Bauhinia MBS Limited HK$2,000,000,000 Mortgage Backed Securities Issue under US$3 Billion Mortgage-Backed Securitisation Programme

Press Releases

27 Nov 2006

Bauhinia MBS Limited HK$2,000,000,000 Mortgage Backed Securities Issue under US$3 Billion Mortgage-Backed Securitisation Programme

The Hong Kong Mortgage Corporation Limited (HKMC) is pleased to announce the successful launch of the first-ever partially un-guaranteed Mortgage-Backed Securities (MBS) issued under its Bauhinia Mortgage-Backed Securitisation Programme. The event was marked by a signing ceremony held today (Monday).

The HKMC is by far the most active and regular issuer in the local securitisation market and has sponsored a total of HK$13.2 billion in MBS (including today's new issue) since it began its securitisation activities in 1999. This accounts for around a quarter of the total issuance in Hong Kong's securitisation market in the past ten years.

Today's MBS issue is collateralised by a pool of mortgage loans purchased by the HKMC from the Hong Kong Housing Authority during 2001 to 2003. The MBS issue is divided into two classes of notes - Class A notes of HK$1,740 million and Class B notes of HK$260 million.

The Class A notes carry fixed-rate coupon and have bullet maturities. They will not be subject to prepayment risk and are specifically designed for investors who prefer a stable return on their investment along with the highest credit quality. On the other hand, the Class B notes carry floating-rate coupon and have a pass-through feature to absorb excess principal prepayments/repayments. The Class B notes cater for investors who can accept a higher prepayment exposure and subordination in return for a higher investment yield. (Please refer to Annexes for the details of the issue.)

"This MBS issue is unique in two ways," said Mr Peter Pang, Executive Director of the HKMC. "Today's MBS issue is the first MBS sponsored by the HKMC as a triple-A institution after its rating upgrade by Moody's in late October 2006. The HKMC is so far the only triple-A rated institution in Hong Kong. With its high credit standing, the HKMC is well positioned to play a more active and strategic role in promoting the development of the debt and securitisation markets in Hong Kong," said Mr Pang. "Secondly, today's issue of HK$2 billion is the first-ever partially un-guaranteed MBS sponsored by the HKMC," he added.

The un-guaranteed Class A notes will benefit from the credit subordination to be provided by the Class B notes, achieving a triple-A rating by both Moody's and S&P's. The Class B notes will carry an unconditional and irrevocable guarantee to be provided by the HKMC. It benefits from the credit strength of the HKMC and is assigned a credit rating of Aaa/AA.

Both rating agencies noted that the assigned ratings of the MBS issue reflect the credit quality of the underlying mortgage pool, subordination structure provided for Class A, the credit strength of the HKMC as guarantor for Class B, the experience of the HKMC as the master servicer as well as the structuring of the issue with liquidity facility and reserve fund.

A diverse group of investors including retirement funds, insurance companies, banks and other institutional investors have shown a keen interest in this highly rated new MBS issue.

Mr James H Lau Jr, Chief Executive Officer of the HKMC, said, "We are glad to see the growing sophistication and interest of investors in highly rated MBS products in this region. We will continue to develop the local securitisation market through product innovation and regular issuance, and strengthen Hong Kong's role as an international financial centre and funding hub in the region."

"HSBC is honoured to have been involved in all the HKMC's previous public securitisation transactions, and to take a leading role in this residential mortgage-backed securities deal which offers a debut unguaranteed class of notes. It's very promising to see a wider range of products in the market, fostering the continued growth in the depth and breadth of the Hong Kong's capital markets." said Ms Anita Fung, Treasurer and Head of Global Markets, Asia-Pacific of HSBC.

There are six banks joining the Management Group of the Issue, namely, Sole Arranger and Lead Manager: HSBC; Co-lead Managers: DZ BANK AG, Hong Kong Branch, ICBC (Asia) and BMO Capital Markets Corp and Co-managers: ANZ Investment Bank and Commonwealth Bank of Australia.

The MBS issue will be cleared through the Central Moneymarkets Unit operated by the Hong Kong Monetary Authority.


The Hong Kong Mortgage Corporation Limited
27 November 2006

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Last revision date : 27 November 2006