Singapore Targets Sukuk as Khazanah Plans Sale - Bloomberg

Singapore is seeking to develop its Islamic finance market and attract investors as global growth in products that comply with Shariah law tops 20 percent annually, reports Bloomberg (August 03, 2010).

The report read: Islamic services in the island republic are “small and still emerging” and reflect the world trend, according to an e- mail statement on July 27 from the Monetary Authority of Singapore. “Greater depth and liquidity will in turn draw even more participants into using Islamic finance for their funding and investment needs. For the industry to grow further, we need more intermediaries, more products and more investors.”

Khazanah Nasional Bhd., Malaysia’s state investment company, may sell S$1.5 billion ($1.1 billion) of five- and 10-year sukuk, a person familiar with the matter said today. A “few companies” are looking to sell notes in Singapore that adhere to the religion’s ban on interest, the authority known as MAS said, without specifying the names, the report added.

Financial products that meet Shariah guidelines, which are typically backed by assets or cash flows, account for less than 5 percent of the total market worldwide, the MAS said. Globally, about $1 trillion is invested in Islamic products.

The government started a S$200 million sukuk issuance program in January 2009, which was set up to provide “regulatory assets” to institutions offering Islamic services, according to the MAS. Several portions have been sold so far and the debt was offered at similar yields to notes that don’t comply with the ban on interest, the central bank said.

Singapore’s Islamic finance industry “doesn’t have the critical mass but it is heading in the right direction,” Jonathan King, director at Singapore-based AEP Investment Management Ltd., which is 80 percent owned by Saudi Arabia’s Al- Rajhi Group, said in an interview yesterday. “We are encouraged by MAS’ pro-active strategy.”

The city state’s Muslim community is small relative to its Southeast Asian neighbors, accounting for 15 percent of a resident population of about 3.7 million, according to the central bank. In Malaysia, the proportion is 60 percent, the statistic department’s website shows, and 86 percent in Indonesia, according to U.S. government data.

Global sales of Islamic bonds have fallen 29 percent to $6.7 billion so far this year, compared with $20.2 billion in 2009. Malaysia, which accounts for more than 60 percent of the global sukuk market, sold $1.25 billion of notes in May, attracting orders for more than five times the debt initially offered.