico and Suhaimi Zainul Abidin are partners at Allen & Gledhill. They can be contacted at
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