The Government of the Hong Kong Special Administrative Region of the People’s Republic of China (the “HKSAR Government”) today announced the successful offering of its inaugural sukuk (the “Sukuk”) under the Government Bond Programme.
The Sukuk, with an issuance size of US$1 billion and a tenor of 5 years, marks the world’s first USD-denominated sukuk originated by an AAA-rated government.
Following a global roadshow commencing 1 September 2014, covering Riyadh, Dubai, Abu Dhabi, Doha, Kuala Lumpur, Hong Kong, Singapore, London and New York, the Rule 144A/Reg S USD Sukuk was priced on 10 September 2014 at 2.005% (23 basis points over 5-year US Treasuries). The Sukuk saw strong demand from global investors, attracting orders exceeding US$4.7 billion and recording oversubscription of 4.7 times, allowing final pricing to tighten by 7 basis points from its initial price guidance. Pricing at a spread of 23 basis points over the corresponding yield of US Treasuries represents the tightest spread ever achieved on a benchmark USD issuance from an Asian (ex-Japan) government, setting an important new benchmark for Hong Kong and the rest of Asia.
The deal attracted interest from a diverse group of conventional and Islamic investors. The Sukuk was allocated to over 120 global institutional investors, with 36% of the Sukuk distributed to the Middle East, 47% to Asia, 6% to Europe and 11% to the United States. By investor type, 11% was distributed to fund managers, 56% to banks and private banks, 30% to sovereign wealth funds, central banks and supranationals, and 3% to insurance companies.
“We are pleased to see such strong demand for the HKSAR Government’s inaugural Sukuk, as evidenced by the significant orderbook size and tight pricing. The Sukuk marks the first USD sukuk originated by an AAA-rated government in the global Islamic financial market and signifies an important milestone in the development of the Islamic capital market in Hong Kong,” the Financial Secretary of Hong Kong, Mr John C Tsang, said.
Mr Tsang added, “The success of this transaction demonstrates that issuance of sukuk using Hong Kong’s platform is a viable fund-raising option and widely accepted by investors around the world. I hope that the Sukuk issuance will catalyse the further growth of the sukuk market in Hong Kong by encouraging more issuers and investors to participate in our market.”
The Sukuk issuance comes after the legislative changes made in Hong Kong in July 2013, which provide a taxation framework for sukuk issuances comparable to that for issuances of conventional bonds.
The strong investor demand for the Sukuk is a testament of investor confidence in Hong Kong’s credit strengths and strong economic fundamentals. The Sukuk was assigned credit ratings of AAA by Standard and Poor’s and Aa1 by Moody’s.
The Sukuk uses an Ijarah structure, underpinned by selected units in two commercial properties in Hong Kong. The Sukuk is issued by a special purpose vehicle, Hong Kong Sukuk 2014 Limited, established and wholly owned by the HKSAR Government. The Sukuk is expected to be settled on 18 September 2014 and listed on the Hong Kong Stock Exchange, Bursa Malaysia (Exempt Regime) and NASDAQ Dubai.
The Hong Kong Monetary Authority acts as the HKSAR Government’s representative in the Sukuk offering under the Government Bond Programme. The primary objective of the Government Bond Programme is to promote the further and sustainable development of the local bond market.
HSBC and Standard Chartered Bank acted as Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, and CIMB and National Bank of Abu Dhabi PJSC acted as Joint Lead Managers and Joint Bookrunners for the Sukuk offering.
Hong Kong Monetary Authority
11 September 2014
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