SINGAPORE, (Reuters) – City Developments will issue the first tranche of a S$1 billion ($708 million) Islamic bond programme by the end of the year, tapping a new financing source that bankers say other Singapore firms could soon follow.
CityDev, Southeast Asia’s second-biggest developer by market value, said on Thursday it has not decided on the size of its first Singapore-dollar denominated tranche, but may use the funds to buy land, buildings, or even inject its own assets.
“We hope to do the first tranche before year-end, subject to market conditions,” CityDev’s CFO Goh Ann Nee told journalists at a briefing, adding that the bond will likely be on a three-year maturity. CityDev last week announced that it was planning to sell S$1 billion in sharia-compliant medium-term notes (MTN) arranged by Malaysian lender CIMB, in what would be Singapore’s first Islamic unsecured financing arrangement.
CIMB Bank is part of CIMB Group which is listed on the Malaysian stock exchange through Bumiputra Commerce Holdings.
The bank has also been in discussions with other Singapore firms to set up sharia-compliant financing, CIMB Investment Bank head of debt capital markets Thomas Meow said, but declined to give details.
Islamic banking is based on sharia, or Islamic law. It requires that gains be derived from ethical and socially responsible investments and frowns on interest-based banking and sectors involving pork, gaming and pornography.
“Many established companies in Singapore have already been tapping the conventional MTN markets and those are the natural targets,” said Meow, adding that capatible firms can include telecos like SingTel and rigbuilders like Keppel Corp.
Asian borrowers are looking to oil-rich Middle East investors for funding as credit markets tighten and interest rates rise. In Hong Kong, the city’s Airport Authority has said it plans to sell an Islamic bond in the third quarter to tap new lenders and lower borrowing costs.
The Asian Development Bank estimates Islamic assets globally aggregate around $1 trillion with annual growth of 10 to 15 percent a year.
“Given the ongoing difficult conventional market conditions, it is not surprising that issuers are looking at ways to open up new pools of investors,” said Vince Cook, chief executive of the Islamic Bank of Asia, a unit of DBS Group.
“Sharia compliant transactions can achieve this for many, as this market can be opened without losing any traditional or conventional investors,” Cook told Reuters.
Singapore-listed Cambridge Industrial Trust CMIT.SI last month took the lead by getting itself approved as sharia-compliant, opening the real estate investment trust to funding from Middle Eastern islamic investors.
CityDev’s Goh said she expects Islamic funding to come cheaper than the firm’s conventional sources of financing, due to the large pool of funds that has scarce assets to invest in.
“It’ll be competitive if not cheaper, because there is a pool of Islamic funds that doesn’t know where to invest. That’s why you see them buying iconic buildings in Japan, China. They’re looking for a good place to invest,” Goh said.