* Hong Kong, Pakistan, Indonesia set for Islamic bond issues
* Global sukuk offerings are rare from Asia
* Governments worldwide looking to tap growing investor base
By Kit Yin Boey
SINGAPORE, Aug 8 (IFR) - Hong Kong, Indonesia and Pakistan
are banking on pent-up investor demand as they look to raise up
to a combined US$3.5bn in the fast-growing Islamic bond market.
The three sovereign sukuk issues, including a planned US$1bn
debut from Triple A rated Hong Kong, are set to
launch before the end of September.
Few Asian issuers have targeted the global sukuk market in
the past, and the glut of deals comes as governments across Asia
are looking to attract Islamic investors from outside the
"There are a lot of Islamic investors from the Middle East
looking for diversification and new investment opportunities,"
said Ahsan Ali, Standard Chartered Bank's managing director and
global head for Islamic origination.
"Historically, these investors were mostly investing in
Europe and US, but over the past few years, we have seen growing
investment allocations to Asia as they move to diversify their
assets," Ali said.
Indonesia, home to the world's biggest Muslim
population, is Asia's only regular issuer in the global sukuk
market, having issued annually since 2010. Pakistan
has sold Islamic debt overseas only once before, in 2005, while
Malaysia has typically preferred to target its own
The addition of more Asian sovereigns to the market comes
amid growing interest in the sukuk format among borrowers across
the globe. The UK priced its first sukuk this year, while
Luxembourg, Tunisia, South Africa are among other governments
considering a debut.
"This year has been unique with issues coming from outside
the traditional market in the Middle East," said Mohammed
Dawood, HSBC's global head of sukuk financing. "The UK
government sold a £200m (US$336m) bond in June, and other
sovereigns are looking at the market.
"This helps to internationalise the product as a mainstream
instrument that can be used as an alternative funding source."
For Islamic investors, the boost in supply cannot come soon
enough. Ernst & Young projects the growth of the Islamic banking
industry will drive demand for sukuk to US$900bn in 2017, up
from US$300bn just over a year ago. Globally, assets held by
Islamic investors rose to US$1.8trn at the end of last year,
marking an annual growth rate of about 17.6% over the last four
Asia's sovereigns view the upcoming offerings as an
opportunity to set benchmarks for companies to follow, as well
as a chance to expand their own investor base.
Hong Kong is expected to sell a US$500m-$1bn sukuk in
September via joint leads CIMB, HSBC, National Bank of Abu Dhabi
and Standard Chartered. Conventional as well as Islamic
investors are likely to snap up the debut from a rare
Aa1/AAA/AA+ rated issuer.
"If (conventional) investors want access to a certain
credit, and if sukuk is the only way they can get hold of the
credit, they will definitely buy it," said a Kuala Lumpur-based
Bankers hope Indonesia can beat Hong Kong to market with a
US dollar sukuk of up to US$1.5bn in late August, after the end
of Eid al-Fitr, the festival marking the end of the Islamic holy
month of Ramadan.
Roadshows are planned for the middle of August. Indonesia is
rated Baa3/BB+/BBB-. CIMB, Emirates National Bank of Dubai, HSBC
and Standard Chartered are joint bookrunners.
Pakistan, with the lowest rating of the three at Caa1/B-
from Moody's and Standard & Poor's, will appoint lead banks in
the coming days, according to a finance ministry official.
While Asia is home to the world's biggest Islamic bond
market, in Malaysia, Asian issuers have traditionally had a low
profile overseas. The only global offering this year was a
US$$300m 2.874% five-year deal from the Export-Import Bank of
Malaysia, while last year there were only two in US dollars - an
US$800m dual-tranche from Malaysia's Sime Darby and a US$1.5bn
issue from the Republic of Indonesia.
Other Asian borrowers have taken note of Malaysia Exim's
result, however. The bond priced inside its conventional US
dollar curve, showing that the Islamic market can deliver
cheaper funding. Some issuers in the Gulf region have sold sukuk
in global markets at yields 10bp-20bp lower than their
Sukuk issues are also performing well. The Dow Jones Sukuk
Index is up 4.39% so far this year compared with a return of
0.22% in 2013.
Market participants hope high-profile offerings from key
Asian sovereigns will allow other borrowers to benefit.
Hong Kong, in particular, is looking to promote itself as a
regional hub for Islamic financing to capitalise on growing
trade links between Greater China and the Middle East. Trade
between China and the Middle East reached US$238.9bn in 2013, up
from US$25.5bn in 2004. Malaysia's Khazanah Nasional and Axiata
have already sold sukuk denominated in offshore renminbi in Hong
Kong's Dim Sum market.
"For Hong Kong to pass the sukuk-related ordinance (in
March) is a positive development to the overall Islamic
financial market," said Michele Leung, associate director, fixed
income indices, S&P Dow Jones Indices.
"Both local and global investors want to diversify their
(Reporting by Kit Yin Boey. Editing by Abby Schultz and Steve