Banking taskforce studying HK entry into Islamic bond market

Hong Kong is a step closer to introducing an Islamic bond market to tap investors in the Middle East after the city's central bank and bankers set up a working group to study details of launching a platform, the chief executive said.

The working group, formed by the Hong Kong Monetary Authority and members of the Treasury Markets Association, will look into taxation, legal and other regulatory systems to see how to facilitate the issue of Islamic bonds, or Sukuk, as soon as possible.

'Islamic finance offers huge potential for development. To further consolidate Hong Kong's position as a global financial centre, we should actively leverage on this new trend by developing an Islamic financial platform in Hong Kong,' Donald Tsang Yam-kuen said in his policy address.

Financial Secretary John Tsang Chun-wah last month expressed the government's interest to tap into the US$1 trillion Islamic bond market, which is expected to grow by 15 per cent annually.

A government source said that as interest payment is banned under Islamic or sharia law, Islamic bonds are usually structured so that bond issuers use assets as collateral and investors shared in profits or received rental income from the assets. Another form of Islamic bond allows investors to profit by buying the bonds at a discount to the debt paper.

Stephen Hui, chief executive of OSK Asia, part of Malaysia's leading financial group OSK Investment Bank, said Hong Kong would have to face competition from Dubai, Saudi Arabia, Britain, Germany and Malaysia which already had established Islamic bond markets.