The past year bears testimony to the continued expansion of Islamic financing products and activities in Singapore. New market participants, together with familiar names, have contributed to an overall positive trend in Islamic finance in Singapore.
Amidst the market activity, the fourth World Islamic Banking Conference: Asia Summit was successfully convened in Singapore in June, with speakers and delegates from all over the world. In his speech at the conference, the deputy chairman of the Monetary Authority of Singapore (MAS) Lim Hng Kiang, announced that the MAS was conducting a review of the regulatory and tax treatment of Islamic finance instruments, an initiative which could further boost Singapore’s attractiveness as a conducive environment for Islamic financial activity.
2013: A review
Sukuk: In the Islamic capital markets space, corporate Sukuk programs and issuances emerged at a steady pace throughout the year.
In the second quarter of 2013, CIMB Bank arranged a SG$500 million (US$396.24 million) multicurrency Islamic trust certificates issuance program for Sabana Shari’ah Compliant Industrial REIT (Sabana REIT), which continues to be a flag-bearer for Islamic finance in Singapore. The property-based Wakalah structure for the Sukuk program developed from the structure adopted by Sabana REIT for its multiple-award winning SG$80 million convertible Sukuk deal, issued a few months before.
The third quarter was ushered in by the establishment of a US$500 million multicurrency Islamic trust certificates issuance program by Swiber Holdings, an offshore marine company listed on the Singapore Exchange. This program was based on the Shariah principle of Wakalah Bi Al-Istithmar. The inaugural issuance of SG$150 million (US$118.87 million) was fully subscribed (within a week of program establishment) by investors from Brunei, Singapore and Malaysia, and (according to media reports) achieved a more competitive pricing than conventional bonds.The concluding quarter of 2013 was rounded off by a similar Sukuk program established by Vallianz Holdings Limited, an integrated offshore marine solutions provider listed on the Catalist board of the Singapore Exchange. Swiber is a substantial shareholder of Vallianz Holdings Limited.
The vessel-based Wakalah structure for Vallianz Holdings Limited’s Sukuk program is a first for Sukuk issued out of the Singapore market, which has in the past typically witnessed the use of Shariah compliant real estate or shares. Equally interesting are the built-in options for certain series of Sukuk issued under the program to benefit from a Kafalah guarantee and/or certain security arrangements (including mortgages over the vessels forming part of the Wakalah venture). Credit enhancement features are unusual for sukuk but the options for guarantees and security under this program could provide flexibility to increase the attractiveness of Vallianz Holdings Limited’s Sukuk to potential investors on a deal-by-deal basis.
Maybank Kim Eng Securities (Maybank KE) was the sole lead arranger, bookrunner and global coordinator for both programs by Swiber and Vallianz Holdings Limited. Maybank KE and Malayan Banking were the program dealers, and Maybank Islamic acted as the Shariah advisor for both programs.
Equity-linked: The Singapore market also witnessed a number of Sukuk and other Islamic-compliant instruments which are intended to offer investors an element of equity-linked exposure or which facilitate equity investments in the relevant companies.
In October 2013, CIMB Bank, Deutsche Bank and Standard Chartered Bank acted as joint lead managers in the issuance of SG$600 million (US$475.49 million) exchangeable trust certificates for which Khazanah Nasional is the obligor. The trust certificates are exchangeable into the shares of IHH Healthcare, an international premium healthcare services provider dual-listed on both the Malaysian and Singapore stock exchanges. The sizable issuance is notable for being Khazanah’s first equity-linked Sukuk in Singapore dollars, and also the first Sukuk in Singapore to offer exposure to the healthcare industry.
In December 2013, Ley Choon Group Holdings, an underground utilities infrastructure service provider listed on the Singapore Exchange, announced that it had entered into a non-legally binding term sheet with the Islamic Bank of Asia (IB Asia) for the proposed issue of convertible instruments worth approximately SG$15 million (US$11.88 million), structured under the Shariah principle of Murabahah and convertible into shares of the company. IB Asia is a joint venture partnership between DBS Bank (one of the largest financial services groups in Asia) and prominent investors based in the GCC. The completion of the transaction is subject to conditions, including shareholders’ approval, but is expected to be one of the first Islamic private investment in public equity deals done in Singapore.
Broadening: The use of Islamic finance by corporates and individuals alike was broadened in 2013.
In May 2013, Atlantic Navigation Holdings (Singapore), a company listed on the Singapore Exchange, announced that Maybank Singapore had extended a commodity Murabahah acquisition financing facility to one of its subsidiaries. The facility was structured specifically for the acquisition of vessels which will then be used to secure the financing, and is understood to be one of the first of its kind in Singapore. Earlier in the year, Maybank Singapore also launched two new Shariah compliant products for Islamic home financing and Islamic commercial and industrial property financing, specifically for Singapore buyers to finance the purchase of properties in Malaysia.
2014: A preview
The pipeline of deals and transactions is expected to continue into 2014. Specifically, the recent development of Islamic financing structures and instruments offering equity-linked exposure or facilitating equity-type investments will continue to add to the width and depth of the Singapore market as it gains momentum.
Conclusion
The wide-ranging developments in the Islamic finance space in Singapore in 2013 are indicative of a growing Islamic finance market in Singapore, and the momentum generated in 2013 is expected to continue into 2014.
Yeo Wico and Jeanne Ong are partners at Allen & Gledhill. They can be contacted at
[email protected]
and
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respectively.