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Sunday, 8 June 2008

Hong Kong airport operator set to sell Islamic bond

HONG KONG, June 5 (Reuters) - Hong Kong's Airport Authority is set to take the lead in selling the city's first Islamic bond of up to $1 billion, boosting the city's ambition of becoming an Islamic financial centre, a newspaper reported on Thursday.
The Hong Kong airport operator was close to finalising arrangements for the sale of the bond but needed government approval for a tax exemption to make the deal comply with Islamic law, the South China Morning Post quoted an unidentified source as saying.
"The Airport Authority has done a lot of ground work in order to meet Islamic rules," the source was quoted as saying. "What it is waiting for is a tax exemption from the government."
According to Islamic religious law, interest income is banned but it allows profit sharing. Thus, many Islamic investments, including bonds, are structured so that gains are considered profit rather than interest income.
However, profits are taxed in Hong Kong while interest income is not, suggesting that Hong Kong's tax code would need to be modified to make Islamic bonds economical.
HSBC (0005.HK: Quote, Profile, Research) and Citigroup (C.N: Quote, Profile, Research) are reportedly involved in the deal, the newspaper said. It gave no further details.
Officials at Citi, HSBC and the Airport Authority could not immediately be reached for comment on Thursday.
Last month, media reports said Hong Kong borrowers might issue sukuk, or Islamic bonds, in the fourth quarter of this year if credit market conditions improved.
Hong Kong Mortgage Corp, Airport Authority, and MTR Corp (0066.HK: Quote, Profile, Research) could be among the first to issue sukuk amid their government-backed status, the report said. (US$1=HK$7.8) (Reporting by Donny Kwok; Editing by Anne Marie Roantree)

(Source: Reuters)
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