Sovereign Deal of the Year
What structure was used for this transaction? Why did you use this particular Islamic structure? What other structures were considered?
The issuance was based on the Ijarah structure (sale and lease back of fixed assets). This particular structure was used since it is the most common and widely accepted Sukuk structure and has also been used by majority of sovereign issuers.
What is the purpose of this transaction?
Through this inaugural Sukuk issue, the government was looking to promote the development of the Sukuk market in Hong Kong and demonstrate that the legal, regulatory and taxation frameworks in Hong Kong can accommodate Sukuk and Islamic issuances, and therefore attract more international and local investors and enhance Hong Kong’s profile in the international Islamic financial markets.
The landmark transaction set a key government and pricing benchmark and encourages other private and public sector entities in Hong Kong to issue Sukuk in the future.
What were the challenges faced and how were they resolved?
Several issuers (including sovereigns) were looking to access the debt capital markets during the same pricing period i.e. September 2014. However, thanks to the constructive global roadshow (Riyadh, Dubai, Abu Dhabi, Doha, Kuala Lumpur, Hong Kong, Singapore, London and New York) to market the Obligor’s unique and high quality credit profile, the Sukuk offering attracted strong investor demand within the first hour of the bookbuilding process. The offering was exceptionally well-received by the market, with the orderbook reaching US$4 billion by Asia close.
The overwhelming response from Middle Eastern and Islamic as well as global investors allowed the final pricing (US Treasury + 23bps) to tighten 7bps from an initial price guidance of US Treasury + 30bps. Despite the significant price guidance tightening, the momentum continued and facilitated the orderbook to eventually grow to US$4.7 billion, representing 4.7 times oversubscription.
Geographically speaking, where did the investors come from?
The strong quality of investors as well as the robust participation by Middle Eastern and Islamic accounts allowed for 36% of the transaction to be allocated to Middle East, contributing to the Obligor’s goal of investor diversification into the Middle East and Islamic investor base, with the remaining 47% of the Sukuk allocated to Asia, 6% to Europe and 11% to the U.S.
The Sukuk was also allocated to a wide variety of high-quality investor accounts, with 11% to fund managers, 56% to banks/private banks, 30% to public sector and 3% to insurance companies.
What are the unique features and highlights of this deal?
As an international financial centre striving to promote the development of the Sukuk market, HKSAR Government’s debut Sukuk transaction achieved multiple highlights.
The landmark transaction represented the first USD-denominated Sukuk issued by a non-Islamic government and the first USD-denominated AAA-rated government Sukuk. It also achieved the largest orderbook for a non-Islamic government Sukuk and the tightest pricing (on a spread over US Treasury basis) for an Asian government to date.
What is the importance of this transaction to the global Islamic finance industry?
The transaction represented a groundbreaking milestone in the development of Islamic capital markets globally as the first USD-Sukuk transaction from a non-Islamic government, helping pave the way for other governments to consider the Sukuk market as well as diversifying investment opportunities for Islamic-focused investors.
Is this deal part of a program or series? If so please provide details.
The Sukuk transaction was a single debut issuance by the Obligor and was not part of a program.
What other Islamic financing deals has the company been involved in and how does this compare?
This landmark transaction was the first Islamic transaction by the government of Hong Kong. It sets a benchmark for other quasi-sovereign and corporate issuers in Hong Kong to consider Sukuk as an alternative financing tool to raise funds and to diversify their investor base.
|Summary of terms & conditions|
|Issuer||Hong Kong Sukuk 2014 Limited|
|Obligor||The Government of the Hong Kong Special Administrative Region of the People’s Republic of China|
|Purpose of issuance||Promote the development of the Sukuk market in Hong Kong|
|Delegate||DB Trustees (Hong Kong) Limited|
|Coupon rate / return||2.005%|
|Maturity date||18th September 2019|
|Global Coordinators||HSBC & Standard Chartered Bank|
|Lead Manager(s)/ Bookrunner(s)||CIMB, HSBC, National Bank of Abu Dhabi & Standard Chartered Bank|
|Governing Law||English / Hong Kong|
|Legal Advisor(s) / Counsel||Norton Rose Fulbright Hong Kong (Legal Advisor of the Issuer and Government)
Allen & Overy
( Legal Advisor to the Joint Global Coordinators and the Arrangers)
|Listing||Hong Kong Stock Exchange, Bursa Malaysia (Exempt Regime) and NASDAQ Dubai|
|Underlying Assets||Properties owned by the Financial Secretary Incorporated and used by various government departments as offices|
|Issue Rating||Aa1 stable / AAA stable (Moody’s / S&P)|
|Shariah Advisor(s)||Standard Chartered Bank Shariah Supervisory Committee; The Executive Shariah Committee of HSBC Saudi Arabia Limited; CIMB Islamic Bank and Sheikh Nedham Mohamed Saleh Abdulrahman Yaqobi (on behalf of National Bank of Abu Dhabi PJSC)|
|Investor breakdown||ME: 36%
|Face value / minimum investment||US$200,000|
This interview was conducted with Standard Chartered Saadiq