Good afternoon Ladies and Gentlemen,
I am pleased to welcome you all to this signing ceremony for the
fourth retail bond issue by the Hong Kong Mortgage Corporation.
The HKMC has devoted substantial resources to promoting its debt
securities to retail investors. This commitment serves the multiple
objectives of broadening the Corporation's investor base, providing
the general public with an additional and relatively safe
investment choice, and developing the bond market in Hong Kong.
Being the pioneer, we are very pleased to see that other
companies and financial institutions have enthusiastically embraced
this new vehicle of financing. This is reflected in a phenomenal
growth of the retail bond market in a short span of twelve months.
Since the HKMC launched the new mechanism of offering bonds to
retail investors through placing banks in October 2001, 15
companies and banks have raised over HK$19 billion through 61
issues of retail bonds and retail certificate of deposits. This
amount accounts for a significant 13% of the HK$142 billion of Hong
Kong dollar debt securities issued during the same period. For the
HKMC, the amount of HK$3.7 billion raised under the retail bond
programme so far in 2002 accounts for 35% of the Corporation's debt
securities issued this year, reflecting our commitment to
developing this important source of financing.
This rapid expansion of the retail bond market is not a
short-term phenomenon. The essential conditions are there to
support the building of a critical mass for this important market
on a sustainable basis. Five factors are particularly important.
These include a large potential demand for retail bonds, an
effective distribution channel, an increasing number of issuers, a
supportive regulatory regime and continuous product innovation.
The growth potential of the retail bond market is quite
considerable. The size of Hong Kong dollar time deposits in the
banking system, which gives some indication on the amount the
public is prepared to put in assets that produce a stable return,
exceeds HK$1.8 trillion. This is roughly 6 times of the HK$305
billion of Hong Kong dollar denominated fixed rate bonds
outstanding.
The full potential of the retail bond market cannot be realized
without the right distribution channel. We have achieved a major
breakthrough by leveraging on the distribution capabilities of the
banking sector. The mechanism of placing bonds through banks has
proven to be highly effective in promoting bonds to the general
public. Through the extensive branch network and the highly
convenient phone and Internet banking facilities of the placing
banks, the subscription and trading of retail bonds is now almost
as convenient as placing deposits. The arrangement also presents a
win-win solution for the banks. With the current loan-to-deposit
ratio at a low level of 65%, the conversion of some of the excess
deposits into bonds will help the banks reduce the cost of deposit
interest payments and provide them with a new source of fee income
from acting as the placing agent and market makers for the
issuers.
An active retail bond market also needs a critical mass of
regular issuers from both the public and private sectors. We expect
this will gather momentum as retail bonds offer issuers the
benefits of an enlarged investor base and an efficient cost of
fund. We are glad to see that more blue chip companies and banks
have come forward to tap this market. The number is expected to
substantially increase after the impending announcement by the
Government of new measures to remove the obstacles presented by a
number of archaic provisions in the Companies Ordinance that render
the issuance of retail bonds by private companies both complicated
and potentially expensive.
I would like to take this opportunity to thank the Hong Kong
Monetary Authority and the Hong Kong Capital Market Association for
developing with us a package of measures that aim to make the
regulatory regime for the issuance of retail bonds more friendly
for the issuers. The key measures include a substantial
simplification of the disclosure requirements for regular issuers;
more flexible arrangement for issuers to promote retail bonds both
during the period prior to the registration of the prospectus and
in the subsequent offering period; and modernization of the
regulatory regime to keep pace with the development of electronic
application channels. The Government has responded quickly and
helpfully to the proposals. We expect specific measures, covering
both short-term and long-term solutions, to be announced soon.
Other than having the right distribution channel and a friendly
regulatory regime, a thriving retail bond market ultimately depends
on whether or not the issuers can come up with products that are
attractive to investors. This is rather challenging under the
current low interest rate environment. To address these challenges,
the HKMC is committed to working closely with banks to bring
innovative products to the market. In this new issue, HKMC offers
three tranches of bonds. Responding to the preference of investors,
the coming issue will contain a tranche with a tenor of three-year
and a tranche with an extendable structure that provides the HKMC
the option to extend the maturity of a two-year bond for another
three years. The Corporation is also introducing a new structured
product that offers investors a fixed coupon of 5.5% for the first
year followed by a floating rate coupon to be fixed at 6% minus the
6-month HIBOR. The new product, which is previously available
mainly to private banking and institutional investors, offers
retail investors a high upfront coupon and a potential yield
enhancement compared with a 5-year fixed rate bond.
This new issue is a clear demonstration of the HKMC's strong and
continuing commitment to further develop the retail bond market.
The wider selection of product structure and yield provides many
choices to suit the retail investors' investment objectives of
portfolio diversification and yield enhancement under current
market conditions.
Now let me turn to the real business of this occasion and say
how very pleased we are to have secured the support of the Bank of
East Asia, Citigroup, Standard Chartered Bank, Bank of China (Hong
Kong), HSBC, CITIC Ka Wah Bank, Wing Lung Bank, Dao Heng Bank and
International Bank of Asia to act as underwriters for the coming
issue. I would also like to thank the other placing banks: Chiyu
Bank, Hang Seng Bank, Nanyang Commercial Bank and Shanghai
Commercial Bank, for their active participation in placing this
issue. Aided by the Placing Banks' extensive branch networks, and
sophisticated telephone and the Internet banking facilities, I am
confident that they will be highly effective in placing this issue
to the retail investors.
Thank you.
