School plans to end trading in debentures

PUBLISHED : Sunday, 24 June, 2007, 12:00am
UPDATED : Sunday, 24 June, 2007, 12:00am

HK$3m quote brings move to stop second-hand market in pupil places

A leading international school has drawn up a plan for early recall of its corporate debentures in a bid to stamp out second-hand trading at inflated prices.

Chinese International School unveiled the proposals in a letter to the Sunday Morning Post after prices quoted by agents on the second-hand market reached HK$3 million last week. The school's official price is HK$600,000.

Asking prices for corporate debentures issued by Chinese International School and individual debentures from Canadian International School have soared over recent weeks, fuelled by long waiting lists at international schools.

Debentures are long-term debt instruments sold to parents and companies by schools to raise funds for building works. Parents and employers buy them to jump the queue for school places. Individual debentures are refunded when the child leaves the school, while corporate ones can be passed on to children of other employees - but some schools also allow them to be sold on.

Chinese International's governing board is studying the plan to call back its corporate debentures - known as corporate nomination rights - one year before the child of an employee graduates from the school, according to its chairman, Geoffrey Mansfield.

The debenture would then be reissued to the company free of charge, if it could demonstrate that it had another employee who was seeking a place at the school for their child.

'Given the alleged heightened abuse of the school, we are studying a programme by which the school will call back a given corporate nomination right (CNR) one year prior to that specific student's graduation,' he states in the letter. 'If the major corporation has a verifiable employee to nominate, then we will reissue the CNR to it at no cost. Such a programme would end trading and would be fair to all parties.'

The Sunday Morning Post asked the school how the programme would operate, including whether it would apply to all corporate debentures, whether companies would have to redeem them and whether it would make them non-transferable. The school declined to reply. According to its prospectus, the school has the option to redeem corporate debentures 10 years after issue.

Canadian International School has posted a statement on its website about the school's individual debentures - called capital debentures - that includes a warning to parents not to buy them from membership agencies.

'We advise all parents who are looking to buy debentures to contact the school directly and not deal with any membership services business who may inflate the cost of debentures,' it states.

A school spokesman denied that one of its debentures had been sold for HK$480,000 through China Dragon Membership Services, as claimed last week by the agency's sales manager, Hilary Don.

'The maximum transaction that has ever gone through for an individual debenture is HK$400,000,' the spokesman said. 'Whether any third parties are involved, we have no control over that. But we certainly would not allow a debenture to be sold between two people if we feel the value is not correct.

'You certainly don't need a debenture to enter Canadian International School. A debenture will not give a child automatic entry into the school, nor will it elevate their position on a waiting list.'

Corporate debentures were sold directly by the school, were non-transferable and the price was kept private, he added.

A parent who is seeking a corporate debenture for Chinese International School after her employers won approval from the school to buy one, said: 'I think it is very honourable for the school to be concerned about the price of second-hand debentures and take this step towards reining in prices. It sends a welcome signal to the market that the school won't tolerate runaway inflation.'