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Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Kowloon-Canton Railway Corporation Retail Bonds Issue Signing Ceremony today (May 20):

Michael, K Y, Raymond, Distinguished Guests, Ladies and Gentlemen,

It is my pleasure to be invited to join today's signing ceremony of the Kowloon-Canton Railway Corporation (KCRC) retail bond issue, as it carries special meaning for the development of the Hong Kong bond market.

Promoting the development of the Hong Kong dollar bond market is one of the key directions of the Government's policy in advancing Hong Kong's position as an international financial centre. There is much room for development in this sector, and there is a role for every stakeholder to play in realizing this common goal.

The Hong Kong dollar bond market kicked off with the introduction of the Exchange Fund Bills and Notes Programme in 1990. In the past five years or so, total outstanding amount of Hong Kong dollar bonds, excluding Exchange Fund Bills and Notes, has grown by 68 per cent to HK$426 billion at the end of the first quarter of 2003. New issues of Hong Kong dollar bonds, other than Exchange Fund papers, during the same period have also been rising rapidly, from just over HK$100 billion in 1998 to HK$180 billion in 2002.

In the past one year or so, the administration has strongly encouraged statutory bodies and Government-owned corporations to issue bonds to promote the development of the Hong Kong bond market and we have seen very favourable progress. The issue of a Hong Kong dollar retail bond with a tenor of seven years by the Airport Authority recently has broken new ground. The MTRC has issued HK$500 million 10-year notes in April and then launched another issue in May. The KCRC has also issued HKD$500 million 10-year notes to the institutional market on 15 May, and, due to good response, has increased the size to HK$800 million. All of these bonds were very well received by investors and have attracted a broad range of investors including financial institutions, insurance companies and pension funds, reflecting the investors' interest for bond issues of longer maturity in the Hong Kong dollar bond market.

The participation of statutory bodies and Government-owned corporations has provided great momentum to promoting the growth of this market. At the end of 2002, these bodies had a 12 per cent market share of the total outstanding amount of Hong Kong dollar bond issues (excluding Exchange Fund Bills and Notes). They also constituted 12 per cent of new issues of Hong Kong dollar bonds (other than Exchange Fund papers) in 2002.

The current market environment of record low bank deposit rates and uncertain equity market is conducive to the development of the bond market. I encourage corporations in both the public and private sectors to take this good opportunity to actively consider the issuing of bonds as a means for raising capital.

To further promote the development of our retail bond market, we would like to see more quality bonds with different maturities coming to the market to meet different demands of investors. The maturity of the retail bonds issued so far largely ranges from one to five years. Today's issue by the KCRC of a Hong Kong dollar retail bond with a ten-year tenor lays a new milestone in the development of the bond market in Hong Kong. This is the first 10-year Hong Kong dollar retail bond issued by a Hong Kong public corporation. This completes the benchmark yield curve for maturities from one to ten years for non-Exchange Fund papers, which is conducive to the future development of our bond market.

The Government is determined to implement, in collaboration with various regulatory agencies and market participants, various facilitating initiatives, including enhancing market infrastructure, simplifying procedures and offering tax concessions, to foster the development of the Hong Kong bond market particularly at the long end. By the way, it only took the SFC 10 days to approve this new retail bond issue. The Financial Secretary has proposed in his Budget Speech in March 2003 to reduce the eligible maturity period of qualified debt instruments for receiving a 50 per cent concession on profits tax from five to three years and to grant a 100 per cent profits tax concession for qualified debt instruments with a maturity period of seven years or more. With the concerted efforts of issuers and intermediaries, I am confident that the Hong Kong bond market will further develop in the years to come.

On this remarkable occasion, I wish the KCRC's retail bond issue every success.

Thank you.

End/Tuesday, May 20, 2003

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