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The Hong Kong Mortgage Corporation Limited
Third Issuance of Retail Bonds

The Hong Kong Mortgage Corporation Limited ("HKMC") is pleased to announce today (Monday) the launch of a new issue of retail bonds that will be placed to investors through an enlarged group of Placing Banks.

The HKMC signed the Placing Bank Agreement with Bank of China (Hong Kong), Bank of Communications, Bank of East Asia, CITIC Ka Wah Bank, Dao Heng Bank, HSBC, Hang Seng Bank, International Bank of Asia, Nanyang Commercial Bank, Shanghai Commercial Bank, Standard Chartered Bank and Wing Lung Bank at the signing ceremony held this afternoon. The HKMC also entered into an Underwriting Agreement with Bank of China (Hong Kong), HSBC and Standard Chartered Bank for an aggregate amount of HK$1.5 Billion.

The new arrangement introduced by the HKMC in October 2001 to offer bonds to retail investors through placing banks has proved to be highly effective. Two other public bodies have since adopted the same offering mechanism with the result that an aggregate amount of HK$6.6 billion has been raised from 28,000 retail applicants (including the HKMC's debut issue).

The new issue will adopt the same offering mechanism (see Technical Brief at Annex 1). It will also contain the following key features that will bring additional benefits to retail investors:

(a) Enlarged Placing Bank network: in order to reach out to more retail investors, the number of Placing Banks has been increased from 8 to 12. The number of designated bank branches for processing applications will also be increased from 308 to 601 branches. In addition, retail investors can make use of the phone and/or Internet banking facilities of Bank of China (Hong Kong), Bank of East Asia, Dao Heng Bank, HSBC, Hang Seng Bank and Standard Chartered Bank to subscribe for the retail bonds.

(b) More choices on tenor and return: the new issue will be divided into four tranches. The HKMC will introduce two new products in addition to fixed rate bonds of 2-year and 3-year maturities that were also offered in the previous issue. Responding to the demand of investors for more products at the short end of the yield curve, the new issue will contain a tranche with a tenor of one-year. The HKMC will also introduce for the first time a structured product that provides the Corporation with the option to extend the maturity of a three-year bond for another two year (see Annex 2 for details). The product, which adopts the coupon for a five-year bond, provides investors with a potential yield enhancement 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.

(c) Reliable market making arrangement: the 12 Placing Banks are committed to quoting firm bid prices for the retail bonds during business hours until the maturity date. This will ensure that retail investors can liquidate their holdings at any time. To enhance the ability of the Placing Banks to quote offer prices, the amount to be available to support secondary market making activities is 30% of the initial issued amount. The placing banks are committed to quoting firm offer prices until the reserve amount is exhausted and will continue to do so on a best efforts basis afterwards.

The coupons of the four tranches are as follows.

 

Tenor

Coupon per annum

1-year

2.75%

2-year

3.75%

3-year

4.35%

3-year extendable for 2-year

5.10%

 

An investor may subscribe for one or more of the above tranches. The actual subscription price will be determined by reference to the relevant Exchange Fund Notes as specified in the Prospectus.

The subscription period will commence on 28 May 2002 (Tuesday) and end at 12:00 noon on 7 June 2002 (Friday). The timetable for the issue is set out in Annex 3. As applicants need to have a bank account and an investment account with the placing banks they intend to instruct, they are encouraged to submit their applications early and not to wait until the closing date of the subscription period. The subscription money will only be deducted from the applicant's account on the closing date.

Retail investors who are interested in subscribing for the retail bonds can obtain the prospectus from the offices of the HKMC and the 601 designated branches of the 12 Placing Banks (see Annex 4), and the HKMC's website at www.hkmc.com.hk.

Mr. Tony Latter, Executive Director of the HKMC, said, "with the aim of developing the retail bond market, the HKMC presented a package of proposals to the Financial Services Bureau, aiming to make the regulatory regime more friendly for issuers. These include simplification of the disclosure requirements for regular issuers; introducing more flexibility in respect of publicity on retail bonds; and updating the regulatory requirements to keep pace with the developments of electronic application channels. Good progress has been made by a Working Group formed by the Financial Services Bureau and we expect specific measures, covering both short-term and long-term solutions, to be announced soon".

The Hong Kong Mortgage Corporation Limited
27 May 2002

Last revision date: 1 August 2011
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