Singapore has been promoting Islamic finance over the past decade, with the city-state issuing its first Islamic bond in 2009, aiming to attract religiously-minded investors from the Gulf and Southeast Asia.

The deal is one of the largest Islamic finance transactions that involve hotel assets, in this case, the SO Sofitel Singapore Hotel, said Nazmi Camalxaman, head of Islamic banking at RHB Bank Singapore, a unit of Malaysia’s RHB Bank Berhad.

“We believe this deal would encourage other hotel owners in Singapore and elsewhere to turn to Islamic financing for their hotel acquisition or refinancing needs.

The bank will remain aggressive in the hospitality sector from a financing perspective and has a healthy pipeline of hotel financing deals in Singapore, said Camalxaman.

The size of Islamic financing assets in Singapore is estimated at around S$2 billion, while Islamic deposits stand at roughly S$3 billion, Camalxaman added.

The transaction used a structure known as commodity murabaha, where an institution agrees to purchase merchandise or an asset from a counterparty which promises to buy it back with an agreed markup at a later date.

The deal is also the first Islamic financing for the Royal Group, which develops and manages real estate properties primarily in Malaysia and Singapore, as the firm sought to diversify its funding options.

Islamic finance has seen limited use in the hospitality industry because of religious doctrines that limit exposure to alcohol-related businesses.

Previously, hotels were deemed to be sharia-compliant if sales of alcohol did not exceed more than 20% of total revenue, limiting the ability of such properties to access Islamic funding sources.

But Malaysian scholars changed that in 2016, when the sharia board of Malaysia’s Securities Commission resolved to drop that requirement, arguing that the main purpose of hotels and resorts is to provide accommodation.