Hong Kong Mortgage Corporation Announces New Bond Issue

by Mary Swire, Tax-News.com, Hong Kong

10 February 2004

The Hong Kong Mortgage Corporation Limited (HKMC) on Monday announced the launch of a new issue of retail bonds that will be offered to investors through 14 placing banks.

The HKMC signed the Placing Bank Agreement with the following institutions: Bank of China (Hong Kong), Bank of Communications, Bank of East Asia, Chiyu Bank, DBS Bank, Hongkong and Shanghai Banking Corporation, Hang Seng Bank, ICBC (Asia), International Bank of Asia, Liu Chong Hing Bank, Nanyang Commercial Bank, Shanghai Commercial Bank, Standard Chartered Bank and Wing Lung Bank at the signing ceremony held on Monday afternoon.

The HKMC also entered into an Underwriting Agreement with Bank of East Asia, HSBC and Standard Chartered Bank for an amount of HK$600 million in respect of the 7-year notes of the issue.

The issuing mechanism using placing banks, introduced by the HKMC in October 2001, has proved to be highly effective in placing bonds to retail investors. So far, the HKMC has issued HK$7.4 billion of retail bonds to around 18,000 investors. Twenty-four banks and companies have raised over HK$38 billion through issuance of retail bonds and retail certificates of deposit in the same period. HKMC retail bonds provide investors an additional investment product for portfolio diversification and stable interest income in the current low interest rate environment, in which Hong Kong's dollar savings rate has been lowered to around 0.001% per annum.

Key features of the issue that will bring additional benefits to retail investors are as follows:

(a) Enlarged placing bank network: to reach out effectively to retail investors, the number of placing banks will be increased from 12 to 14 for this new issue. The placing banks have designated 609 bank branches for handling subscription. In addition, retail investors can make use of the phone and/or Internet banking facilities of some placing banks to subscribe for the bonds.

(b) Choices on tenor and return: the new issue will be divided into three tranches to give retail investors choices in bond products for portfolio diversification and return enhancement. The HKMC will launch fixed rate bonds of 3-year maturity, 7-year maturity and 3-year extendable for 2-year note.

(c) Established market making arrangement: the 14 placing banks have committed to quoting firm bid prices for the retail bonds during business hours until the maturity dates of the bonds. This will ensure that retail investors can liquidate their holdings at any time. To facilitate the placing banks in quoting offer prices, the amount to be available to support secondary market making activities is 30% of the initial issued amount. The placing banks have also committed to quoting firm offer prices until the reserve amount is exhausted and will continue to do so on a best effort basis afterwards.

The coupons of the three tranches are as follows:

3 year – 2.25%

3-year extendable for 2-year note – 3.10%

7 year – 4.00%

An investor may subscribe for one or more of the above tranches. The actual subscription price for each tranche of the Notes will be determined by reference to the relevant Exchange Fund Notes as specified in the Prospectus.

Commenting on the announcement, Mr Norman Chan, Executive Director of the HKMC, explained that: "The HKMC has devoted substantial resources to promoting its debt securities to retail investors. The Corporation's continuous efforts not only broaden its investor base, but also provide retail investors a relatively safe investment choice for portfolio diversification and yield enhancement in the current low interest rate environment."

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