Hong Kong To Keep Momentum On Becoming Islamic Finance Center

Hong Kong, known for its robust conventional finance scene, is striving to become a hub for Islamic finance. However, a lack of enthusiasm among potential sukuk issuers is slowing its progress. Last September, Hong Kong launched its inaugural US dollar-denominated sukuk issue, a US$1 billion deal that marked it as a potential competitor in the global Islamic finance landscape. Despite this, no subsequent sukuk issuers have materialized in Hong Kong, underscoring the difficulty of fostering an Islamic finance sector absent a compelling economic justification.

Though Hong Kong’s sovereign sukuk issue attracted a whopping US$4.7 billion order book, largely from Middle Eastern investors, this success has not sparked a shift from conventional bonds to sukuk among local borrowers. The complexity and unfamiliarity of sukuk make conventional bonds a more attractive option for most. Moreover, for regional borrowers keen on sukuk, choosing Hong Kong over Kuala Lumpur or the Gulf, which are already established Islamic finance centers, is not an obvious decision.

Previous discussions of possible sukuk issuances by firms like the Airport Authority, MTR Corp, and Hong Kong Mortgage Corp (HKMC) have not yet materialized. The Airport Authority and MTR Corp have remained silent on the matter, while the HKMC found it challenging to proceed with sukuk due to non-shariah-compliant mortgages in its asset base.

The Hong Kong Monetary Authority (HKMA) views September’s sukuk sale as proof of the territory’s capacity to support domestic issuers, potentially opening the door for public and private sector firms. Amendments to the region’s tax laws and the passing of a bill to allow government sukuk issuances were key steps in this direction. The HKMA also notes that any future government sukuk issuances will depend on their added benefits from a market development perspective.

Long-term visions of Hong Kong serving as a bridge to Chinese sukuk buyers are yet to be realized, with few issuers of yuan-denominated sukuk and those choosing to tap into the Malaysian market instead. In response, the HKMA is working to increase Islamic finance awareness locally, through initiatives like a forum on Islamic finance in collaboration with Malaysia’s central bank and organizing seminars and workshops.

In addition, Hong Kong’s Financial Secretary, John Tsang, recently led a business delegation to the Middle East, expressing an open invitation to Islamic financial institutions to establish a presence in Hong Kong. While sukuk issuances remain low, Islamic fund management has emerged as a bright spot for Hong Kong, with firms like Maybank Asset Management and Malaysia’s RHB Asset Management launching Islamic investment products in collaboration with local entities.