Retail Bonds Are Flavour Of The Month In Hong Kong

by Mary Swire, Investors Offshore, Hong Kong

10 May 2002

After the success last week of a corporate bond aimed at retail investors by Hong Kong's Mass Transit Railway Corporation (MTR), property developer Cheung Kong (Holdings) and associate Hutchison Whampoa may issue a similar bond for utility Hongkong Electric (Holdings) in the near future.

MTR's bond issue, which closed on May 3, was 5.6 times over-subscribed and attracted a total of HK$5.61 billion from some 18,000 investors. MTR increased the size of its offer from HK$1bn to HK$3.5 billion. Although other retail bonds offered by government-controlled agencies have generated overwhelming responses from investors, the response exceeded market expectations of a $3bn response.

Retail bonds are popular partly because there is a liquid aftermarket, and returns are better than on other types of liquid investment. But there are uncertainties over the regulatory environment as the Government plans to amend existing rules on retail bond issues, possibly allowing companies to speed up and reduce the cost of issuing debt securities by disclosing less information in the prospectuses of the issues.

MTR's bond issue was offered at three different coupon rates with varying maturity periods - a 3.75 per cent return carrying two-year maturity; 4.5 per cent return with three-year maturity and 5 per cent return with four-year maturity. The minimum investment amount for each note was HK$50,000. HSBC, Standard Chartered and the Bank of China (Hong Kong) were underwriters of the issue, which was listed as Aa3 by Moody's and AA- by Standard and Poor's.

Yesterday, after Cheung Kong's annual general meeting, executive director Edmond Ip Tak-chuen said the companies would consider launching the fixed-income product if the market and regulatory environments were favourable. Cheung Kong's power group supplies electricity to Hong Kong and Lamma islands.

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