Sabana kindles Gulf interest in Islamic Reits

Dubai aims for first Reit listing within a year, two UAE firms plan offers in M’sia

Persian Gulf companies are planning their first syariah-compliant real-estate investment trusts, after shares in Singapore’s debut offering recovered from the lowest level since it was started in November.

The city-state’s Sabana Shari’ah Compliant Industrial Reit has advanced 2.2 per cent to 94 Singapore cents since the shares reached a low of 92 cents on March 31. The initial offering price was S$1.05. The company said on April 27 it would distribute more income to shareholders than originally planned.

Dubai is aiming to list its Reit on the local exchange within a year, while two United Arab Emirates companies plan offerings in Malaysia, which pioneered the industry in 2006.

Asia may see at least one new Islamic property trust listing this year as funds seek assets that comply with Islam’s ban on receiving interest or investing in casinos and bars, said HSBC Amanah, the syariah-compliant unit of Europe’s largest bank.

‘We can expect investments in trusts generally to see more activity over the coming months,’ Kuala Lumpur-based Oz Ahmed, associate director of wholesale banking at HSBC Amanah, said in an interview on Tuesday. ‘The market should expect another syariah-compliant trust in real estate, and quite a lot of pipeline, discussions and increased interest across this industry.’

Singapore’s Sabana, the world’s biggest publicly traded Islamic Reit, is the republic’s sole trust complying with religious principles. Malaysia has three listed syariah-compliant vehicles. Malaysia’s 14 Reits, which include Islamic and non-Islamic, have a combined market worth of US$3.4 billion, or 12 per cent of Singapore’s US$29.3 billion, according to a March 17 report by property consultant CB Richard Ellis.

The city-state’s ‘developed’ Reit market may encourage more Islamic issuance, Pratik Burman Ray, a senior property analyst at HSBC Securities Singapore Pte, said on April 15. Industrial property prices in Singapore will probably increase 5 per cent to 8 per cent this year, he said.

‘Singapore has a far more sophisticated regulatory framework for Reits and that naturally puts the market ahead of the rest,’ said Mr Ray. ‘If you want to attract Middle East investors, you have to offer size and Singapore has that.’

Sabana, which invests in properties such as warehouses and high-technology office space, raised S$664.4 million from the November initial offering. It had S$19.3 million in income that can be distributed to shareholders in the period Nov 26 to March 31, 2 per cent more than planned, the company said on April 27.

Emirates Reit, Dubai’s first Islamic real-estate investment trust, was established in November and may be publicly traded on Nasdaq Dubai, Marwan Ahmad Lutfi, deputy chief executive officer at the Dubai International Financial Centre Authority, said on April 10.

Two developers from the UAE are planning to list Islamic Reits worth RM2 billion (S$826 million) in Malaysia this year, Raja Teh Maimunah, global head of Islamic markets at Bursa Malaysia Bhd, said on Feb 23.

In an Islamic Reit, payments to investors are based on rental income or dividends. Syariah-compliant trusts prohibit income from properties involved in gambling, financial services based on interest payments, hotels and bars.

‘Reits resonate well with Islamic finance because they’re backed by underlying assets,’ said HSBC Amanah’s Oz. ‘There’s an element of risk sharing because investors are taking a risk on the portfolio of assets.’

Malaysia’s Islamic Reits had a market value of RM2.3 billion at the end of 2010, according to an e-mailed reply to questions from Bursa Malaysia, the stock exchange regulator.

‘Bursa Malaysia has received interest from foreign issuers to list their Reits, including Islamic Reits here,’ the regulator said. ‘Any foreign assets seeking listing on Bursa Malaysia will have to go through a due diligence process and assessment by the regulators prior to approval.’

Malaysia is the world’s biggest market for Islamic bonds, which pay returns on assets to comply with the religion’s ban on interest. Sales of Malaysian-currency sukuk rose to RM11.4 billion this year, compared with RM6.7 billion in the same period last year, according to data compiled by Bloomberg.

Global issuance increased to US$5.2 billion, from US$4.4 billion in the same period last year.

‘Malaysia is a more regulated and mature market, and from an investor perspective, it’s one of the fully Islamic integrated markets in the world,’ Riad Saad, Islamic product manager at the Treasury and Investment Department of Abu Dhabi Commercial Bank PJSC, said in an interview on April 19. ‘There is government support and liquidity, and it has all the capabilities of making Reit launches successful.’

Syariah-compliant bonds returned 4.4 per cent this year, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. Debt in developing markets gained 2.5 per cent, JPMorgan Chase & Co’s EMBI Global Diversified Index shows.

The difference between the average yield for sukuk and the London interbank offered was little changed at 242 basis points on Tuesday, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.

Average yields fell to 4.14 per cent, the lowest since June 2005. The spread between Malaysia’s dollar sukuk and the Dubai Department of Finance’s 6.396 per cent note due November 2014 narrowed three basis points to 235, Bloomberg data show.

Malaysia can play catch up with Singapore by ‘playing its syariah card,’ said Kuala Lumpur-based Stewart Labrooy, chief executive officer at Axis Real Estate Investment Trust. Axis-Reit, which sold 98.4 million shares at RM1.25 when it listed on the Malaysian stock exchange in August 2005, converted to an Islamic property trust in 2008.

The price of Axis-Reit rose 0.4 per cent to RM2.38 this year as of 4:17 pm in Singapore, according to Bloomberg data. The company will list a syariah-compliant property trust valued at more than RM3 billion, Reuters reported on its website on March 11, citing three unidentified people familiar with the matter. Mr Labrooy declined to comment on the report when contacted by Bloomberg.

‘People wanting to invest in syariah products in Malaysia will have a very high degree of comfort in investing in Islamic Reits here as there is a high degree of transparency, syariah governance and compliance,’ Mr Labrooy said. He forecasts growth in industrial property prices in Malaysia of 5 per cent to 10 per cent this year.

The Al-‘Aqar KPJ Reit, listed on Malaysia’s bourse since August 2006, was the first publicly traded Islamic property trust in Asia. Al-‘Aqar, managed by hospital operator KPJ Healthcare Bhd, raised RM179.3 million from the share sale. The price climbed 2.7 per cent to RM1.15 this year, according to data compiled by Bloomberg.

Al-Hadharah Boustead Reit, listed on the local stock exchange on Feb 8, 2007, raised RM229.7 million through an initial offering. The shares dropped 1.4 per cent in 2011 to RM1.42. The trust owns and invests mainly in plantation assets in Malaysia including palm oil.

Malaysia’s ‘focused’ approach to its Islamic finance industry will offer the nation an advantage in luring more listings from foreign companies, including those from the Persian Gulf, Bernard Ching, the head of research at Kuala Lumpur-based brokerage services company ECM Libra Capital Sdn Bhd, said in an interview on April 19.

‘Malaysia has the infrastructure in place, whether it is financing, the investor base or expertise, including syariah advisory,’ he said. — Bloomberg