Islamic bonds may be launched in fourth quarter

PUBLISHED : Monday, 19 May, 2008, 12:00am
UPDATED : Monday, 19 May, 2008, 12:00am

Hong Kong could see its first Islamic bond issued in the fourth quarter if credit market conditions improve, sources said.

Frank Kwong See-wah, chairman of the Asia Capital Market Association, said several companies had considered issuing 'sukuk' - or Islamic bonds - to broaden their investor base. He did not identify the potential issuers.

'But we may not see the first sukuk in Hong Kong until the fourth quarter as the current timing is not good due to prevailing credit market conditions,' he said.

Global credit markets have been plunged into turmoil and credit spreads have widened significantly as a result of the crisis of confidence over the security of holding fixed-income assets in the wake of defaults triggered by the subprime crisis.

Mr Kwong said potential sukuk issuers also needed time to prepare and structure their bonds better to make sure their first issues would be successful.

Islamic finance has become a hot topic since Chief Executive Donald Tsang Yam-kuen unveiled plans in his policy address in October last year to target investments from Middle Eastern investors. Hang Seng Bank followed up on the address by issuing an Islamic index fund that invests in mainland stocks that comply with Islamic religious law.

Capital market watchers now expect public sector companies such as MTR Corp, the Airport Authority and Hong Kong Mortgage Corp to be the first Islamic bond issuers in the city.

A banker with a US lender in the city said with appropriate policy changes Hong Kong could leverage its existing strengths to establish Islamic finance. 'Some infrastructure such as the tax regime will need to be modified to meet Islamic rules,' she said.

Au King-lun, the chairman of the Hong Kong Securities Institute, said recent woes in the US, and low interest rates, would encourage Islamic funds to diversify their portfolios and increase their portion of investments in non-US markets.

A 25-member delegation led by Mr Au last month visited Malaysia, which is recognised as a Islamic finance centre within the region, to deepen members' understanding of Islamic finance. Delegates heard that many Islamic investors were interested in investing in the mainland.

'Hong Kong is well-placed to benefit from this trend,' Mr Au said. 'But in addition to having the necessary structures and policies in place, Hong Kong will require professionals who are well-versed and qualified in Islamic finance,' he added.

The institute intended to take a leadership role in this regard and plans to introduce training courses for members this year.