Hong Kong has successfully tested the waters for Islamic bonds in an attempt to broaden its market amid increased competition from rival financial hubs.
It raised US$1 billion in its first sukuk sale, the first by an AAA-rated government, according to the Financial Times.
With large yearly surpluses, Hong Kong does not need to raise money to fund itself but the exercise boosted its efforts to diversify its debt market.
The issue attracted nearly US$5 billion in orders. Half of the available debt went to Asian investors and the rest to Middle East-based funds, the report said.
The bond was priced just 23 basis points over US Treasuries, helping Hong Kong achieve the lowest spread for a US dollar bond in Asia excluding Japan.
Hong Kong financial authorities are keen to tap into opportunities in the Islamic bond market in Asia which has centered largely on Malaysia.
“Hong Kong has seen an opportunity to step in and fill a gap in the market,” said Karby Leggett, head of capital markets for Greater China and northeast Asia at Standard Chartered.
“With this issue, they’ve proved that this market works.”
Islamic bonds are debt structured so as to offer a return without technically paying interest in accordance with Sharia Law.
This year, US$28.4 billion has been raised through sukuks, up 30 percent from the same period in 2013, according to Dealogic.
Britain became the first western country to issue a sukuk earlier this year. South Africa and Luxembourg are both poised to follow suit.
Hong Kong Financial Secretary John Tsang, said the successful sukuk sale is proof the city is now a “viable option” for Islamic law-compliant fundraising.
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