On the 26th November 2010, Singapore listed its first Shariah compliant real estate investment trust (REIT) on the Singapore Exchange. Known to be the world’s largest listed Shariah compliant REIT by total assets, the Sabana REIT managed to raise SG$664.4 million (US$503 million) during the initial public offering that attracted not only local retail and institutional investors but foreign investors from the Middle East.
Hooman Sabeti-Rahmati, partner at the legal firm, Allen & Overy (Singapore) said the success of the Sabana REIT clearly indicates an appetite in Singapore for doing broadly distributed Islamic deals. The REIT was well distributed between conventional and Islamic investors, which was not necessarily the case in the past, he said.
The other indication, Hooman pointed out, was the positive receptivity of the South East Asian markets among conventional investors towards Islamic deals.
Singapore’s most notable Islamic transaction this year was Khazanah Nasional’s SG$1.5 billion (US$1.1 billion) Sukuk issuance in August. The deal drew a demand of over four times its book size, enabling Khazanah, the Malaysian government’s state investment arm and sovereign wealth fund, to upsize the transaction from the initial offer of SG$1 billion (US$734 million) to SG$1.5 billion. It attracted a diverse group of over 80 local and international investors comprising financial institutions, asset management, statutory bodies and insurance companies from Brunei, Hong Kong, Malaysia and Singapore.
Hooman felt a symbiotic relationship existed between Malaysia and Singapore because the positive reception towards the growth of Islamic finance in Singapore would also benefit Malaysia as a whole.
“The regulators in Singapore are embracing a market-driven approach to the growth of Islamic finance. So rather than dictate the types of deals or structures that are Islamic that should be subject to growth, they are letting the market decide. The government is playing its role to facilitate Islamic structures while the market is doing its part to make economic sense,” he said.
In 2006, Malaysia launched the world’s first listed Islamic REIT. The Al-Aqar KPJ REIT was launched by KPJ Healthcare. It has since been followed by two other Islamic REITs from Malaysia, the Al-Hadharah Boustead REIT launched in 2007 and the Axis-REIT. However unlike the Sabana REIT, the Malaysian counterparts witnessed little international investor interest.
Hooman believes it was the economics of the particular investment which assisted in the generation of significant foreign interest for the Sabana REIT. “The REIT had an attractive yield upfront and underlying assets, which to me is the right way for investors to look at the deal. Investors should not shun or be attracted to the deal just because it is Islamic,” he said.
In the conventional space, Singapore is the third largest REIT market in the Asia Pacific region, with industry market capitalization of about US$20 billion, after Australia and Japan.
For the Islamic finance industry in Singapore, the Sabana REIT may have just opened the doors to a new beginning.
This article was published in the December 2010/January 2011 issue of Islamic Finance Asia