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Hong Kong launches 10-year sukuk

The product is the first 10-year sukuk launched by an AAA-rated government, according to the HKMA.
Hong Kong

The Hong Kong government issued its third sukuk on 21 February. The 10-year US dollar Islamic bond was priced at the yield of 3.132%, 68 basis points over 10-year US treasuries, according to a statement from theHong Kong Monetary Authority (HKMA). 

The sukuk has attracted orders that amounted to 1.72 times the original issuance size of $1bn, the HKMA said, adding that the high demand allowed the final price to tighten by 7 basis points compared to the initial guidance.

The sukuk will be listed on exchanges in Hong Kong, Malaysia and Dubai. It has been assigned a AAA credit rating by Standard & Poors and AA+ by Fitch.

The product is the first 10-year sukuk launched by a AAA-rated government, the statement said. It followed two earlier 5-year US dollar-denominated Hong Kong issuances in September 2014 and June 2015. By extending the yield curve to 10 years, it sets an important benchmark for other issuers, the HKMA believes.

“The sukuk issuance will provide momentum for further growth of the sukuk market in Hong Kong and attract more issuers and investors to participate in our bond market,” said Paul Chan, the financial secretary of Hong Kong, in the statement.

Investor base

The sukuk was issued following a roadshow covering centres of Islamic finance in the Middle East, Asia and Europe. According to the statement, it attracted orders from 88 institutional investors. About half of them did not participate in the two earlier issues.

The demand for this year’s issue was not as strong as for the inaugural 2014 sukuk, which was oversubscribed 4.7 times and attracted orders from 120 institutional investors.

The orders for the 2015 issue came from 49 investors and amounted to double the initial size. All three issues had the same size of $1bn.

In regards to the new issuance, Asian investors acquired 57%, 25% went to investors in the Middle East and 18% to Europe.

Banks bought 53% of the total amount, fund managers, private banks and insurance companies bought 36%, and the remaining 11% was acquired by sovereign wealth funds, central banks and supranationals, the statement said.

Islamic finance prohibits the paying of interest. Islamic bonds are structured to provide income from real estate and other real assets. Like the 2015 issue, the new Hong Kong sukuk uses a wakala structure in which the issuer acts as an agent who channels to the investor income from underlying assets. It is underpinned in one-third by selected commercial properties in Hong Kong and in two-thirds by sharia-compliant commodities.

Part of the Mark Allen Group.