Bond moves boost HK’s hub credentials
Pundits hail city’s measures to spur bond market as the right step for a comprehensive financial center
Hong Kong’s bond market was given a shot in the arm when the government, in its latest budget, rolled out a raft of measures to spur bond issuances and fortify the local bond-market infrastructure.
A HK$2.5-million, threeyear pilot grant scheme to lure local, mainland and international enterprises to issue bonds in Hong Kong will be launched, targeting first-time issuers applying for a subsidy for two issuances at the most and capped at HK$2.5 million that can trim issuance expenses by half.
The moves to bolster what’s seen as a less buoyant market compared to stocks, and aimed at transforming the SAR into a comprehensive financial hub, have been lauded by industry pundits as a positive sign for change and a move in the right direction.
“It’s encouraging to see the government moving to boost development of the local bond market. Granting subsidy to issuers will be conducive as it will slash issuance costs,” said Ben Yuen Cheuk-bun, fixed-income chief investment officer at BOCHK Asset Management — the asset management arm of Bank of China (Holdings).
Traditionally, Hong Kong’s bond market is less buoyant than the equity sector as most of the issuances are from the private sector, while massive budget surpluses do not justify the need for the government to embark on an aggressive bond issuance program.
According to government data, as at much 31 the current outstanding size of bonds issued under the Government Bond Program is just HK$98.2 billion, excluding the total amount of Islamic bonds issued.
As the government pumps up more bond issuances, a diversified bond market has been gradually taking shape in Hong Kong, giving rise to bond investment opportunities beyond traditional formats.
The government issued its first Islamic bonds in 2014, followed by another two issuances in 2015 and 2017, worth a total of $3 billion. In the retail sector, six batches of inflation-linked bonds worth a total of HK$60 billion have been issued since 2011.
Silver bonds, geared to the city’s rapidly graying population, are also on the cards for this year and 2019, with two similar batches having been issued since 2016, raising HK$6 billion and offering the elderly a steady income stream.
The government has further announced a borrowing ceiling of HK$100 billion to tap the green bond market, and the proceeds will be credited to the Capital Works Reserve Fund to fund green public works projects.
A Green Bond Grant Scheme will also be introduced to subsidize qualified green bond issuers of up to HK$800,000 for each issuance. Green bond issuers can enjoy the green bond certification services operated by the Hong Kong Quality Assurance Agency (HKQAA).
“The measures are in the right direction and it’s a very positive sign for change,” said Ma Beijia, thematic investment strategist at Bank of America Merrill Lynch.
“The government’s green bond issuance ceiling definitively can drive up green bond issuances in Hong Kong as it can draw interest from both investors and potential issuers.”
“The HKQAA Green Finance Certification Scheme gives independent, internationally-recognized assessments of issuers’ plans for the debt proceeds that will give investors greater confidence in these instruments, realizing Hong Kong’s potential as a green finance hub,” noted Diana Cesar, chief executive for Hong Kong at HSBC Holdings.
Hong Kong saw its first green bond issuance in June 2015, and mainland wind energy firm Xinjiang Goldwind Science and Technology tapped the market by issuing green bonds worth $300 billion.
Major listed property developers and real-estate investment trusts (REITs) followed suit. Last year, MTR Corporation and Link REIT also issued green bonds worth $600 million and $500 million, respectively. In January this year, Swire Properties raised $500 million by issuing 10-year green bonds.
“Despite the proposed measures that can bolster the bond product range and tap the issuer base, Hong Kong is still far from being a fullfledged bond issuance center,” noted Chong Tai-leung, an associate economic professor at The Chinese University of Hong Kong.
In his view, small andmedium-sized enterprises (SMEs) in Hong Kong lack the financial resources to issue bonds and, to further diversify the local bond market, more issuances by SMEs are essential.
Chong suggested that a subsidy amount of 1 to 2 percent of the total bond issuance cost, such as the cost of getting credit rating agencies’ ratings and fees paid to investment banks, may lure SMEs to issue bonds instead of seeking bank loans.
“A bond market with more SME issuances is a healthy development for Hong Kong vying to be a comprehensive financial center,” he told China Daily.
“Whether the proposed measures will be effective depends on the demand-supply dynamics and whether corporations are willing to issue bonds in Hong Kong,” said Billy Mak Sui-choi, an associate professor at Hong Kong Baptist University’s Finance and Decision Science Department.
He praised the government’s initiative to undertake a green bond sustainability audit as good for market development because the government now acts as a bond issuer and bond market infrastructure builder at the same time.
“We believe that the growing popularity of bond investment in Hong Kong, characterized by the growing participation of retail investors and coupled with the city’s elderly population being desperately in need of a steady income stream, will stimulate the long-term development of the local bond market,” Yuen said.