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Hong Kong's financial platform is ready for sukuk issuance after putting in place a tax framework to level the playing field between theseand conventional bonds, and more recently a a legal framework for the government to issue sukuk under the government bond programme.
The deputy chief executive of Hong Kong Monetary Authority (HKMA) Peter Pang on April 14 told a conference on Islamic finance in Hong Kong organized jointly by HKMA and Bank Negara Malaysia that they are now working closely with the Hong Kong SAR government to prepare for the inaugural issue of a government sukuk under the government bond programme to promote the further development of the sukuk market in Hong Kong.
He said a detailed issuance plan is being devised with reference to international practices and market conditions. "According to our current plan, the inaugural government sukuk would be based on the ijara structure and targets institutional investors globally," he adds.
Bank Negara deputy governor Muhammad bin Ibrahim noted the creation of a sukuk market in Hong Kong is a timely initiative as it has the potential to further spearhead its foray into Islamic finance. He added that sukuk, as a new asset class, is ideal for portfolio diversification and is increasingly well-accepted all over the world.
"From our experience, the new venture by Hong Kong into the sukuk market may be able to deepen its bond market further and open the opportunity to tap the burgeoning investor pool seeking good quality Shariah-compliant and ethical-based instruments," pointed out Ibrahim.
Citing the benefits in tapping the sukuk market, Pang saids potential issuers would be able to broaden their investor base and diversify their funding sources. "By issuing sukuk, you will be able to get both conventional and Islamic investors to participate," he pointed out. "In particular, issuing sukuk will help you to gain access to the large pool of liquidity in the Middle East and other Islamic countries, where investors are progressively looking for Shariah-compliant assets in this part of the world."
Being a player in an increasingly developed sukuk market, Ibrahim said Hong Kong has the opportunity to adopt the best practices in sukuk issuances. The first one is in the area of Shariah standards where it provides principle-based guidance on the execution of Islamic financial contracts. Such standards are designed to cover the needs of different jurisdictions. "The adoption of these standards would contribute towards promoting greater transparency, recognition and consistency - thus facilitating greater cross-border Islamic financial transactions," he added.
The second one is to have proper legal infrastructure and dispute resolution mechanism in place to safeguard Islamic financial transactions and integrity of the financial system. Ibrahim said the comprehensive legal framework as embodies in the recently-introduced Islamic Financial Services Act 2013 by Bank Negara provides a clear focus on Shariah compliance and governance in the Islamic financial sector.
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