School debentures trade must be more transparent

PUBLISHED : Sunday, 17 June, 2007, 12:00am
UPDATED : Sunday, 17 June, 2007, 12:00am

The debentures parents buy to jump the queue for places in Hong Kong's international schools are for sale to the highest bidder. It is a trade on which some light badly needs throwing. The schools that allow parents whose children have graduated to resell their debentures to new parents often do not control the transactions or, more importantly, disclose their value. With supply limited, parents turn to the private market only to find themselves at a disadvantage because they are bargaining in the dark. Agents for the sellers are setting the market by playing parents off against one another and driving an inflationary spiral more akin to that of a property boom.

One would-be debenture buyer says a broker quoted a price this month for a Chinese International School debenture of HK$2.1 million, HK$350,000, or 20 per cent, higher than the price quoted a month before. This is more than double the price one couple paid to get their daughter a place in a primary class, as the Sunday Morning Post reported a week ago. Some agents quote even higher prices.

Debentures are being sold on the secondary market alongside privileges for the well-off such as membership rights to exclusive golf and country clubs, but at higher prices. That is hardly the image of educational opportunity that Hong Kong wants to cultivate. It does nothing to ease the concerns expressed by business that the talented, highly qualified people the city needs to work and settle here will be discouraged by the difficulty in finding places at suitable international schools for their children.

The debentures are long-term debt instruments sold to fund building projects. Schools will refund individual debentures when a child leaves the school, while companies which buy corporate ones can pass them on to benefit the children of other employees. However, some schools also allow corporate debentures to be sold on. Demand exceeds supply because the schools have limited places and long waiting lists. The declining expatriate communities for whom the schools were primarily established are not responsible; nearly all the schools now admit a majority of local students, reflecting a perception among Chinese parents that the public sector does not meet their educational needs.

In the past 10 years the government has sought to encourage an alternative to international schools by assisting, through land and construction grants, the establishment of private independent schools for permanent residents. Eight will be operating in the new academic year. They give parents greater choice, but new independent schools and education reforms are a long way from reducing the demand for places at international schools.

The Education and Manpower Bureau is understandably reluctant to involve itself in the operations of international schools in the private market; nor would that be appropriate. Given the market distortions created by overwhelming demand, however, there is a case for the government to take steps to facilitate private initiatives to boost the provision of such school places.

One parent who spoke to the Post is right to describe the second-hand market as an unhealthy phenomenon that should be addressed immediately. International schools themselves should take the first step, with an initiative to disclose transaction prices and provide a more transparent market for parents who feel compelled to pay steep premiums for the education of their choice.