Shock at $300k HKIS debentures hike
Lutheran school plans to buy back existing contracts, raise price to $500k and downgrade entitlements
Hong Kong International School has stunned multinational corporations by unveiling sweeping changes in its debentures policy.
In a letter to all debenture-holders last month, the school announced it would buy back all of the more than 1,300 debentures it has issued over the past 19 years.
A new set of 750 debentures would then be released for the 2006 academic year, priced at $500,000.
The debentures, which entitle their owners to preferential places in schools, would be repaid at their original price, without interest. Students currently enrolled in the school would not be affected.
Businesses said they were unhappy with the decision. 'Legally, they have the right to do that because a clause was included in the original agreement,' said Chan Tze-ching, country officer for Citibank Hong Kong and the Employers' Federation of Hong Kong's representative on the Coalition on Business Education. 'But this is not fair.'
The school's most recent set of debentures was issued in 1995 and cost $200,000. But some of the debentures held date back to 1986, when they cost just $70,000.
The move would cost Citibank 'many millions, over $10 million', Mr Chan said, 'just to enjoy the benefits we are currently enjoying'.
Multinational companies were being held to ransom, he added. 'They know we need debentures so that children of our expatriates get schooling. They know we can afford it, but that is not the point.'
This was not the right way to reward 'long-term customers'. The school's actions would reflect badly on Hong Kong in his company's head office, he said.
HKIS said the changes were necessary to bring the price of its debentures into line with its competitors and to provide extra funding to upgrade its facilities.
'There has not been any change to the debenture programme for 11 years, so therefore the price is at least 11 years out of date,' said James Manning, the school's communications manager.
The debentures have been under review since 2002, when it stopped selling corporate debentures and repurchased any it could.
'We believe the new cost for debentures is appropriate for HKIS and is in a similar range as other international schools of similar quality,' Mr Manning said.
However, the new $500,000 price tag is higher than most standard debentures offered by other international schools.
Many schools require parents to pay either a debenture, usually refundable, or a capital levy to secure a place, with the money used to fund schools' development. Canadian International School charges $250,000 for its debentures, while Kellett School's cost $200,000.
The only schools offering more expensive debentures than HKIS are Chinese International School, whose corporate debenture costs $600,000, and Australian International School, whose gold debenture costs $1 million. The latter also offers a preferential debenture at $400,000, plus standard corporate and individual debentures at cheaper prices. Holders of the new HKIS debentures will have reduced entitlements. In the notification letter, the school said its current debenture system gave 'unfair advantages to debenture holders in regard to capital payments'.
Under the present system, debenture holders are exempt from paying the school's annual capital levy and one-time entrance fee.
From 2006, holders of the new debenture will be required to pay the fees. For the 2005-2006 academic year they are set at $12,000 and $15,000 respectively. In addition, they pay annual fees of up to $136,700.
Current debenture holders who applied before this Thursday would be given priority for the new debentures, the letter said. Those on the waiting list were also given an opportunity to apply for debentures in advance.
'Although the demand for the new HKIS debentures is currently higher than the limited number we will issue, we do expect to sell debentures as well to those corporations who have been on the wait list since 2002,' Mr Manning said. A new waiting list would be drawn up once the 2006 debentures had all been allocated.
HKIS's debentures were released in three sets - in 1986, 1991 and 1995 - with each to fund specific projects.
Mr Manning said the increase was to raise capital for the school's 'master facilities plan', a framework for its development over the next 30 years. The plan aimed to expand the school's performing arts, science and sports facilities.
'To be a world-class school and competitive regionally, HKIS needs to upgrade its facilities. The new debentures will help support these necessary improvements,' Mr Manning said.
'Because we are buying back all existing debentures, we expect that the net income realised from that will support only about 20 per cent of the new facilities plan.'
He said the remaining funds for the expansion would need to come from other fund-raising initiatives. The school has appealed to companies to donate their old debentures.