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HONG
KONG: Scheduled to debut in September, Hong Kong’s maiden
Sukuk issuance has been assigned a provisional rating of ‘(P)Aa1’ by
Moody’s. The Special Administrative Region (SAR) passed its Sukuk bill
earlier in March, with an aim to issue approximately US$500 million in
Sukuk. The paper will be issued by Hong Kong Sukuk 2014, an SPV
established for the purpose of the issuance.
In
a statement from Moody’s, the rating assigned to the certificates is at
the same level as the long-term local-currency and foreign-currency
issuer ratings of Hong Kong, as the Sukukholders will: (i) effectively
be exposed to Hong Kong's senior unsecured credit risk; (ii) not be
exposed to the risk of performance of the underlying assets relating to
the certificates; (iii) have rights to the proceeds of payments from
the government ranking “pari passu” with other senior unsecured
obligations.
According
to Moody’s, Hong Kong’s financial position is among the strongest of
any government rated by the firm. The SAR’s ‘Aa1’ government bond
rating reflects a strong, competitive economy, very high institutional
strength, very high government financial strength, and considerable resilience
to shocks. Furthermore, Honk Kong also has a very large net
international asset position with external assets exceeding liabilities
by an amount equivalent to 280% of its gross domestic product at the
end of 2013. Another factor supporting the rating is the strength of
the banking system, which did not exhibit significant stress during the
global financial crisis.
Based
on the Ijarah principle, proceeds from the Sukuk will be utilized by
the issuer to purchase certain properties now owned by the government.
Following the purchase, the SPV will enter into a lease agreement with
the government. Subsequently, pursuant to the terms of the agreement,
the government will periodically pay an amount sufficient to fund
distributions payable by the issuer to the Sukukholders. At the end of
the Sukuk term, the government will purchase the lease assets at the
exercise price, thus providing the principal amount payable by the
issuer to certificate holders.
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