Bank of China

Retail investors get second helping

PUBLISHED : Tuesday, 02 August, 2005, 12:00am
UPDATED : Tuesday, 02 August, 2005, 12:00am


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Small investors will get a second bite at buying a share of a government bond issue next month that will pay them a minimum return on their investments of 3.28 per cent.

A $200 million tranche of a $1.2 billion, two-year Exchange Fund Note has been singled out for retail investors by the issuer, the Hong Kong Monetary Authority (HKMA), and subscriptions - in minimum lots of $50,000 - open tomorrow.

The remaining notes will be issued to institutional investors, who will bid through a competitive tender process that will set the discount to face value at which they will then be sold to all investors, including retail buyers, and that will then determine the all-in yield.

The retail tranche will close on August 10, pricing of the notes will be done on August 12, and settlement will take place on August 15.

Over-the-counter trading of the notes by participating market-makers is likely to commence the following day.

'We will take the lowest price entered by the institutional bidders to set the price for the retail tranche, because in many cases public investors may not know at what prices to tender,' said a HKMA spokesman.

Once the discount to face value has been decided, this will be added to the coupon return on the notes of 3.28 per cent to calculate the all-in yield.

The latest offer follows a $300 million, two-year retail Exchange Fund note issued by the HKMA in May, which was also part of a $1.2 billion issue in total.

Fully backed by foreign reserves, Exchange Fund issues provide a regular supply of Hong Kong dollar debt papers to financial institutions for investment and hedging purposes. They are also used by banks for borrowing overnight Hong Kong dollars from the discount window.

The HKMA, which aims to issue retail Exchange Fund notes quarterly, has resumed the scheme this year after a pilot scheme in 2003 to promote the city's bond market to retail investors.

Seven banks, including HSBC, Hang Seng Bank, Bank of China, Standard Chartered Bank, Bank of East Asia, DBS Bank and Wing Lung Bank, have been appointed as distributing banks for retail investors.