City Developments to raise $1 billion

Source : Today - 15 Aug 2008

Move is milestone in S’pore’s push to develop alternative mode of investment

City Developments (CDL) is raising $1 billion in Islamic debt through a pioneering notes programme as a means to diversify its sources of financing.

This will be Singapore’s first Islamic Sukuk-Ijarah unsecured financing arrangement by a company, marking a milestone in the Republic’s push to develop Islamic finance as an alternative mode of investment.

These notes are meant for institutional investors. CDL executive chairman, Mr Kwek Leng Beng, said he has already received some interest from investors from the Middle East flushed with petrodollars.

The timing is good now as it opens another source of funding for CDL at a time when banks are cautious when it comes to financing for property projects, said Mr Kwek.

“We don’t actually require a lot of money, this is what I call a war-chest,” he added.

Malaysian bank CIMB is helping CDL with this sukuk or Islamic bond issue. A sukuk has structures developed to meet Islamic transactional rules relating to asset possession, measurements and transactions.

Compared to conventional bonds, there are some restrictions on the type of assets investors can earn money from, explained Mr Kwek.

Sukuk bondholders are paid income derived from assets such as rent from property because Islamic law bans lending for interest.

Assets like a hotel with a bar or a casino are not allowed. CDL’s bond will be backed by office property that does not house banks.

When asked if other local property players may follow suit, Mr Kwek said, “Of course they will. People in Singapore like to follow one another, but it’s up to participants whether they are interested to deal with other parties.”