Legislators raise concern over Islamic bond issue

Government questioned on costs and demand in view of small Muslim community in city

PUBLISHED : Tuesday, 03 December, 2013, 5:45am
UPDATED : Tuesday, 03 December, 2013, 6:48am

Lawmakers are questioning the government's plan to issue Islamic bonds, saying the costs are expected to be high and the demand limited in view of the small Muslim community in the city.

They voiced their concerns at yesterday's monthly financial affairs panel, where officials said a law change would be sought next year to allow the issue of Islamic bonds or sukuks under the government bond programme.

"Hong Kong has the right conditions to be a centre for the US$1.3 trillion Islamic finance market. A government issue of sukuk would tell the world that Hong Kong provides the platform for overseas companies to come here and issue Islamic bonds," said Jackie Liu, a principal assistant secretary for financial services and the treasury.

Legislator Sin Chung-kai, however, questioned the rationale of such a bond.

"The government has no need to raise funds," Sin said. "The whole purpose of the sukuk bond is to promote Islamic finance, but it would involve a lot of expenses. It might not be that successful either.

"We have to ask if it makes sense to use taxpayers' money to promote such products."

Christopher Cheung Wah-fung, for the financial services sector, said Islamic bonds had to strictly comply with the tenets of Islam and he wondered if that would add risks to the bond products.

Abraham Razack expressed doubt if Hong Kong would ever be able to compete with other Islamic finance centres.

"Malaysia is a Muslim country while Singapore and Britain have big Muslim populations. In contrast, Hong Kong does not have a big Muslim community," Razack said. "We should not issue sukuks just because Britain and others are doing it."

Britain said in October it would issue sukuks next year.

Liu said a government issue would be popular because of the high credit rating of the government. The offering would also target overseas institutional investors.

He said the issue would not be unprofitable as costs would not be too high. The money raised could be invested as part of the Exchange Fund, making money for the government.

Liu said the government had yet to decide on the price and size of the sukuk issue.