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The Hong Kong Mortgage Corporation
Bauhinia MBS Limited US$3,000,000,000 Mortgage-Backed Securitisation Programme

The Hong Kong Mortgage Corporation (HKMC) is pleased to announce today (19 December) the launch of Bauhinia MBS Limited US$3 Billion Mortgage-Backed Securitisation Programme (the "Programme"). The event was marked by a signing ceremony held today.

The Programme is a multi-currency, conventional bond style securitisation programme. Bauhinia MBS Limited ("Bauhinia") is a bankruptcy-remote special purpose company formed by the HKMC to act as the vehicle for issuance of mortgage backed securities (MBS) under the Programme. The HKMC will sell from time to time mortgage portfolios to Bauhinia MBS Limited which will package them into MBS of different series for issue to investors.

The HKMC intends to launch initially two products under the Programme that are familiar to the capital market participants. The first product is a single class MBS with the HKMC's guarantee on repayment of principal and interest. The second product is in the form of multi-class MBS with credit-enhancement provided through segmentation of the issue into senior and junior tranches (commonly known as Collateralized Mortgage Obligation or CMO), over-collateralization or reserve fund arrangements.

The multi-currency Programme will enable the HKMC to arrange MBS through Bauhinia MBS Limited in different currencies to meet the demands of both domestic and overseas investors. The Programme adopts the bond style structure under which the interest amount payable on the coupon date is pre-determined and known to the investors. It will facilitate the trading of the MBS and hence enhance their liquidity in the secondary market.

The Programme contains flexible offering mechanisms that allow public issues as well as private placements. An extensive distribution network comprising the major financial houses has been put in place to support future issuance. The Programme is arranged by Merrill Lynch International and supported by a Dealer Group comprising Barclays Capital, Dao Heng Bank, Deutsche Bank, HSBC, JPMorgan, Merrill Lynch International, Salomon Smith Barney and UBS Warburg. The HKMC will act as the Seller, Master Servicer and Transaction Administrator under the Programme.

Mr Tony Latter, Executive Director of the HKMC, said, "the Programme is a major milestone in the development of the secondary mortgage market in Hong Kong. Through standardization of product structure and documentation, the Programme provides a convenient platform for the HKMC and banks to convert their illiquid mortgage portfolios into liquid MBS in order to achieve their funding and balance sheet management objectives. It will substantially shorten the lead time for the issue of MBS from 6 to 9 months to a few weeks."

Mr Peter Pang, Chief Executive Officer of HKMC, said, "the existing back-to-back guaranteed MBS Programme and the new bond-style MBS Programme will serve as the two main vehicles for the HKMC to promote the development of the MBS market in Hong Kong. The back-to-back MBS Programme targets banks that are interested in using it as a balance-sheet management tool, whilst the bond-style MBS Programme caters for a wider group of investors that are interested in the income stream from HKMC's high quality mortgage assets. The HKMC intends to launch a debut issue of about HK$2 billion in the first quarter of 2002."

Mr K.L. Wong, Vice Chairman, Corporate Finance, Asia Pacific Region of Merrill Lynch said, "The Bauhinia MBS Limited's Mortgage-Backed Securitisation Programme, the first MBS master programme to be launched in Asia ex-Australia, is a landmark event in the development of the secondary mortgage market. It allows for HKMC-guaranteed issues, similar to transactions completed by Ginnie Mae and Fannie Mae in the U.S.; it also caters for non-guaranteed issues such as pass-throughs and CMO's to meet the needs of a different investor base. Merrill Lynch is honoured to have acted as Arranger to this Programme."

 

The Hong Kong Mortgage Corporation Limited

19 December 2001

 

Encl: Technical Brief (MS Word, 49Kb)

Last revision date: 1 August 2011
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