January 19, 2009 / 10:16 AM / 12 years ago

UPDATE 1-Singapore launches first Islamic bond programme

(Adds detail)

By Saeed Azhar

SINGAPORE, Jan 19 (Reuters) - Singapore launched its first islamic bond programme, worth a total of S$200 million ($134 million), to promote Islamic finance in Southeast Asia’s financial capital.

The bonds, also known as sukuk, are backed by the sale and lease-back of real estate assets, or Al-Ijarah structured, and will be treated at par with government securities.

The underlying asset for the programme is the downtown head office of the Monetary Authority of Singapore (MAS), the city-state’s central bank.

Singapore, which is competing with Kuala Lumpur in neighbouring Malaysia for market share, is promoting Islamic finance to tap Middle Eastern petrodollars and rising demand for ethical investing.

Standard Chartered (STAN.L) and the Islamic Bank of Asia, part of DBS Group (DBSM.SI) are lead managers of the programme, which allows the central bank to issue Islamic bonds if there is demand from investors — a process called reverse enquiry.


Islamic Bank of Asia said it would place the first order for the sukuk, and bankers said the sukuk would create a benchmark for corporate issuance in the Singapore debt market.

“Clearly this is the first step to set a yield curve and establish a price and now the next step is to take it to the private and public sectors,” said Afaq Khan, chief executive of Standard Chartered Sadiq, the Islamic unit of the British bank.

Islamic finance is derived from the sharia, or Islamic law. It avoids interest-based financing and advocates ethical investing and a fair distribution of profits and losses between venture partners.

But Islamic debt issuance globally slowed sharply last year amid a worsening outlook for the world economy and as liquidity dried up because banks cut lending.

New Islamic bond issuance fell by two-thirds to a three-year low in 2008, with sales in the key Malaysian market dropping 78 percent, according to the Islamic Finance Information Service, which tracks industry data.

But bankers sounded more optimistic about the outlook amid demand in the Gulf.

“The financial crisis will not be able to stop the growth momentum of global islamic financial markets,” Islamic Bank of Asia’s 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 $1 trillion.” (For more Reuters stories on Islamic finance, click on [ID:nISLAMIC1]) (Editing by Jan Dahinten)

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