Malaysia`s Khazanah in S$1.5 bln Islamic bond sale

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Malaysian state investor Khazanah on Tuesday sold S$1.5 billion (USD1.1 billion) in sukuk, Singapore's largest Islamic bond issue, which could help ignite interest in the city state's fledging sukuk market.

The sale comes a week after Khazanah trumped India's Fortis Healthcare in a takeover battle for Singapore's Parkway Holdings in a deal that could cost the state firm S$3.5 billion.

This is the biggest sukuk sale in Singapore, where Islamic finance has been slow to take off because of neighbouring Malaysia's dominance in the fast-growing asset class and a lack of domestic investor interest in the city-state.

Khazanah said it had sold S$600 million in five-year sukuk at 2.615% and S$900 million in 10-year sukuk at 3.725%, confirming an earlier Reuters report.

The transaction drew a demand of 4.3 times book size enabling Khazanah to upsize the issue from the initial offer size of S$1 billion, the state investor said in a statement.

The deal attracted 78 local and international investors comprising financial institutions, asset management firms, statutory bodies and insurance companies from Singapore, Malaysia, Hong Kong, Brunei and Europe, it said.

A source with knowledge of the deal had earlier told Reuters the sukuk was structured based on the wakala, or agency, concept.

"This latest sukuk adds to the growing range of sharia-compliant financing in Singapore," Ong Chong Tee, deputy managing director of the Monetary Authority of Singapore, said in the statement.

"We welcome regional participants to tap into our growing capital markets and to continue to add to the depth and diversity of markets in the region."

CIMB, DBS and OCBC were the sukuk's joint bookrunners.

Incentives

To encourage the growth of Islamic finance, Singapore has given Singapore dollar Islamic bonds equal tax, regulatory and liquidity treatment as Singapore government bonds.

Despite this, Singapore saw only $123.6 million of sukuk coming to the market last year, compared with USD 8 billion in Malaysia and USD 1.2 billion in Indonesia, its nearest Islamic banking competitors, Thomson Reuters data shows.

"Khazanah is a sovereign credit equivalent," said Karen Wan, senior manager for credit research and strategy at Malaysia's AmBank. "This will help to build up the profile."

The Islamic Development Bank issued S$200 million of sukuk last year, which was then the biggest Singapore dollar sukuk, the data shows. It was also the first Singapore dollar-denominated sukuk by a foreign issuer.

Earlier this year, Islamic Bank of Asia, which is more than half-owned by DBS, transferred 10 of its 65 staff to DBS and redeployed others to new jobs within the bank to shrink its business.