Hong Kong raises $1 billion through Islamic bonds

Hong Kong has reported a highly successful first foray into Islamic ‘sukuk’ bond sales by raising $1 billion in sales.

Since Islamic nations around the world have begun emerging as powerful economic forces, it is hardly surprising that so many authorities and institutions have started looking into the world of Islamic finance. Not to be outdone, Hong Kong has just announced its first successful attempt at an Islamic bond sale.

The government of the Hong Kong Special Administrative Region has published the details of its first sukuk – bonds that are structured to comply with Islamic law and investment principles.

Overall, the first dollar-denominated sukuk issue from an AAA-rated government has raised $1 billion and attracted nearly five times that figure in orders.

Hong Kong doesn’t actually need the money – it usually runs a surplus, as the Financial Times points out. The real rationale for the sale is related to the markets it allows Hong Kong to tap. Close to half of the bonds on offer were sold to investors based around Asia, though approximately a third were supplied to funds based in the Middle East. While the latter has been growing in significance as a financial destination for some time, it’s the former that has really captured the attention of Hong Kong’s authorities.

Asia’s Islamic bond market offers huge potential – though it has been mostly focused on Malaysia so far, nations such as Indonesia with large Islamic populations could also be future targets.

Now that Hong Kong has proved it can successfully work within that market, it has opened up a fast-growing area of the finance landscape to exploit in future.

But it’s also a question of keeping up with its rivals. Hong Kong is often seen as a competitor of New York and London as a financial centre, and it cannot risk losing out on what could be a key future market. The UK became the first country in the west to issue a sukuk earlier this year. With South Africa and even Luxembourg planning to follow suit in the future, Hong Kong is maintaining its position in the race.