HONG KONG SEEKS TO BECOME SUKUK(ISLAMIC BOND)HUB

In coming months, Hong Kong Chief Executive Donald Tsang and his financial secretary John Tsang will visit India, the Middle East and other parts of Asia to convince borrowers and investors that the Chinese territory is the best place to issue Islamic bonds.

The trip is part of Hong Kong’s bid – first announced in July – to establish the 1,100sq km enclave as another centre for Shariah-compliant debt to complement its strong position in conventional finance.

The move sees Hong Kong following belatedly on the heels of Malaysia which, for years, has been proactive in encouraging Islamic financing. More recently, Dubai and even London have been building on their respective strengths to attract Islamic cash.

But experts say Hong Kong could emerge swiftly as a contender since its business-savvy legislature can quickly implement necessary regulation. The former UK colony has a transparent legal system, a simple tax code and a concentration of international banks.

Moreover, its proximity to China and its position as a traditional financial gateway to the mainland also make the territory attractive as a place to do Shariah business, they say.

Islamic bonds – structured in accordance with Shariah, or Islamic law – differ primarily from their conventional counterparts in that they don’t pay interest, which Muslims consider to be usury. Instead, lenders receive a regular payment linked to the performance of underlying tangible assets.

“Hong Kong is late in coming into the game, but it’s just a matter of the legal system being put in place to accommodate the Islamic product,” said Edwin E. Hitti, president of Hong Kong’s Arab Chamber of Commerce and Industry.

Gulf investors – seeking to diversify their portfolios – would be keen to buy sukuk issued by Chinese companies as a way of gaining exposure to a country that is expected to expand around 11% this year, he added.

No Hong Kong or Chinese borrowers have yet sold Islamic bonds although some banks, including Kuwait Finance House, have been working with China government-related firms to raise cash through sukuk.

Other banks and financial firms are eying China’s more-than 20mn Muslims as a potential market for personal finance products.
“I think Hong Kong will be a formidable challenge (as a sukuk hub). Most of the foreign banks are there. They are very established in the conventional market and they just need to start looking at Shariah-compliant products,” said Ahmad Zaini Othman, chief executive officer of AmIslamic Bank Bhd in Kuala Lumpur.....