HONG KONG: The Hong Kong Special Administrative Region government is finalizing new tax laws which would facilitate the introduction of Islamic finance on a par with equivalent conventional products, and there is a strong possibility that the Hong Kong Airport Authority (HKAA) will issue the debut quasi-sovereign Sukuk from the island enclave during 2009.
Professor K.C. Chan, the secretary for financial services and the Treasury, Hong Kong government, confirmed in his keynote speech at the inaugural Asia Sukuk Summit held a few days ago at the Treasury Markets Association organized in association with ICG Events, that the Hong Kong Administration "is putting in place tax neutrality measures to facilitate the development of Islamic finance. These measures seek to address disadvantageous treatments on the issuance and transactions of Sukuk vis-à-vis conventional bonds. They will enhance the commercial viability of Sukuk in our market."
Although Professor Chan did not wish to give a timeline as to when the new laws would be in place, he did stress that Hong Kong was sparing no effort in coordinating the establishment of closer partnership with the financial industry to extend international business linkages, nurture talent, build up knowledge and facilitate the launch of new Islamic finance products including Islamic funds, indexes and banking windows, as well as Sukuk. "We continue to enhance our market infrastructure and raise our profile as an Islamic finance platform. Market response to our effort has been encouraging," he added.
Chan said that the government was fully committed to supporting the development of Islamic finance in the city. The chief executive of the Hong Kong government has in fact alluded to this during his last two policy addresses. The government believes that being an Islamic finance hub especially for capital markets instruments and investments would diversify the island's financial services offerings. Hong Kong, in fact, is the world's third largest financial center after New York and London, and now sees itself as the gateway for Islamic finance to opportunities in mainland China and other countries in the region including Taiwan, Korea, Vietnam, Laos and Kampuchea.
However, Hong Kong is concerned about the effect on Islamic finance of the credit crunch and the global financial crisis, since no economy, including those in the Middle East and GCC (Gulf Cooperation Council) countries, have gone untouched. Thus it seems unavoidable that Islamic finance will slow its pace of development in the near term, "alongside growing downside risks in the global financial scene."
However, Chan predicted that the government's "commitment and confidence in developing Islamic finance remain strong... While economic cycles will have a bearing on the pace and intensity of Islamic finance development, prospects for the Islamic finance industry in 2009 and beyond would remain positive, given the strong fundamentals underlying the development."
These included the relatively strong economic growth fundamentals of the MENA economies against a global financial backdrop; the small size and base of the Islamic finance industry compared to the conventional one; and the peculiar and intrinsic risk-sharing and asset-based features of Islamic finance - all of which are attractive to market players.
It is no secret that the Hong Kong Airport Authority is in the market to issue a Sukuk in the financial markets to raise funds for its expansion work. Sam Kwok, treasurer, HKAA confirmed that the authority is seeking to issue a debut Sukuk although its timing would depend on market conditions. Hong Kong International Airport is experiencing a huge growth in passenger arrivals and the Hong Kong International Freight Terminal is the largest in the world in terms of capacity and volume of freight handled.
Similarly, Christina Tung, managing director, Mayfair Pacific Financial Group, stressed that there are interesting opportunities for Islamic finance not only in and out of Hong Kong to Mainland China, but also further afield in Taiwan, Macau and the Kowloon Peninsula.
Perhaps a potentially major player in this region could also be the Jeddah-based Islamic Development Bank (IDB). Mohammed Tariq, treasurer of the IDB, revealed that the multilateral development bank is seeking to issue local currency Sukuk in both member and non-member countries as a way of leveraging local assets through local issuances thus helping these countries mitigate some of the effects of the credit crunch and the financial crisis.
Following its successful 1 billion ringgit MTN issuance in Malaysia last year, the IDB, according to Tariq is in talks with Indonesia, Kazakhstan and Singapore in issuing similar local currency offerings. An IDB delegation did meet senior officials of the Hong Kong Monetary Authority and the top asset managers to explore opportunities for cooperation.
The IDB is flush with liquidity and has callable capital totaling almost $17 billion available. However, the idea of issuing local currency Sukuk in markets where there are viable and quality asset pools and where such instruments are required by the respective governments is to utilize such local assets to raise funding in a cost-efficient way to help these countries.
