Speech at the Signing Ceremony of the Hong Kong Dollar 20 Billion Debt Issuance Programme

Ladies and gentlemen,

1. Let me first welcome you all to this Signing Ceremony to launch the Hong Kong Dollar Debt Issuance Programme of the Hong Kong Mortgage Corporation (HKMC). This Programme, together with the Note Issuance Programme we successfully launched in January this year, will serve as the two main vehicles of the HKMC in raising funds in the Hong Kong dollar debt market.
2. Despite its short history, the HKMC has already established a strong presence in the mortgage and debt securities markets in Hong Kong. The Debt Issuance Programme will further enhance HKMC's ability to raise funds through the debt market to support the expansion and diversification of our mortgage purchase programme.
3. Up to mid-June, the Corporation has purchased HK$5.2 bn of mortgages and we plan to acquire another HK$10 bn mortgages by the end of this year in accordance with our business plan. The efficiency of the purchasing procedures for floating rate mortgages will be further enhanced by the forward commitment facility. Under this facility, the HKMC will commit to purchase an agreed amount of mortgages from the Approved Sellers within a period of up to 12 months. This facility should provide banks with greater certainty on the amount of loans they can sell to the HKMC within the specified period and help them to plan their new loan businesses more effectively. It will also enable HKMC to assess more accurately the selling interest of the Approved Sellers, which will improve the efficiency of the mortgage purchase operations and facilitate the planning of our funding activities. I am sure the facility will add further impetus to the mortgage purchase programme, and we will announce the details of the facility very shortly.
4. We are also making good progress in promoting fixed rate mortgages. Market response to the Pilot Scheme we launched in March has been very encouraging. The HK$500 million we have allocated for the Pilot Scheme is almost fully committed only half way through the six-month trial period. So far, the two participating banks have approved 320 loans involving HK$484 million. In view of the favourable response, we have raised the pre-commitment amount to HK$650 mn and the amount may be further increased if necessary. I am pleased to note the favourable response to the Pilot Scheme has stimulated the emergence of similar products in the market. A number of banks, some teamed up with property developers, have offered fixed rate mortgages to their customers. This shows that the Pilot Scheme has served as a catalyst in promoting fixed rate mortgages in Hong Kong.
5. The launching of the Debt Issuance Programme is a timely development crucial to the successful operation of the HKMC. The Debt Issuance Programme and the Note Issuance Programme complement each other to provide a comprehensive coverage of the investor base of the Hong Kong dollar debt market.
6. Securities issued under the Note Issuance Programme are covered by the market making arrangements for Exchange Fund Bills and Notes and are highly liquid in the secondary market. They are largely held by financial institutions for trading and liquidity management purposes. Because of the high degree of liquidity in these securities, they are issued at a tight spread over corresponding Exchange Fund Notes, enabling the Corporation to raise funds at a lower cost.
7. On the other hand, the Debt Issuance Programme's main target is institutional investors. The Programme contains a number of innovative features which should help the HKMC to reach out effectively to the institutional investors. First, we have appointed 5 Primary Dealers which have good access to the institutional investor base. The Primary Dealers will perform the role of underwriter and market maker for securities issued under the Programme. Another 12 Seller Group Members have been appointed to help with the distribution of the debt securities. Second, the Programme is very flexible in terms of its offer mechanism, allowing diversified approaches including book-building, syndication, bidding and private placement to cater for different market conditions and investor needs. Mr. Peter Pang, Chief Executive Officer, will explain the details of the various features of the Debt Issuance Programme after the Signing Ceremony.
8. I would like to thank the Primary Dealers and the Selling Group Members for participating in the Debt Issuance Programme. I would also like to take this opportunity to thank the Hong Kong Capital Markets Association for offering useful advice to the HKMC on the framework of the Programme. I believe the Debt Issuance Programme will develop into another flagship of HKMC's funding programme. I am also confident that in time to come, the HKMC will emerge as one of the largest issuers in the Hong Kong dollar debt market. Thank you.