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SPOTLIGHT

Asian sukuk issues gain favour with Mideast buyers

HONG KONG, June 1, 2015

Asian sukuk offerings are drawing more demand from the Middle East, boding well for regional hubs such as Hong Kong as they try to raise their profiles in the Islamic finance market.

When the Government of Hong Kong issued a $1 billion five-year sukuk last week, 42 per cent was allocated to the Middle East, up from 36 per cent for the borrower's debut Islamic bond last September.

Middle-Eastern buyers also snapped up 56 per cent of a five-year $500 million offering by Indonesian airline Garuda Indonesia, the first international sukuk from an unrated Indonesian corporate issuer.

Hong Kong's high credit rating was attractive to the Middle East, where major investors, such as banks and sovereign wealth funds, are drawn to quality issuers. Meanwhile, implicit government support for Garuda buoyed that offering despite the airline's loss-making past, bankers said.

The two offerings came a week after the Republic of Indonesia received orders in excess of $6.8 billion for a $2 billion sukuk - the largest Islamic sovereign deal in the dollar market. The Middle East, together with North Africa and Malaysia, accounted for 41 per cent of the offering.

The momentum in Asian sukuk offerings is raising hopes that Hong Kong will be able to achieve its goal of stimulating more Islamic issuance from the city.

"This sukuk offering reaffirms Hong Kong's ongoing commitment to develop Islamic finance in the region," said Alexi Chan, HSBC's global co-head of debt capital markets.

"We believe the time is right for issuers from Greater China to consider the sukuk market as a viable option in a diversified funding approach."

ISSUER DIVERSIFICATION

Hong Kong has made policy adjustments in a bid to catch up to more-established sukuk markets like Malaysia and Singapore. It introduced a tax policy for sukuk bonds comparable to that for conventional paper in July 2013.

In its latest issue, the government went for a more asset-light Wakala structure rather than the Ijarah format it used on its debut last September, in part to showcase different sukuk types that potential issuers may consider.

Islamic investors like corporations that issue sukuk directly rather than through holding companies, said another banker on the deal. These buyers also favoured sovereigns and investment-grade borrowers, and those with implied government support, he added.

"The issuer universe in Asia is focused on diversification, and they are willing to look at new markets like they did with euros, even if its a bit more expensive," said a third banker involved in Hong Kong's sukuk.

Nevertheless, Hong Kong's $1 billion sukuk was priced tightly at a yield of 35 basis points over US Treasuries.

Region-wise, 43 per cent of the bonds were allocated to Asia and 15 per cent to Europe. Banks received the majority of the bonds at 74 per cent, while central banks and sovereign wealth funds got 23 per cent and others got 3 per cent.

The Hong Kong SAR Government appointed HSBC and Standard Chartered as joint global coordinators. National Bank of Abu Dhabi was sole global coordinator for Garuda. – Reuters




Tags: Middle East | Garuda | Hong Kong |

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