Hong Kong completed its first sale of Islamic debt on 10th September, joining a number of other governments rushing to issue similar bonds for the first time as uncertainty mounts over the outlook for global interest rates.
Source: THE FINANCIAL TIMES
Hong Kong has raised $1bn in its debut Islamic bond issue, the city’s latest move to broaden its markets amid increased competition from rival financial centres (e.g. Singapore). Its sukuk issue is the first by a AAA-rated government, and attracted almost $5bn in orders. Nearly half the available debt was sold to Asia-based investors while a third went to Middle Eastern funds.
By pricing the five-year sukuk at just 23 basis points over US Treasuries, Hong Kong also achieved the lowest spread for a US dollar bond in Asia excluding Japan. As the Hong Kong government typically runs a large annual surplus, the capital raised is not required for funding purposes. However, authorities in the territory are keen to tap into the opportunities in the Islamic bond market in Asia, which has centred largely on Malaysia.
“Hong Kong has seen an opportunity to step in and fill a gap in the market,” said Karby Leggett, head of capital markets for Greater China and northeast Asia at Standard Chartered. “With this issue, they’ve . . . proved that this market works.” Sharia-compliant bonds – which involve debt structured so as to offer a return without technically paying interest – are a fast-growing area in global markets.
So far this year, $28.4bn has been raised through sukuks, according to Dealogic, a 30 per cent increase on the same period in 2013. The UK became the first western country to issue a sukuk earlier this year, while South Africa and Luxembourg are both poised to follow suit. Goldman Sachs has also revived its own sukuk plans, which would make it only the third global bank to issue Islamic-compliant debt, following in the footsteps of HSBC and Nomura.
John Tsang, Hong Kong’s financial secretary, said the successful sukuk sale was proof the city was now a “viable option” for Islamic law-compliant fundraising. “I hope that the sukuk issuance will catalyse the further growth of the sukuk market in Hong Kong by encouraging more issuers and investors to participate in our market,” Mr Tsang said. Hong Kong has been looking at a range of steps to improve the competitiveness of its markets and attract business from elsewhere in the region.
In July, the Securities and Futures Commission, Hong Kong’s market regulator, announced plans to overhaul the city’s rules governing real estate investment trusts, or Reits. In spite of a long history as a financial centre for the region’s property companies, a number of high-profile Reits have chosen to list in Singapore in the past few years, which many analysts blamed on an outdated Reit code.
Hong Kong Exchanges & Clearing (HKEx), the bourse operator, is also exploring a revamp of its rules to attract more equity listings. Last month it published a 108-page document putting forward various suggestions for public discussion – such as dual-class shares, which are banned under existing regulation. The move followed Alibaba’s decision to take its listing – poised to be one of the largest to date – to New York after Hong Kong rejected its proposed management structure.
HKEx spent $2.2bn in 2012 to buy the London Metals Exchange, a key step in its effort to move beyond equities trading and into commodities, foreign exchange and bonds. Coal and metals futures trading is due to be launched by the end of this year.