Good afternoon, Ladies and Gentlemen,
I am pleased to welcome you all to this signing ceremony for the
third retail bond issue by the Hong Kong Mortgage Corporation.
It was last November that the HKMC launched the debut issue
under its new arrangement of offering retail bonds through banks as
placing agents. Two other public bodies have now followed suit with
similar structures, with the result that, in a short span of six
months, an aggregate amount of HK$6.6 billion has been raised from
over 28,000 retail applicants.
Notwithstanding these encouraging developments, there are still
other building blocks that need to be put in place before the
retail bond market can realize its full potential. An active retail
bond market needs a critical mass of issuers from both the public
and private sectors. However, few corporate issuers have so far
been visible. This is not due to a lack of interest. Indeed, many
blue chip companies have expressed a keen interest to tap this
market. Rather, some may be awaiting modifications to the
regulatory regime, which would remove obstacles presented by a
number of somewhat archaic provisions in the Companies Ordinance
that render the issuance of retail bonds by private companies both
complicated and potentially expensive.
Various bodies have been pressing for reform on this front. The
HKMC itself presented a package of proposals to the Financial
Services Bureau and the Securities and Futures Commission, aiming
to make the regulatory regime more friendly for issuers. The
proposals can be grouped into three key areas.
First and foremost, there is scope for a substantial
simplification of the disclosure requirements for regular issuers.
Certain disclosure requirements for prospectuses in the Companies
Ordinance should be waived for seasoned issuers, in particular
listed companies and public sector entities, where the required
information is already in the public domain. Furthermore, for
frequent issuers such as the HKMC, the efforts and cost of
preparing the issue prospectus would be substantially reduced if
the basic information about the issuer could be contained in a base
prospectus that only required updating when necessary. The
essential information pertaining to specific issues could be
provided in a supplemental prospectus for distribution to
investors. This would help to substantially reduce costs without
sacrificing the interests of investors.
Second, there is a need to clarify and streamline the regulatory
requirements for publicity on retail bonds, both during the period
prior to the registration of the prospectus and the subsequent
offering period. Pre-registration publicity is desirable to enable
issuers, particularly newcomers, to alert potential investors of a
coming issue. It is important to clarify what a pre-registration
advertisement may contain in order not to fall foul of the
prospectus provisions of the Companies Ordinance. Feedback from
investors also suggests that it would be helpful for the issuers to
provide, in addition to the thick prospectus, fact sheets which
contain a summary of the key information that relates to the
specific bond issue. Guidelines on the contents of such publicity
material would help both the issuers and the regulators in
preparing and vetting such material.
Third, the regulatory regime needs to be modernized to keep pace
with the development of electronic application channels. One of the
key advantages of appointing banks as placing agents is that most
investors can make use of convenient and efficient electronic
banking facilities to subscribe. Experience has indeed shown that
investors are making increasing use of telephone and Internet
facilities offered by the placing banks. It is conceivable that we
will soon see the use of ATMs for the subscription of retail bonds.
The current regulatory regime, which was put in place well before
the emergence of electronic application channels, needs to be
adjusted. In particular, it will be necessary to devise appropriate
arrangements for potential inventors to have ready access to the
prospectus. This should not be too difficult, given the extensive
branch network of the placing banks and the popularity of the
Internet.
The Government has responded quickly and helpfully to ideas such
as these. The Financial Services Bureau has formed a Working Group
to address these and other proposals for promoting the development
of the retail bond market. The Working Group is chaired by the
Secretary for Financial Services, with representatives from the
Securities and Futures Commission, the Stock Exchange and the HKMC.
Good progress has been made and 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 issuers can come up with products that are
attractive to investors. The HKMC is keenly aware of the need to
tailor retail bond products to match the appetite of investors. In
this regard, we are grateful to the many investors who have
provided useful feedback through emails and comments made at
various promotional seminars.
As a result of this dialogue, the HKMC is introducing two new
products in the coming issue. Responding to the clear preference of
investors for more products at the short end of the yield curve,
the coming issue will contain a tranche with a tenor of one-year,
in addition to the 2-year and 3-year maturities. The Corporation is
also introducing for the first time a structured product that
provides the HKMC with the option to extend the maturity of a
three-year fixed rate bond for another two years. This product,
which adopts the coupon for a five-year bond, provides investors
with a potential upside gain in the event that the HKMC, due either
to interest rate or funding considerations, decides not to extend
the maturity at the end of the third year. It should be of interest
to investors who are prepared to invest in structured products for
a possible yield enhancement.
Let me now turn to the real business of this occasion and say
how very pleased we are to have secured the support of Bank of
China (Hong Kong), HSBC and Standard Chartered Bank to act as
underwriters for the coming issue. I would also like to thank the
other placing banks: Bank of Communications, Bank of East Asia,
CITIC Ka Wah Bank, Dao Heng Bank, Hang Seng Bank, International
Bank of Asia, Nanyang Commercial Bank, Shanghai Commercial Bank and
Wing Lung Bank, for their active participation in placing this
issue. This means that we have a total of twelve placing banks for
this issue, as against just three for our debut issue - a further
illustration of the broadening interest in this type of instrument.
Aided by their extensive branch networks and sophisticated
telephone and internet banking facilities, I am confident these
banks will be highly effective in promoting this issue of HKMC
notes to the general public.
Thank you.
