A debut sukuk from Hong Kong could be denominated in either local or U.S. dollars, helping to boost Hong Kong as a financial centre and position itself as a gateway between mainland China and Islamic investors.

The plan comes at a time of increasing competition among financial centres for a slice of Islamic finance business, which is centred in southeast Asia and the Middle East.

A $500 million sukuk issue would be larger than debut sovereign issues planned by Luxembourg and Britain.

The Hong Kong report described its planned issuance as "inaugural", suggesting it would not be a one-off like Britain's plan for a 200 million pound ($333 million) sukuk issue.

"The Bills Committee supports the bill in principle. The preliminary thinking for the inaugural sukuk issuance under GBP (Government Bond Programme) might be in the size equivalent to around $500 million or more," the report said.

Other details of the issue have yet to be decided, such as whether it could be offered through arranging banks or by way of tender, similar to Hong Kong's conventional bond programme.

Sukuk proceeds would be placed with the territory's Exchange Fund, which is managed by the Hong Kong Monetary Authority.

The report noted that the government had been encouraging companies to issue sukuk in Hong Kong. The idea of Hong Kong sukuk was raised as far back as 2008, when the territory's airport authority considered selling sukuk worth up to $1 billion, but no sale has taken place so far.

The committee has posted a notice inviting written views from the public on the sukuk bill, although it said no submissions had been received yet. The comittee will resume discussion of the bill on March 26.

(Editing by Andrew Torchia)

By Bernardo Vizcaino