Hong Kong’s possible third Islamic global bond in three years brings it closer to Indonesia and Malaysia in terms of sovereign sukuk presence, a boost to the market that coincides with China’s Silk Road revival.
The finance center has already raised US$2 billion from sales in 2014 and 2015, which attracted US$6.7 billion in total orders, while Indonesia plans to tap investors for the sixth year running and Malaysia is returning for its seventh offering. While the city only has 270,000 people, following the teachings of the Koran, it’s positioning itself as a vital port and financing hub for China’s ‘One Belt One Road’ policy announced by President Xi Jinping in 2013.
“The announcement is a great sign of Hong Kong’s continued wish to be at the center of people’s minds when it comes to Islamic financing in Asia, particularly as momentum builds around China’s belt and road initiative,” said Davide Barzilai, Hong Kong-based head of Islamic Finance for Asia Pacific at law firm Norton Rose Fulbright. “We will find that Islamic-compliant investors will see the attractions.”
Hong Kong, which is losing its role as a gateway to China as Shanghai’s financial market opens, is keen to become the launchpad for the global ambitions of Chinese companies, including building roads, railways and ports along the traditional Silk Road to the Middle East, Africa and Europe. While the ex-British colony is making progress after putting in legislation for Shariah-compliant bonds in 2013, Singapore’s aspirations are stalling, highlighting the difficulties posed to countries or cities with small Muslim communities.
The city is considering selling a third sukuk, Financial Secretary John Tsang said in budget comments, brightening the outlook after a 29% slump in global issuance in 2015 from US$49.6 billion the previous year, when the U.K., Luxembourg and Hong Kong sold such debt for the first time.
2016 is off to a better start, with US$5 billion in worldwide sales compared with US$1.8 billion a year earlier, data compiled by Bloomberg show. Kenya, Nigeria, Ghana and Morocco are also planning debuts. Offerings climbed to a record US$51.6 billion in 2012.
Singapore’s DBS Group Holdings Ltd closed its Islamic unit last year and despite introducing laws for Shariah-compliant bonds in 2006, sales have so far been limited to energy company Swiber Holdings Ltd., Sabana Shariah-Compliant Industrial REIT, the central bank and home builder City Developments Ltd.
In a sign the ancient Silk Road is coming back to life, the first cargo train from China to Iran completed its journey in February following the lifting of international economic sanctions. President Xi toured Saudi Arabia, Egypt and Iran in January to discuss energy cooperation, industrial parks and diversifying trade. To fund its global push, China is setting up the Asian Infrastructure Investment Bank, pushing for the yuan to be included in global reserves and opening its bond market to foreign investors.
China’s road policy offers opportunities for Islamic financing and sukuk, said Barzilai at Norton Rose Fulbright. While Hong Kong is in a strategic position to access China’s large Muslim population, it needs stronger efforts to harness investor demand and improve liquidity, said Angus Salim Amran, the Kuala Lumpur-based head of markets at RHB Investment Bank Bhd., Malaysia’s second-biggest Islamic bond arranger.
“There is no doubt that Hong Kong is positioning itself as the gateway to China as currently sukuk investors have limited opportunities to tap into China’s potential,” said Johar Amat, head of Treasury at OCBC Al-Amin Bank Bhd., the Shariah-compliant unit of Singapore’s second-largest lender. “The diversity in demand for sukuk as a financing instrument is crucial for the growth of Islamic finance worldwide.”
Originally published on www.theedgemarkets.com