Hong Kong government sells second Islamic sukuk bond to raise US$1.1 b

28/05/2015 11:17 AST

Hong Kong Government has successfully sold its second Islamic sukuk bond to raise US$1 billion in its latest effort to promote Islamic finance in the city.

The Hong Kong Monetary Authority, which handled the issue on behalf of the government, said on Thursday that the issue was popular and it received US$2 billion in orders from 49 global institutional investors including central banks and sovereign funds among others. The orders were double its US$1 billion issue size.

The five-year bond was priced at 1.894 per cent, which is lower than last year’s issue and is 35 basis points over 5-year US Treasuries.

John Tsang Chun-wah, Financial Secretary of the city and who has been promoting Islamic finance since 2007, said the two successful issues of government sukuk bonds shows Hong Kong could be a platform for Islamic bond offerings.

“Building on the momentum from the successful issuance of the inaugural sukuk last year, the latest issuance strengthens our relationship with global investors and demonstrates the flexibility of Hong Kong’s Islamic finance platform,” Tsang said.

The sukuk issue’s structure and investment guidelines were set according to Muslim religion requirements. But brokers said the few number of Islamic followers in the city and a lack of understanding of the products has resulted in no corporate sukuk offerings here.

“I hope that the sukuk issuance will catalyse further growth of the sukuk market in Hong Kong and attract more issuers and investors to participate in our Islamic finance platform,” Tsang said.

He said the current sukuk has adopted an "asset light" structure, which he said “can set a benchmark for potential issuers in the private sector.”

The second government sukuk uses a structure called the Wakalah, which has one-third of assets invested in selected units in an office building in Hong Kong, and two-third of the assets underpinned by Shariah-compliant commodities.

The first government sukuk issued in September used the Ijarah structure that has underlying tangible assets of 100 per cent in the issued amount.

The new government sukuk will be listed on June 3 in the stock exchange of Hong Kong, Nasdaq Dubai and Bursa Malaysia.

Buyers of the sukuk included 42 per cent from the Middle East, 43 per cent from Asia and 15 per cent from Europe. Twenty-three per cent of the bonds were sold to central banks or sovereign wealth funds while the rest to banks or fund managers.

SCMP