HSBC delays first fund aimed at investing in sukuk bonds | Shanghai Daily

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September 10, 2009

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HSBC delays first fund aimed at investing in sukuk bonds

HSBC said yesterday it has postponed the launch of its first fund investing in sukuk, or Islamic bonds, after investors were put off by a four-year lock-up period.

"We decided to take some time to redesign the product based on feedback during the marketing phase," said a spokeswoman for HSBC Global Asset Management, the group's fund management arm, which would have housed the product.

"The lock-in period was not attractive to investors at the time," she told Reuters.

Investors worldwide were caught out by lengthy or sudden lock-ups imposed by investment managers during the credit crisis, which limited access to much-needed cash.

HSBC Amanah, the group's Islamic unit, had planned to launch the fund in the summer. Despite the postponement, the spokeswoman said it is still "keen" on a fund offering.

In May, HSBC told Reuters the HSBC Amanah Sukuk Fund, to be domiciled in Saudi Arabia, would comprise sukuk issued by 12 to 14 companies, mostly in the real estate, commercial banking and utilities sectors.

A six-week offering period was scheduled to start in June.

The sukuk market boomed in 2007, reaching US$33.1 billion, but slowed in 2008, hit by the financial crisis.

The global sukuk market is mainly driven by sovereign issuance, and companies not backed by states have yet to tap the market so far this year in the Middle East.

Appetite for investments in the region may also be hit as Middle East and global investors grapple with the consequences of restructuring at two of the largest conglomerates in the region, Saad Group and Ahmad Hamad Algosaibi & Bros.

Meanwhile, Kuwaiti firm Investment Dar in May defaulted on a US$100 million Islamic debt issue, the first such default for a major, public Islamic instrument in the region.

Unlike mainstream bonds, sukuk generate income for its holders without paying interest. Most of the sukuks that would have been included in the planned HSBC fund would have used lease and buy back structures, known as Ijara.

Islamic bond issuers must avoid "forbidden" sectors such as weapons, alcohol, gambling.

They must also not charge interest.




 

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