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The Hong Kong Monetary Authority (HKMA) announced today (September 29) that the 2nd non-competitive tender for Exchange Fund Notes under the Pilot Scheme for promoting of Exchange Fund Notes to the retail market will be held on October 15, 2003. Up to HK$120 mn of an existing 5-year Note (issue no. 5612) with remaining term to maturity of about 38 months will be reopened and on offer for non-competitive tender. The issue will mature on December 18, 2006 and will carry interest at the rate of 5.20% per annum payable semi-annually in arrears. Interest payments and redemption payment on the issue are shown in the schedule attached as Appendix 1 (which is on the HKMA website http://www.hkma.gov.hk). Investors wishing to participate in the non-competitive tender can apply for the issue between October 6 and October 13, 2003 through the Retail Exchange Fund Notes Distributors (Distributors) appointed by the HKMA, namely Bank of East Asia, DBS (HK) and Wing Lung Bank. The subscription price of the issue will be fixed and announced on October 15, 2003. Allotment will be done on October 16, 2003.
The upcoming issue on offer for non-competitive tender is a reopened issue and it bears two special features.
First, as the allotment date (October 16, 2003) of the issue falls between two coupon payment dates, successful bidders will, in line with standard market practice, have to pay to the HKMA the subscription price plus an amount equal to the interest accrued from the last coupon payment date (June 17, 2003) to the allotment date (October 16, 2003) of the issue. The amount of accrued interest payable on the allotment date (October 16, 2003) is HK$861.92 per HK$50,000 nominal value of the issue. This amount of interest paid will be recovered as part of the interest that the holder receives on the next coupon payment date of December 17, 2003 for the interest earned on the issue in the preceding six months (i.e. between June 17 and December 17, 2003).
Secondly, present indications are that the issue will be priced at a premium relative to the nominal value because the coupon rate of 5.20% is likely to be higher than the prevailing interest rate for a 38-month period. This arises because the coupon on a reopened issue was set when the Notes were first issued in the past, the coupon can deviate significantly from current market interest rate. Normally, if the coupon on a reopened issue is higher than the prevailing market interest rate for comparable tenor, the issue will be priced at a premium to the nominal value. Conversely, Notes with a coupon lower than prevailing market interest rate will be priced at a discount to the nominal value. In this case, the 5-year Notes (issue no. 5612) to be reopened, bearing a coupon of 5.20% p.a., was quoted at 109.12 and yielding 2.26% on September 26, 2003.
The HKMA launched on August 1, 2003 a 1-year Pilot Scheme (Scheme) for promoting Exchange Fund Notes in the retail market. Under the Scheme, a portion of each quarterly issue of 2-year and 3-year Notes will be made available for non-competitive tender by retail investors through the Distributors. In addition, the Distributors will adhere to a number of unified standard in the distribution of EFN to retail investors in the secondary market.
For further enquiries, please contact:
Jasmin Fung, Manager (Press), at 2878 8246 or
Kevin Ip, Manager (Press), at 2878 1687
End/Monday, September 29, 2003
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