The Hong Kong Airport Authority (HKAA) hopes to issue the city's first Islamic bonds in the third quarter in an attempt to attract petro-dollars from the Middle East.

The authority's chief executive, Stanley Hui, said in an interview with Reuters yesterday that: "We don't have to wait a year or a year and a half. The third quarter is a reasonable timeframe".

But Hui declined to confirm reports that the authority is raising $1 billion from the issuance of Islamic bonds - also called sukuk.

The publicly owned Hong Kong airport operator was in the process of sorting out tax issues with the government, Hui said, adding that his organization was spearheading efforts to promote such products.

The government has been showcasing the territory as an Islamic finance hub, as it competes with other financial centers, to attract petro-dollars from booming Middle Eastern economies.

Target investors

Simon Luk, regional vice president of Money Concept (Asia), pointed out that: "Retail or Hong Kong investors are not quite familiar with the religious rules, so they may not be interested in Islamic bonds".

Luk added that the neutrality of Hong Kong provides an advantage to it being an issuer.

"Investors from the Middle East are more willing to buy the bonds issued in Hong Kong, rather than in Europe or through US institutions," he said.

With an "AA" rating by Standard & Poor's placed on the Airport Authority's local and foreign currency debt, Luk said a good credit rating is helpful in gaining support from Islamic investors.

Last year, the Hong Kong Monetary Authority (HKMA) conducted a joint study with the Treasury Market Association on developing an Islamic financing platform in Hong Kong.

The HKMA said the territory's existing legal and regulatory infrastructure could readily support the development of an Islamic bond market, although tax laws need to be changed or clarified to provide a level playing field for the issuance of sukuk.

Hong Kong Mortgage Corp, the Airport Authority and railway operator MTR Corp could be among the first to issue sukuk amid their government-backed status.

Reuters contributed to the story.

(HK Edition 06/06/2008 page2)