While the issue size is small, it certainly brings a new dimension to the market and is an interesting departure for the Singaporean financial world.
The five-year issue is structured under the Musharaka or joint venture concept. Under this system, the bond investors and the issuer, Muis, enter into a joint venture to conduct property leasing in Singapore. The bond investors in turn will receive a coupon of 3.5% annually and maturity at par in 2006.
With the proceeds, Muis will purchase a six-storey commercial property on Beach Road, which in turn will be used as collateral for the bond investors. Muis will invest S$9 million of its own money in the purchase.
The bond will enable us to finance the acquisition of a prime commercial building which will help us enhance the overall yield of our Waqf property portfolio, says Hj Maarof Hj Salleh, president of Muis. At the same time we are pleased to spearhead the launch of the inaugural bond issue that is in accordance with Shariaa laws.
Waqf assets are those that have been pledged by wealthy Muslims into trusts for religious and charitable reasons. Muis is planning an upgrade of these assets to improve the returns it can generate for its stakeholders. The bond issue will finance part of this upgrade.
Michael Sng, managing director of UOB Asia, manager of the issue, comments: We see great potential for such bonds as they can provide an excellent investment opportunity for Islamic funds, which is a fast-growing pool of capital. This will add depth to Singapores bond market.
Islamic finance is enjoying good times in Southeast Asia as companies seek to tap into the pools of capital held by the regions Muslim community. Under Islamic principles of finance, interest cannot be charged. So structures are created under which profits can be shared.
Banks in Malaysia, Brunei, Indonesia and Singapore have all created many such structures over the past year to finance Muslim businesses, as well as to provide investment opportunities for Muslim investors.