SINGAPORE: Developments Ltd aims to sell Singapore’s first Islamic bond by the end of the year, a move it says will both benefit itself and contribute to the development of the Islamic financial sector in the city state.

“It is an untapped, alternative means of raising funds, and will allow us to move into new markets and engage new stream investors,” Kwek Leng Joo, managing director of City Developments, said at a signing ceremony yesterday.
 
The deal – set to be marketed globally – will raise the profile of the firm in other parts of the world and also give it the financial flexibility to make investments and acquisitions in the future, he added.

The planned offering comes with Singapore keen to ensure that it doesn’t fall behind in the race among financial centers to carve out a portion of the fast-growing market for Islamic products.

The Singapore-based company, which both develops and manages properties, hasn’t yet determined the size or tenor of the sukuk, and the timing will depend on market conditions, said Thomas Meow, head of debt capital markets for CIMB.

CIMB-GK Securities, a subsidiary of Malaysia’s CIMB Group, yesterday signed an agreement with City Developments to set up a S$1bn ($708mn) unsecured Islamic multi-currency medium-term note program that will provide the underlying documentation for the upcoming sukuk.

The first bond issue – which won’t get a credit rating – will be denominated in Singapore dollars and will be listed on the Singapore stock exchange.

The maiden deal will use the Islamic principle of ijarah, or sale and leaseback, although the program allows for future deals to come in other currencies and to utilise other Islamic principles such as profit sharing depending on where it sees demand.

The developer hasn’t yet defined which assets will back the upcoming deal but City Developments chief financial officer Goh Ann Nee said the company had a significant portfolio of suitable assets including commercial and industrial properties.

A large portion of the company’s profits come from Shariah-compliant activities, she said.

City Development last week reported a net profit of S$165.2mn for the quarter ended June 30, down from S$194.4mn a year earlier. Revenue, however, rose slightly to S$780.8mn from S$775.2mn. Islamic financial instruments are structured to comply with Shariah, or Islamic law, which bars, for example, investment in interest-bearing products, instruments that have anything to do with pork or alcohol and in traditional derivatives.

Islamic bonds make payouts derived from underlying income streams such as leases that mimic the coupon on a conventional bond.

Since Islamic bonds typically attract both conventional and Shariah compliant investors, they can offer financing that is on par or cheaper than conventional debt.

Issuance of such debt has soared from virtually nothing in 2000 to around $45bn in 2007 and experts say the Islamic financial sector is growing around 15% a year.

In May, the Monetary Authority of Singapore, the city-state’s de facto central bank announced that it had created a facility to offer local currency sovereign-rated bonds that comply with Islamic law but didn’t specify a schedule for the bond sales.

Bankers say City Developments’ example may spur other Singapore borrowers into the market, particularly the larger companies with tangible assets, such as manufacturers, and those that already have experience selling conventional bonds.
 
Still, Singapore, with a minority Muslim population, will find itself behind neighbouring Malaysia, which has firmly established itself as a key Islamic financial center. Other cities around the world including London, Dubai, Hong Kong and Tokyo have also said they are keen to offer Shariah products. – Dow Jones Newswires