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School costs pricing HK out of market for talent

Debenture costs at some of the city's leading international schools have hit the stratosphere and beyond. As we report today, the Independent Schools Foundation Academy has set what is believed to be a record price for an international school with its new issue of corporate debentures costing a whopping HK$1.6 million.

But even that price is dwarfed by those being sought in the second-hand market by agencies that trade debentures like club memberships. They are quoting second-hand debenture prices of up to HK$3.7 million for Chinese International School - several times their face value at issue.

While these numbers may be extreme and rare, debentures at many schools sell for anything from HK$100,000 to HK$1 million. Such debt instruments are bought on top of already steep tuition fees. As a result, even relatively wealthy families are being priced out of our top international schools. This, and the related problem of a shortage of international school places, is clearly not healthy or desirable for an international city that aims to attract talented professionals and their families. Keeping prices for international schooling affordable has become increasingly difficult.

Debentures are no-interest, refundable debt instruments bought by parents or companies to help the private schools finance capital projects such as new buildings. Parents who pay are frequently allowed to let their children jump the queue at schools with long waiting lists. Given their purpose, there is a strong argument against debentures being allowed to trade like investment tools in the secondary market. Yet, because some schools take a cut of any profits made, there are strong incentives for them to allow second-hand trading. Schools like Hong Kong International and German Swiss are right to ban trading in the debentures they issue.

Perhaps the expectation that the provision of school places will increase in coming years when new schools open and older schools expand will help moderate demand - and therefore prices. The cost of international schooling needs to be more reasonable if our city is to remain competitive.

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