HK$100b bond fund gets Legco green light
The government secured approval from the Legislative Council yesterday to set up a bond fund and issue up to HK$100 billion worth of debt in a first step towards developing a local bond market.
The motion won broad support from legislators but not before several had called for legally binding limits on how proceeds could be used amid concerns the funds might be mismanaged.
Financial Secretary John Tsang Chun-wah, who has keenly promoted the city as a centre in which to raise funds by issuing debt - including Islamic bonds and yuan-denominated bonds, said developing a bond market would contribute to Hong Kong's financial stability.
'And developing a local debt market is a very important step,' he said.
Democrat lawmaker Albert Ho Chun-yan sought to establish a bond fund consultation committee with a management oversight brief. Fellow democrat James To Kun-sun urged the government to require that proceeds be injected into the Exchange Fund and invested prudently.
But the government argued that spelling out the bond programme's policy objectives and investment arrangements in law would invite legal challenges or litigation about interpretation of whether the objectives could or would be met.
Under the plans, funds raised, capped at HK$100 billion, will go into a bond fund, which will make investments to cover the principal amount and interest payments. Any surplus that remains after paying off bondholders and expenses may be transferred to government revenue subject to Legco approval.
'We believe that the total size of the programme is an important indicator for the market to assess the determination and effort of the government in promoting the development of the local bond market,' Mr Tsang said.
He said the proposed borrowing ceiling was reasonable and necessary. 'It fully reflects the long-term and ongoing nature of the programme. It also provides enough room for the public debt market to grow to critical mass ... enabling the programme to bring about its intended effect.'
Mr Tsang said the proposed ceiling represented a long-term target of five to 10 years and provided the flexibility to make necessary adjustments to the size and tenure of individual tranches in response to market needs.
Legco's approval meant the government would go ahead with developing the programme, including details such as the size of bond issues, their tenure and the frequency of issues, he said.
Bonds would be available to both institutional and retail investors.
Fixed-rate bonds issued in the local currency for institutional investors would be offered through competitive tenders to primary dealers.
Individual investors could subscribe to these bonds at participating banks and brokerage firms.