Hong Kong sukuk boosts Islamic credentials
The debut issue of a five-year $1 billion sukuk this week is a statement of intent from Hong Kong that it is serious about Islamic finance, sending a strong signal to rival financial centres.
|John C Tsang, the financial secretary of Hong Kong, is 'pleased to see such strong demand for the HKSAR government’s inaugural sukuk'
Hong Kong has moved closer to realizing its ambition of becoming a global centre for Islamic finance with the issuance of its first sukuk bond.
The government of the Hong Kong Special Administrative Region (HKSAR) announced on September 11 it had issued a five-year $1 billion sukuk, priced at 2.005%.
The issuance of the bond opens up a new front in the global battle to win Islamic finance business. Financial centres such as London and regions such as the Middle East and southeast Asia are vying to grow their reputation as natural bases for Islamic finance, along with Hong Kong.
A roadshow to publicize the bond toured through Riyadh, Dubai, Abu Dhabi, Doha, Kuala Lumpur, Hong Kong, Singapore, London and New York from September 1. The bond was 4.7 times oversubscribed.
HSBC and Standard Chartered Bank acted as joint global coordinators, joint lead managers and joint bookrunners, and CIMB and National Bank of Abu Dhabi PJSC acted as joint lead managers and joint bookrunners.
“Hong Kong’s first ever sukuk demonstrates the keen interest in Islamic finance in the global capital markets, as well as the growing connectivity between Asia and the Middle East,” says Rafe Haneef, CEO of HSBC Amanah Malaysia Bhd.
“This pioneering transaction also signals a bright future for Islamic finance in Hong Kong, where policymakers have created a conducive environment for issuers and investors to raise capital and invest in accordance with Islamic principles.”
Thirty-six per cent of the sukuk was distributed to the Middle East, 47% to Asia, 6% to Europe and 11% to the US. Eleven per cent was distributed to fund managers, 56% to banks and private banks, 30% to sovereign wealth funds, central banks and supranationals, and 3% to insurance companies.
“The transaction serves as a benchmark for future potential issuers and underpins Hong Kong’s strong legal, regulatory and financial frameworks,” says Karby Leggett, head of capital markets, Greater China and northeast Asia, Standard Chartered Bank.
“The development of Islamic finance is imperative to the city as it diversifies financial products and services by opening up a new fundraising platform for corporates in Hong Kong, Asia and the Middle East.
“Islamic finance is a rapidly expanding area and we see huge long-term potential and opportunities in it. As the market in Hong Kong develops, the private sector will become increasingly interested. The market is expected to maintain high levels of liquidity, which will continue to drive interest.”
One banker who worked on the deal tells Euromoney the hope is for Hong Kong to be seen as another Islamic financial centre and also act as a gateway to China.
“If you look at the history of the sukuk, it’s quite a new thing,” the banker says. “The sukuk industry has been waiting for this moment to happen. It’s a landmark transaction. Typically in the last 10 years, sukuks have come from the Muslim world. It was a niche product for a niche investor base.
“This deal signals further deepening of the market for sukuks. I only see more liquidity coming.”
According to the banker, the Hong Kong government has spent the past six years studying the market and working closely with other Islamic centres to come up with the infrastructure to conduct business.
“I would say Hong Kong is the best in class,” he says. “Hong Kong has demonstrated it’s developing a world-class framework and it also walks the walk.”
Although he couldn’t reveal specifics, the banker also confirmed there had been interest from other countries in Asia-Pacific about issuing sukuks.
However, while the deal does represent a milestone for both Hong Kong and the Islamic finance industry, there are still those that are unconvinced about the prospect of the industry taking root in the former British colony.
A lot of investors are not required to buy Islamic
bonds. It’s more of a show than anything
“I don’t think Hong Kong will become a sukuk centre,” says one senior DCM banker based in Hong Kong. “It’s not a place with a lot of Islamic money. A lot of investors are not required to buy Islamic bonds. It’s more of a show than anything.
“This is partly politically related. The government has been talking about it for a while. They were talking primarily about expanding in the Islamic market. I guess this checks the box. I don’t think the government needs the funding.”
The banker concludes that other governments that need funding might follow Hong Kong into the sukuk market.
“We are pleased to see such strong demand for the HKSAR government’s inaugural sukuk, as evidenced by the significant order-book size and tight pricing,” says John C Tsang, the financial secretary of Hong Kong, in a public statement.
“The sukuk marks the first USD sukuk originated by an AAA-rated government in the global Islamic financial market and signifies an important milestone in the development of the Islamic capital market in Hong Kong.”