Hong Kong Sukuk issuance given definitive Aa1 rating by Moody’s
(5 June 2015 – Singapore) Moody's Investors Service has assigned a definitive rating of Aa1 to the Trust Certificates issued by Hong Kong Sukuk 2015 Limited, a special purpose vehicle established in Hong Kong by the Government of the Hong Kong Special Administrative Region (HKSAR).
Moody's definitive ratings for these debt obligations follows the provisional ratings assigned on 14 May, 2015.
Moody's rating rationale was set out in a press release published on the same day.
The Aa1 rating assigned to the Trust Certificates is at the same level as the long-term local-currency and foreign-currency issuer ratings of Hong Kong, as the sukuk certificate holders will effectively be exposed to Hong Kong's senior unsecured credit risk; not be exposed to the risk of performance of the underlying assets relating to the Certificates; have rights to the proceeds of payments from the HKSAR Government ranking pari passu with other senior unsecured obligations.
Moody's does not express an opinion on the structure's compliance with Shariah law.
Hong Kong's Aa1 government bond rating reflects a strong, competitive economy, very high institutional strength, very high government financial strength and its demonstrated resilience to shocks.
However, the SAR's risk profile also includes challenges from demographics, a possible slowdown in growth, albeit still to robust levels and exposure to credit shocks that might emanate from China.
Hong Kong's economic strength is evident from its growth record.
Real GDP increased by an average of 3.9 percent annually during the past decade, supported by buoyant trade and financial activity related to the mainland.
A moderation in China's growth could have an impact on these activities, but we expect that Hong Kong's role as an international financial center and its competitiveness in international trade and related activities are nonetheless likely to keep the SAR's growth relatively robust.
The HKSAR Government's financial position is among the strongest of any government rated by Moody's.
The budget has been in surplus for the last eleven consecutive years, allowing the Government to build up large fiscal reserves that total HK$828.5 billion (A$138 billion) by the end of March 2015.
These reserves far exceed the very low level of government debt of 5.0 percent of GDP and would cover almost two years of government expenditures.
Hong Kong as a whole also has a very large net international asset position.
External assets exceed liabilities by an amount equivalent to 284.9 percent of GDP at the end of 2014, the second largest such position of any country rated by Moody's.
The significant build-up of assets has resulted from continuous current account surpluses over a long period of time.
Moody's Aa1 rating for Hong Kong also incorporates risks related to China, since Hong Kong is a Special Administrative Region of China.
Hong Kong companies derive a considerable portion of their revenues from activities elsewhere in China and are major investors there.
The financial markets have also become interconnected to a significant degree, with Chinese companies making up a significant portion of the market capitalisation of the Hong Kong stock exchange.
While this degree of interconnectedness leaves Hong Kong vulnerable to developments in the Mainland, Moody's Aa3 rating of China indicates a low probability of adverse developments that would affect Hong Kong's ratings.
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