New real estate sokuks appeal to Asian investors

Reuters, Sunday 28 Nov 2010

Cross-regional Islamic investors are showing growing interest in the Islamic-compliant product

Malaysia is one of the world's biggest sukuk markets.

More Sharia-compliant real estate investment trusts (REITs) will come onto the market in Asia in early 2011, as cross-regional Islamic investors increasingly embrace the product, HSBC Amanah Malaysia's new head said.

Singapore's first sharia-compliant REIT, Sabana REIT SABA.SI, listed on Friday, drawing a mixture of both conventional and Islamic investors, a quarter of them from the Middle East, Chief Executive Rafe Haneef told Reuters on Friday.

"The take-up (among Gulf investors) for future Islamic REITS will be a lot greater than that," said Haneef, who is also managing director of global markets for HSBC Amanah.

"At the moment there is no timeline for when other issuers will come out with Islamic REITs, but I would expect more in the first or second quarter of next year," he said.

HSBC Amanah was exploring other Islamic REIT opportunities in Malaysia and Singapore, Haneef said, noting it was financial adviser for the Sabana REIT initial public offering (IPO).

Sabana REIT, the world's largest sharia-compliant property trust, sold 508 million units at S$1.05 each in its IPO this week. The IPO was 2.5-times subscribed.

Sabana REIT's shares closed at S$1.02 on Friday on the Singapore stock market, after being weighed down by jittery market sentiment.

On 23 November, Dubai Islamic Bank DISB.DU launched the emirate's first sharia-compliant REIT in a joint venture with French property firm Eiffel Management, a move executives said would help fuel growth in the country's battered real estate sector. [ID:nLDE6AM1O9]

Haneef said sharia-compliant REITs ensured higher-quality investments because the screening process looked at both the underlying asset and the usage of the asset, and does not allow for speculative or risky investments.


Haneef, who was appointed CEO this week, said HSBC Amanah Malaysia continues to see a healthy global pipeline for Islamic finance products -- including Islamic bonds, or sukuk -- as investors seek to tap the growing $1 trillion market.

He expects an increase in global sukuk issuance in the first quarter of 2011, with Middle East investors potentially looking to issue sukuk denominated in the Malaysia ringgit to satisfy interest among corporates and sovereign-linked entities.

Sources said Dubai plans to issue about $1.5 billion worth of sovereign sukuk in Malaysia as the Gulf Arab emirate looks to tap the world's largest Islamic bond market to diversify its funding avenues.

"We were the first to bring a Middle East credit to the Malaysia ringgit sukuk," Haneef said. "Currently, there's a price advantage to tapping the Malaysian ringgit and swapping it back to dollar."

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