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Following is a question by the Hon Ambrose Lau and a reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (May 12):

Question:

Regarding the Hong Kong Link 2004 Limited Retail Bonds, will the Government inform this Council:

(a) of the experience gained in the first issuance of such bonds; and

(b) whether it will continue to issue Government bonds of this type; if so, of the details and how it will proceed with future issuance work by reference to the above experience; if not, the reasons for that?

Reply:

Madam President,

The Government is committed to developing the local bond market to consolidate Hong Kong's position as an international financial centre. The offering of $6 billion securitisation bonds backed by revenues to be generated by Government-owned toll tunnels and bridges has turned a new page of the development of our financial industry by being not only the first securitisation bond offering by the Government, but also the largest securitisation bond offering ever in Hong Kong, and amongst the largest in the region. In addition, it is the first securitisation bond offering to local retail investors, with the retail bonds being distributed through the largest retail distribution network ever established for a bond issue in Hong Kong. Over 800 branches of 23 placing banks were involved, along with 89 brokers who participated via the Central Clearing and Settlement System (CCASS) of the Hong Kong Stock Exchange.

The Government has gained invaluable experience from this offering, including -

(1) Hong Kong investors in general are very interested in retail bonds and their oversubscription by more than two times reflects the significant development potential of the local retail bond market. This has important implications for the Government and other public and private entities when deciding their future financing plans.

(2) Retail investors have demonstrated that they are adequately familiar with the investment risk (interest rate risk in particular) through their participation in this offering. Their relatively greater demand for bonds of shorter maturity reflected their consideration of future interest rate movements on the bond price. Indeed, the Government and other concerned parties, such as the Hong Kong Capital Markets Association, have put in a lot of effort in educating our investors in the past. I have explained bond market development in my regular column and also reminded the public that they should pay attention to the interest rate risk and credit rating of the bond issuer. In my speech at the launching ceremony of this offering, I also reminded investors that they should seek advice from their financial adviser before making any investment decision. In addition, we also organised several educational seminars on bond investment for Chairmen and Vice Chairmen of the District Councils as well as other local participants with the goal of enhancing public knowledge of bond investment.

(3) About 5% of the subscription amount was received from brokers through CCASS, as part of our wide distribution network. This has laid down a good foundation for further participation of brokers in future retail bond offerings.

(4) Response from institutional investors to this offering was overwhelming and the notes were oversubscribed by three times, indicating their demand for this type of bonds.

We have no immediate plan to issue another securitisation bond. Our focus now is to plan for the issue of Government Bonds within 2004-05. We will certainly build on the invaluable experience just mentioned to ensure that we can successfully implement the plan to issue Government Bonds and further widen the distribution network. This will further develop our bond market and encourage private entities actively to consider bond issuance as a funding alternative. Ultimately, this will propel forward the development of Hong Kong's financial industry and even our economic development as a whole.

Ends/Wednesday, May 12, 2004

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