The Monetary Authority of Singapore (MAS) has announced a sukuk (Islamic bonds) issuance program to provide Shariah compliant regulatory assets. The development opens up a top-class avenue for investors from the Gulf seeking top-class asset handlers who have to show as an example of their acumen a whole island nation that they have helped build up from scratch as one of the best financial centers in the world – Singapore. The joint arrangers of the Sukuk Program are Standard Chartered Bank and The Islamic Bank of Asia (IB Asia) and the legal counsel advising on the transactions is Allen & Gledhill. “This program is significant for being the first reverse inquiry Ijara based Sukuk from such a high quality issuer in the world,” said Abdullah Hasan Saif, Chairman of IB Asia, referring to the Singapore government which is a triple ‘A' rated sovereign. No less significant is the reach of IB Asia. Launched by DBS last May, IB-Asia's founding shareholders include majority stakeholder DBS (51 percent) and 22 Middle Eastern investors from prominent families and industrial groups from Gulf Cooperation Council (GCC) countries. DBS, established in 1968 as the development bank of Singapore, was the catalyst to Singapore's economic development during the nation's early years of independence. Since then, DBS has transformed into a successful financial services institution, with operations in 16 markets. One of the largest financial services groups in Asia, DBS is listed on the Singapore Exchange (SGX). Its asset quality is one of the best in Asia and its “AA-” and “Aa1” credit ratings are among the highest in the region. IB-Asia's nine-member board includes Khalid Abdulla Al-Bassam, Chairman of Bahrain Islamic Bank and former deputy governor of Bahrain Monetary Agenc; and Khalid Abdullah Al-Zamil, Director and Partner of Al-Zamil Group of Companies. Four of the world's most prominent Islamic scholars are on IB-Asia's Shariah Board. They are Sheikh Nizam Yaqouby (Bahrain), Sheikh Dr Mohamed Ali Elgari (Saudi Arabia), Dr. Abdul Sattar Abu Ghuddah (Saudi Arabia), and Dr. Mohd Daud Bakar (Malaysia). “The Sukuk program reflects Singapore's growing competence in support functions for Islamic finance, such as providing the required legal services,” said Saif on Monday at the launch of the Sukuk program in Singapore. “This evolving scene gives a very encouraging picture for Singapore in its aspirations to become an internationally acclaimed sukuk issuance center,” he said. The Islamic financial market, while not exposed to the full-blown effects of sub-prime crisis, has nonetheless been affected by the decreasing activity and liquidity in the greater economy. The crisis has caused the global sukuk market to drop 60 percent from its peak worth of over US$50 billion last year, according to McKinseyResearch. “Nonetheless, the financial crisis will not be able to stop the growth momentum of global Islamic financial markets,” Saif said. “Sukuk issuance is still gaining acceptance in the Gulf as one of the preferred means of investment and financing, at a time when infrastructure project spending in the Gulf is estimated to reach US$1 trillion.” Saif said IB-Asia plans to utilize the Sukuk program for regulatory requirements, to facilitate the development of a range of Singapore-dollar Shariah compliant products. To that end, he announced that IB-Asia will be placing an order for the Sukuk shortly, “making us the program's first investor.” IB-Asia has affirmed its capabilities to lead arrange prominent Shariah-compliant transactions. Landmark Transactions it has participated in, or is currently undertaking include: • Sole mandated lead arranger and sole bookrunner for the first syndicated commodity Murabaha transaction undertaken by a Singapore Bank for a singapore-listed company • Shariah adviser for cambridge industrial trust's conversion into, the first publicly listed Islamic REIT on Singapore exchange • The launch of a profit rate swap and fx forward Purchase contract to meet our clients' risk Management and investment needs • And development of a number of Wealth management products for launch as the global market situation settles. Heng Swee Keat, Managing Director of the MAS said the sukuk is the Shariah-compliant equivalent of Singapore Government Securities (SGS), and is of the highest credit standing. “The sukuk will be given equal regulatory treatment as SGS, such as qualifying as an asset in the computation of capital and liquidity requirements, and as eligible collateral for tapping MAS' liquidity facility. The sukuk will be issued on a reverse-enquiry basis, based on the demand of financial institutions operating here.” He said MAS is committed to a level playing field, by ensuring that Islamic financial activities with the same underlying economic essence are accorded the same regulatory treatment as those in conventional finance. “In this regard, we have already implemented several measures, including removing the double-imposition of stamp duty for Shariah-compliant financing structures, and refining our rules to allow banks to offer Murabaha financing and deposits. He also announced that Singapore-based banks may now enter into Murabaha interbank placements and offer Ijara Wa Igtina financing. “These changes will enable the financial institutions offering Islamic finance a wider range of instruments in their management of liquidity and in their matching of assets and liabilities,” Keat said. Market experts estimate the size of Islamic banking assets to exceed US$ 700 billion, growing in excess of 15 percent per annum. Over the last few years institutions offering Shariah compliant products have come up in almost every part of the world – from North America to the Far-East. An important and rapidly growing area worldwide is the development of Sukuks, which provide access to the huge and growing Islamic liquidity pool in addition to the conventional investor base. Sukuks are now well established with several sovereign, institutional and corporate issuances in the international Eurobond market as well as domestic local currency markets. New structures are continuously being developed to meet unique customer needs. V. Shankar, Group Management Committee Member, Standard Chartered Bank said the program's Shariah structure is based on the concept of Ijara i.e. sale and leaseback of real estate assets, which is the most widely used and accepted structure for sukuk issuance worldwide. “The underlying assets in this case are the office units of MAS head office building which are leased to third party tenants. The unique feature here is that since the underlying properties are already tenanted by MAS to third parties, we have used an innovative concept of forward lease to accommodate this variation.” He said the program is very flexible and will allow MAS to issue Sukuks from time to time on a reverse enquiry basis based on the needs of the investors. “The size, maturity and pricing of each issuance will be determined in line with the investor requirements and the prevailing market conditions. Thus it will be a demand driven issuance to satisfy the needs of the investors.” Singapore is one of the few nations outside the Muslim-majority countries to lead the development of Islamic finance. “This is the first local currency Sukuk program established by a non-Muslim majority country with the aim of facilitating and promoting Islamic banking and finance in Singapore and the South East Asian region as a whole,” Shankar said.
