The Hong Kong Airport Authority said yesterday it could launch the city's first Islamic bond sale as early as the third quarter of this year. Confirming yesterday's report in the South China Morning Post, the bond issue moves Hong Kong a step closer to establishing itself as an Islamic financial hub. Market observers expect the maiden Islamic bond could be about US$300 million to US$500 million. 'We hope to confirm the details in the third quarter and be among the first Hong Kong organisations to issue an Islamic bond,' said Stanley Hui, the Airport Authority's chief executive. The Post reported yesterday that the operator of Chek Lap Kok airport planned to sell the territory's first Islamic bond, pending government approval of a tax exemption to make the deal comply with Islamic laws. Sharia law bans interest income but allows profit sharing, meaning Hong Kong's tax laws that tax profit but not interest income will have to be revamped to make Islamic bonds a worthwhile investment. Frank Kwong, chairman of the Asia Capital Market Association, said the Airport Authority was likely to issue the bond in September but would still need time to solve the tax issue and modify the structure of the bonds to make it more investor-friendly. Investors usually had more interest in new investment launches after the summer holidays, meaning the third-quarter launch was good timing. Mr Kwong expected the government, which is keen to promote Hong Kong as an Islamic finance centre, would be able to work out the tax issue. HSBC has been mandated to arrange the transaction, with Citi also playing a key role, according to sources. HSBC and Citi declined to comment. 'The Airport Authority has already done a lot of ground work in order to meet Islamic rules,' a source close to the airport operator said earlier. 'What it is waiting for is a tax exemption from the government.' The bond's success will be a victory for Chief Executive Donald Tsang Yam-kuen, who wants to see Hong Kong develop an Islamic finance market to attract Middle Eastern oil wealth. The plan had met scepticism because of Hong Kong's distance from the Middle East and its small Muslim population. Hong Kong has the potential to become an Islamic finance centre but will have to consider revising certain tax laws to facilitate the development, according to accounting firm PricewaterhouseCoopers.
