Good afternoon ladies and gentlemen,
In my capacity as a Director of the Hong Kong Mortgage
Corporation, I would like to welcome you all to this signing
ceremony.
The HKMC has devoted substantial resources to promoting its debt
securities to retail investors since the launch of its first retail
issue in 1999. 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.
The Corporation is grateful to the regulatory authorities and
capital market participants for their support in enabling us to
establish an efficient platform for the listing and trading of the
retail bonds on the Stock Exchange, and for their help - along with
that of the media - in our efforts to give the public a better
understanding of the economics and procedures of investing in
bonds.
We are beginning to see some positive results of these efforts.
The last issue of bonds with a retail portion, offered in August,
was two times over-subscribed, resulting in the HKMC increasing the
allocation amount for the retail tranche from HK$100 million to
HK$250 million.
Current market conditions appear particularly conducive to
attracting retail interest in our bonds. Time deposit rates have
fallen markedly - for example, to around 0.5-1.5% for medium size
placements at six months. This reflects not only the successive
reductions in interest rate levels globally, but also the fact that
banks in Hong Kong are generally flush with funds and therefore not
bidding aggressively for deposits. This has enhanced the relative
attractiveness of corporate bonds, which offer a significant yield
pick-up.
Moreover, partly as a result of the weakness of loan demand,
several banks are looking more towards fee income, and are
accordingly expanding their securities brokerage and unit trust
operations - including attention to the potential interest of
retail customers in bonds.
It seems likely that the growing investor interest in bonds may
also be partly related to some increased caution, under current
market conditions, towards other usually popular asset classes,
such as equities and residential property.
In a recent review conducted by the HKMC, feedback from retail
investors identified three particular qualities desired of a retail
bond product. First, the channels for subscription and subsequent
trading in the secondary market should be convenient and easily
accessible. Second, there should be some assurance that holdings
can be liquidated, if the need arises, at any time prior to the
maturity date. Third, there should be some choice in terms of the
tenor of the bonds on offer.
The HKMC has now devised a new offering mechanism which
endeavours to take these preferences into account.
First, by appointing Dao Heng Bank, HSBC and Hang Seng Bank as
placing agents, retail investors can make use of the convenient and
familiar telephone and Internet banking facilities of these major
retail banks to subscribe for the HKMC bonds, in addition to
applying in person in any of the 106 designated branches.
Second, the new mechanism allows the HKMC to offer, under
separate tranches of the same issue, bonds of different maturities
and yields. The coming issue will be divided into two tranches, of
3-year and 5-year maturity, for selection by the retail investors.
Moreover, in order to provide flexibility to accommodate investor
demand, the HKMC is not specifying in advance any cap on the
maximum amount per application or the total issue size.
Third, we are introducing a formal market-making arrangement to
provide liquidity for the retail bonds in the secondary market. The
three Placing Banks will undertake to quote firm bid prices during
business hours. This will ensure that retail investors can
liquidate their holdings at any time. Additionally, in order that
the Placing Banks may also be able to quote prices on the offer
side, an additional 20% of the total issue amount will be held in
reserve for tapping by these banks to meet prospective demand from
retail investors in the secondary market. The Placing Banks will be
obliged to quote firm offer prices until the reserve amount is
exhausted, and will continue to do so on a best efforts basis
afterwards.
Let me now turn to the real business of this occasion and say
how very pleased we are to have secured the support of Dao Heng
Bank, HSBC and Hang Seng Bank to act as the Placing Banks for the
inaugural issue under the new offering mechanism. These three
banks, which are major retail banks in their own right, have been
staunch supporters of the HKMC's retail bond issues since 1999.
Their experience and commitment, aided by their extensive branch
networks and sophisticated telephone and Internet banking
facilities, will, I am sure, be effective in promoting the HKMC
notes to the general public.
Thank you.
