Mortgage-backed securities a retail first in Asia

The Hong Kong Mortgage Corporation Limited (HKMC) is launching a $2 billion mortgage-backed securities (MBS) series for institutional and retail investors. The issue is the first retail MBS in Asia.

"Following its pioneering effort in November 2001 to issue retail Hong Kong dollar bonds through placing banks, the HKMC has taken another big step to organise this issue to allow subscription by retail investors," HKMC Deputy Chairman Joseph Yam said today (October 19).

"I believe this issue will make a significant contribution to the development of a more efficient and mature secondary mortgage market as well as galvanising the further growth of the MBS market in Hong Kong," he said.

Bauhinia MBS Limited will act as the series' issuing vehicle. The HKMC guarantees the payment of principal and interest, secured over underlying mortgage loans the corporation purchased from the Hong Kong Housing Authority over the past two years.

In addition to the HKMC's guarantee, holders of the notes can also turn to the underlying mortgage loans for payment of principal and interest.

Professional notes for the institutional investors come in two tranches, whose individual features have been well received by pension funds, investment funds, insurance companies and banks.

Notes for retail investors come in three tranches. Notes with a straight maturity of one year carry a fixed rate coupon of 1.7%; three-year notes have a fixed rate coupon of 2.65%; and four-year notes have a fixed rate coupon of 3.05%.

All classes of notes are expected to have credit ratings of AA- from Standard & Poor's and Aa3 from Moody's. A summary of the key terms and conditions, issue structure and characteristics of the underlying mortgage loans is available at the Hong Kong Monetary Authority website, www.hkma.gov.hk

Ends/Tuesday, October 19, 2004