KUALA LUMPUR, Sept 11 ― Hong Kong sold US$1 billion (RM3.2 billion) of sovereign Islamic bonds in its first-ever issue of the securities, attracting orders for 4.7 times the amount on offer.
The dollar-denominated five-year notes were priced at a 2.005 per cent profit rate, according to a statement on the government’s website today. The UK, which along with Hong Kong is rated the highest investment grade, sold sukuk for the first time in June at a coupon of 2.036 per cent. Those notes yielded 1.76 per cent yesterday, data compiled by Bloomberg show.
Hong Kong and the UK are both vying to become Shariah-compliant hubs in a market with US$2 trillion of Islamic banking assets. The city is the fourth Asian issuer of sovereign sukuk, following Malaysia, Indonesia and Pakistan, while Luxembourg and South Africa are planning inaugural sales this year.
“The orders for the Hong Kong sukuk show that there’s still strong demand for Islamic debt,” Jesse Liew, Kuala Lumpur-based head of global Islamic bonds at BNP Paribas Investment Partners Malaysia, which oversees more than US$900 million, said in a phone interview. “This could encourage others issuers to tap the Shariah-compliant market.”
Market growth
The Hong Kong sale drew US$4.7 billion of orders, and the bonds were allocated to more than 120 global institutional investors, 47 per cent in Asia, 36 per cent in the Middle East, 11 per cent in the US and 6 per cent in Europe, according to the government statement.
Indonesia sold 10-year dollar sukuk last week that attracted US$10.23 billion of bids, or 6.82 times the US$1.5 billion sold. The debt was issued at a coupon of 4.35 per cent and yielded 4.27 per cent yesterday. Moody’s Investors Service rates the notes at Baa3, the lowest investment grade.
Islamic bonds pay returns from an underlying asset such as property to conform with a ban on interest. Countries seeking to sell such debt need to amend legislation to ensure the securities aren’t subject to double taxation on capital gains and levies on the assets.
The Hong Kong sukuk was priced at 23 basis points above similar-maturity US Treasuries, the narrowest spread ever achieved on a benchmark dollar issuance from an Asian government outside Japan, according to the official statement.
“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,” Financial Secretary John C Tsang said in the release.
Law changes
The city, which US government data shows has a Muslim population of about 270,000, changed its tax laws in July last year to help pave the way for sales of Shariah-compliant debt. The legislature then approved a bill in March that opened the door for the government to issue sukuk.
HSBC Holdings Plc, Standard Chartered Plc, CIMB Group Holdings Bhd and National Bank of Abu Dhabi PJSC were the joint arrangers for the Hong Kong sukuk. The city’s 2.16 per cent conventional local-currency notes due in December 2019 yielded 1.43 per cent yesterday, five basis points more than at the end of last week, according to data compiled by Bloomberg.
Hong Kong has tried to develop an Islamic financial market since as far back as 2007, when Airport Authority Hong Kong announced it was interested in selling as much as $1 billion of debt that complies with Shariah law. That proposed sale never came to fruition.
Offerings of sukuk worldwide have climbed 34 per cent to US$31.1 billion in 2014 from a year earlier, after reaching US$43.1 billion in 2013 and a record US$46.5 billion in 2012, data compiled by Bloomberg show.
Average global sukuk yields dropped 65 basis points, or 0.65 per centage point, this year to 2.77 per cent, according to an index from Deutsche Bank AG. That’s the lowest level since May 2013. ― Bloomberg
