It is currently the largest Islamic hotel financing deal in the world.
RHB Bank Singapore completed a bilateral financing deal with the Royal Group for the $300m, five-star luxury hotel SO Sofitel Singapore. According to a press release, it is currently the largest Islamic bilateral hotel financing deal in the world.
RHB noted that hospitality assets being used for Islamic financing was previously considered taboo as not all income is deemed to be Shariah compliant. “In the past, hotel businesses were considered Shariah compliant if sales of alcohol did not exceed more than 20% of total revenue,” it said.
In April 2016, the Shariah Advisory Council of the Securities Commission Malaysia resolved that the 20% rule is no longer applicable as the main purpose of operating hotels and resorts is to provide accommodation.
According to RHB, Islamic real estate financing is uncommon in most core financial centres because the tenants mostly comprise of banks which are non-Shariah compliant in nature due to their interest-bearing activities. “As such, Islamic funds are limited to buying office buildings that are occupied by large corporates or government entities,” it added.
RHB head of Islamic Banking Nazmi Camalxaman commented, “We see hospitality assets as one of the best performing real estate classes in Singapore and we will continue to remain aggressive in this sector from a financing perspective.”
SO Sofitel Singapore is a 134-room hotel located in a historical building at the heart of the CBD built in 1927. The hotel opened its doors in 2013.
The Royal Group of Companies was established in 1947 and their portfolio includes a wide range of properties with an enterprise value of over $4b.
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