Jurisdiction - Hong Kong
News
Hong Kong – First Sukuk Issue Raises USD 1bn.

16 September, 2014

 

Legal News & Analysis – Asia Pacific – Hong Kong – Banking & Finance

 

Hong Kong raised USD 1bn (US dollars) from 120 institutional investors on its first offering of a sovereign sukuk, the Islamic equivalent of a bond, the region’s monetary authority has announced.

 

Almost half, or 47%, of the available debt was issued to investors in Asia with a further 36% issued to investors in the Middle East, according to the announcement. Investors were primary banks and private banks, sovereign wealth funds, central banks and ‘supranational’ companies, although 11% of the debt was purchased by fund managers and 3% by insurance companies.

 

The sukuk is the world’s first denominated in dollars and issued by an AAA-rated government, and attracted orders of over USD 4.7bn, according to the announcement. It was made possible by a legislative change in July 2013 which created a similar taxation framework for sukuk issuances to that for conventional bonds.

 

“We are pleased to see such strong demand for the HKSAR government’s inaugural sukuk, as evidenced by the significant orderbook size and tight pricing,” said John C Tsang, Hong Kong’s financial secretary. “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.

 

“The success of this transaction demonstrates that issuance of sukuk using Hong Kong’s platform is a viable fund-raising option and widely accepted by investors around the world. 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,” he said.

 

Sukuk are financial instruments that resemble government-issued sovereign bonds while adhering to the principles of Islamic law, paying investors a fixed return based on the profit generated by an underlying asset. Islamic, or Shari’a, finance prohibits interest, or ‘riba’, and does not allow one party to make money unjustly at another’s expense. In addition, wealth can only be generated through trade and investment in ‘real’ assets, such as infrastructure; although trade in some assets is prohibited.

 

Hong Kong’s sukuk uses an ‘Ijarah’ structure, under which investors receive a share in the agreed rental income of an underlying asset. The sukuk is underpinned by selected units in two commercial properties in Hong Kong, and has a maturity of five years.

 

Pinsent Masons

 

For further information, please contact:

 

John Salmon, Partner, Pinsent Masons

john.salmon@pinsentmasons.com

 

Jason Collins, Partner, Pinsent Masons

jason.collins@pinsentmasons.com

 

Homegrown Banking & Finance Law Firms in Hong Kong 

Comments are closed.