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Speech by SFST

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Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Airport Authority Hong Kong Second Retail Bond Issue Signing Ceremony today (March 10) (English only):

Victor, David, Raymond, Distinguished Guests, Ladies and Gentlemen,

I have much pleasure to be invited to the signing ceremony of the Airport Authority's second retail bond issue. I feel a special affinity being here among those who hold the key to the development of the Hong Kong bond market.

Although the Hong Kong dollar bond market has come a long way since the Exchange Fund Bills and Notes Programme was introduced in 1990, there is still a lot more to do. Recent developments have been most encouraging and I believe, with your support, we can bring the market to new horizons. In five years, total outstanding Hong Kong dollar bonds, excluding Exchange Fund Bills and Notes, has grown by 64 per cent to HK$415 billion at the end of 2002. New issues of Hong Kong dollar bonds, other than Exchange Fund papers, have also been rising rapidly, from just over HK$100 billion in 1997 to HK$180 billion last year.

There is one particular message I would like to share with you today. And that is the role statutory bodies and government owned corporations like the Airport Authority can play in the bond market. It is an important role indeed. At the end of 2002, these bodies took a 12 per cent share of the market in total outstanding Hong Kong dollar issues. They also constituted 12 per cent of new issues of Hong Kong dollar bonds in 2002. As a group, they are the third largest issuers of Hong Kong dollar bonds outside of the Exchange Fund programme, after Authorized Institutions and non-multilateral development bank overseas borrowers, but ahead of local corporates. So statutory bodies and government owned corporations can play a useful role in the development of the bond market, and they do.

One of these bodies, the Hong Kong Mortgage Corporation, started to target the retail bond market in 2001, generating a flurry of similar issues and very encouraging response from retail investors. In only a year or so, the market has built up a strong appetite for retail bonds, thanks to the efforts of both issuers and intermediaries, many of whom are represented here today.

What can we do to make retail bonds even more popular? There are many ways but I would like to underline the importance of having bonds with a range of maturities to meet different needs, particularly long tenor bonds. So far, bonds with maturity from one to five years are common, but not so for longer tenor issues. Today's issue by the Airport Authority of a Hong Kong dollar bond with a tenor of seven years is breaking new ground. This is the first long term Hong Kong dollar issue by a Hong Kong public corporation, apart from the Exchange Fund issues. The Government encourages such long term issues, not only because this will widen the choice available to investors and deepen the market, but also because it will meet the growing demand for high quality, long term papers. In paying tribute to the Airport Authority for taking the lead in this initiative, I wish other issuers, be they in the public or private sector, will also come to the market with long term issues.

Going forward, the Government will continue to facilitate the development of the bond market, particularly in providing appropriate market infrastructure, simplifying procedures and offering tax concessions. As you know, the Financial Secretary has proposed in his Budget Speech last week to grant a 100 percent concession on profits tax for qualified debt instruments with a maturity period of 7 years or more, and to exempt 50 percent profits tax for such instruments with a maturity period of 3 years or more, down from the existing eligibility period of 5 years. I am sure with the support of issuers and intermediaries we will together bring the Hong Kong bond market to new heights.

In closing, I wish the Airport Authority's retail bond issue every success.

Thank you.

End/Monday, March 10, 2003

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