China Is­lamic bond push re­news as global-fo­cused funds quadru­ple


A Chi­nese com­pany plans its first dol­lar sukuk is­suance to tap a four-fold increase in Chi­nese funds that can in­vest in bonds over­seas. Asukuk is a type of bond con­sis­tent with the Is­lamic faith.

Sichuan De­vel­op­ment Fi­nan­cial Leas­ing Co plans to sell $300 mil­lion of Is­lamic bonds via the Sin­ga­pore-based spe­cial pur­pose ve­hi­cle, Silk Routes Cap­i­tal Pte, in De­cem­ber, ac­cord­ing to Silk Routes Fi­nan­cials, which is the fi­nan­cial ad­viser on the sale. The deal is be­ing done in the citys­tate be­cause China doesn’t have equal tax treat­ment for sukuks, said Bobby Tay, an ad­viser at the con­sul­tancy.

The planned of­fer­ing fol- lows China’s in­au­gu­ral ring­git sukuk by Coun­try Gar­den Hold­ings Co last year. The sup­port for Is­lamic fi­nance com­ple­ments Pres­i­dent Xi Jin­ping’s Belt and Road Ini­tia­tive goal of re­viv­ing his­tor­i­cal trade routes with the Mid­dle East. Re­search firm Z-Ben Ad­vi­sors es­ti­mated Chi­nese funds that in­vest in bonds over­seas through the na­tion’s Qual­i­fied Do­mes­tic In­sti­tu­tional In­vestors pro­gram more than quadru­pled this year to 17.4 bil­lion yuan ($2.6 bil­lion) as of Sept 30.

“This is a step in the right di­rec­tion and could po­ten­tially lead to more Chi­nese cor­po­rates di­ver­si­fy­ing their fund­ing sources via the sukuk mar­ket,” said Hasif Mu­rad, an in­vest­ment man­ager at Kuala Lumpur-based Aberdeen Is­lamic As­set Man­age­ment. “The pre­dom­i­nant in­ter­est for this is­suance will come from yield-hun­gry do­mes­tic Chi­nese in­vestors.”

Silk Routes Cap­i­tal hired Stan­dard Char­tered Plc, CIMB Group Hold­ings Bhd, Bank of China Ltd and Bank of China In­ter­na­tional Ltd to help ar­range in­vestor meet­ings in the Mid­dle East, Malaysia, Brunei, Sin­ga­pore andHong Kong, Tay said. The sukuk will use the struc­ture of com­mod­ity murabaha, where goods are bought and then resold with a pre-agreed mark-up, he said.

The Is­lamic debt will likely have the same rat­ings as Sichuan De­vel­op­ment Hold­ings Co, the par­ent of the leas­ing com­pany, ac­cord­ing to Tay. The in­vest­ment arm of Sichuan pro­vin­cial gov­ern­ment is rated A- by Fitch Rat­ings. Of­fi­cials in the two com­pa­nies couldn’t be im­me­di­ately reached by phone.

In a sign the tra­di­tional Silk Road is com­ing back to life, Chi­nese com­pa­nies are build­ing roads, rail­ways and ports along the route to the Mid­dle East, Africa and Europe. The first cargo train from China to Afghanistan com­pleted its jour­ney in­Septem­ber, mark­ing an­other ad­vance in Xi’s project to deepen his na­tion’s in­flu­ence along the old trade routes.

Is­suance of global Shari­ah­com­pli­ant se­cu­ri­ties climbed 28 per­cent so far this year to $38.7 bil­lion, af­ter drop­ping 28 per­cent to $35.6 bil­lion in 2015, the low­est level since 2010, ac­cord­ing to data com­piled by Bloomberg.

the amount of Is­lamic bonds Sichuan De­vel­op­ment Fi­nan­cial Leas­ing Co plans to sell via Silk Routes Cap­i­tal Pte in De­cem­ber

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