The government of Hong Kong is preparing to launch its first Shariah-compliant bond, or sukuk, and raise up to $1 billion as the jurisdiction seeks to win a share of Islamic finance.

The government of Hong Kong is preparing to launch its first Shariah-compliant bond, or sukuk, and raise up to $1 billion as the jurisdiction seeks to win a share of Islamic finance, the South China Morning Post reported, citing unnamed bank sources.

The offering will be denominated in dollars, with a five-year maturity and at a yield spread over US Treasuries of around 30 basis points, the report said.

Hong Kong has announced it has chosen a number of banks, such as Standard Chartered and HSBC, to arrange the deal.

Sukuk instruments are designed to deal with Islamic prohibitions on charging interest on money. Under Shariah, money is not treated as an asset in its own right. The sukuk issuer sells an investor group a certificate, who then “rents” it back to the issuer for a predetermined rental fee. The issuer also promises in a contract to buy back the bonds at a future date at par value. According to a definition by the Islamic Development Bank, “Sukuk grants the investor a share of an asset, along with the commensurate cash flows and risk.”

Countries with large Muslim populations such as Indonesia and Malaysia are natural drivers of demand for such issuance. According to Global Islamic Finance Report 2012 Global Islamic Finance Report, $1.34 trillion of assets are being managed according to Islamic investment principles.