By Bernardo Vizcaino

The Hong Kong government has raised $1 billion from its inaugural issuance of sukuk, or Islamic bonds, attracting an order book of $4.7 billion for the five-year deal, the Hong Kong Monetary Authority (HKMA) said on Thursday.

The sukuk achieved the tightest pricing for a dollar-denominated benchmark transaction from an Asian government outside of Japan, helping pave the way for other issuers to tap the market, the HKMA said.

Hong Kong becomes the first AAA-rated government to issue a dollar-denominated sukuk, and follows London in seeking to boost its Islamic finance credentials and attract business from cash-rich investors in the Gulf and Southeast Asia. The sukuk will be listed on the Hong Kong, Malaysia and Dubai bourses.

Orders for the sukuk came from 120 investors, as pricing was tightened by 7 basis points from initial guidance. The issue priced at a profit rate of 2.005 percent, 23 basis points over the corresponding yield on five-year U.S. treasuries.

"I hope that the sukuk issuance will catalyse the further growth of the sukuk market in Hong Kong by encouraging more issuers and investors to participate in our market," Financial Secretary John Tsang said in a statement.

Close to half of the issue was allocated to investors from Asia, while Middle East investors took 36 percent, the U.S. 11 percent and Europe 6 percent, the authority said.

By investor type, the sukuk saw 56 percent allocation to financial institutions, underscoring the appetite for high-rated sukuk in the Islamic finance industry.

The sukuk used an ijara structure, a sharia-compliant sale and lease-back contract, underpinned by selected units in two government-owned commercial properties. It was rated AAA by Standard and Poor's and Aa1 by Moody's.

The government earlier mandated HSBC, Standard Chartered, CIMB Group Holdings and National Bank of Abu Dhabi to arrange the issue.