Ladies and gentlemen, let me first offer a very warm welcome to
all of you to this signing ceremony to mark the successful
conclusion of the second series of mortgage-backed securities
issued under the Bauhinia MBS Programme of the Hong Kong Mortgage
Corporation. The issue size this time is HK$3 billion. It is the
largest residential MBS issue in Hong Kong, so far.
Ladies and gentlemen, as you are aware, the HKMC is committed to
developing a deep and liquid MBS market in Hong Kong as an
effective means for enhancing the availability of competitive
mortgage finance in Hong Kong for homebuyers. The success of this
initiative will also benefit both the financial market and the
future development of the HKMC as a major financial
institution.
For the financial market, MBS provide an efficient channel for
long-term funds from the capital market to supplement bank
financing of long-term mortgage loans. They also help banks to
better manage the liquidity and maturity mismatch risks inherent in
their mortgage business. Development of an active MBS market will
broaden the product range of the financial market and further
develop Hong Kong's role as an international financial centre.
For the HKMC, MBS provide an important source of funding and an
effective tool for managing the risks of its fast-expanding
mortgage portfolio. In a short span of six years, the Corporation's
mortgage pool has increased to over HK$32 billion, which is funded
by debts of a similar amount. Momentum is expected to pick up
further with the planned acquisition of between HK$16 billion and
HK$20 billion of mortgage portfolios before the end of 2004. The
proceeds from issuance of MBS help relieve the funding pressure of
the mortgage purchase programme. The securitisation process also
enables the Corporation to reduce the Prime-HIBOR basis risk and
the refinancing risk of its mortgage portfolio.
There are in fact two MBS programmes that have been developed by
the HKMC. We made a modest start in October 1999 with the launch of
the Guaranteed Mortgage-Backed Pass-Through Securitisation
Programme. There were a total of eight series of MBS issued under
that Programme, with an aggregate amount of about HK$2.8 billion.
The back-to-back structure of the MBS issued allows the
participating banks to keep a substantial portion of the cash flow
from the mortgage pools, while reducing the credit risk and capital
cost through the HKMC's guarantee of the securities. It also
provides them with the option at any time to off-load part or all
of an issue to suit their liquidity or trading objectives.
Meanwhile, it became clear to us that the standardisation of
mortgage origination documents would facilitate the securitisation
of mortgages more efficiently, by removing the need for due
diligence review of documentation by credit rating agencies and
investors. The HKMC therefore spent considerable efforts in
promoting such standardisation. With the generous support of the
legal fraternity and the banking industry, the HKMC introduced, in
July 2001, the Model Mortgage Deed and the Model Deed of Guarantee
and Indemnity. Fourteen major mortgage lenders have since adopted
these model documents. Further standardisation of mortgage
origination documents is in progress.
It was against this background that the HKMC found it able to
embark on another MBS programme - the Bauhinia MBS Programme. The
first series of MBS under that programme was issued in March 2002
and amounted to HK$2 billion. The paper issued was in the form of
bonds that investors are familiar, with a secondary market of
considerable liquidity. Great care has been taken to design the
Programme in such a way as to provide a convenient, flexible and
cost-efficient platform for the issue of MBS. Benefiting from the
standardisation of product structure and legal documentation, the
lead-time for arranging an issue has been shortened substantially,
from six to nine months for a stand-alone issue, to a few weeks
under the Bauhinia MBS Programme.
The current issue of HK$3 billion of MBS is the second series
under the Bauhinia MBS Programme. We are grateful and greatly
encouraged by the enthusiastic response of the underwriting banks
and investors. The amount of HK$3 billion has been fully subscribed
by a diversified group of investors. They include not only banks,
but also institutional investors and fund managers. The
participation of these latter groups is especially welcome as a
sign of the potential breath of the investor base for good quality
Hong Kong dollar debt securities. The opportunity has been taken to
offer more choices to investors. These are explained in the
technical note attached to the press release. The CEO of HKMC will
be happy to explain these to you and answer any questions that you
may have, later in the press briefing.
What I would like to do here in conclusion is to thank HSBC, the
Lead Manager of this MBS issue for marketing it so effectively. I
would also like to thank the Senior Co-lead Managers, Bank of
China, Bank of Communications, Bank of East Asia, International
Bank of Asia, Mitsubishi Securities (HK) and Co-lead Manager, BNP
Paribas for their staunch support. The HKMC team has enjoyed
working with all of you towards this successful result, and we look
forward to your continuing active participation in future HKMC
issues.
Thank you.
