Bond market on the way up
WHO says Hong Kong hasn't got a bond market? Yesterday's successful launch of a $750 million bond by the International Finance Corporation (IFC) will have, quite rightly, been a cause for celebration at the Monetary Authority, which is keen that the territory should develop a mature bond market.
As the biggest single bond issue made in Hong Kong, the IFC paper marks the pinnacle of what has already been a fine year for the local market, which some said could never happen in a centre where the lure of the quick buck from equities would always squeeze out the more staid attractions of the fixed-interest instrument.
As part of the World Bank, and a leading provider of funds to developing countries, IFC is a serous blue-chip name, and the fact that it has issued seven-year paper in Hong Kong, so flagging off its own through-train - is bound to be seen as a gesture of confidence.
IFC is obviously satisfied with the market, for this is the third time that it has tapped Hong Kong.
In February it sold $500 million worth of paper, after successfully raising a similar amount the previous August.
Coming so soon after the $300 million issue from General Electric Capital Corp (GECC), part of the massive US General Electric group, it suggests that Hong Kong has the ability to absorb larger amounts of fixed-interest paper than previously thought possible.
More than $1 billion of bonds moved in less than two weeks has to be seen as significant. Whether it also represents the limit will have to be seen.
The terms of the issue - which was made at 100.37, carrying a coupon of 6.55 per cent to yield 6.6 per cent - are leaner than those for the GECC bond, which had a 40-basis-point advantage on yield.
What made the IFC offering more attractive was the organisation's fiscal status. It is one of a handful of supranational bodies that can offer tax-exempt yields in Hong Kong.
The tax advantage appears to have proved particularly attractive to local corporates, who have welcomed the opportunity to participate, although they are not usually regarded as natural investors in fixed-interest paper.
With the recent action on dragon bonds - which are US dollar or yen denominated - the era of the fixed-interest market in Hong Kong appears to be drawing near.