525,000 subscribers flock to iBonds

Lower expected yield fails to put off record number from wanting to buy latest batch

PUBLISHED : Friday, 14 June, 2013, 12:00am
UPDATED : Friday, 14 June, 2013, 3:49am

The latest HK$10 billion sale of iBonds closed to retail investors with subscribers at a record high despite a lower expected yield for buyers and a credit squeeze that prevented many brokerages from offering clients the chance to borrow to buy.

More than half a million Hongkongers - a total of 525,359 - subscribed for the third batch of government inflation-linked bonds, up more than threefold from 155,835 applications for the first batch in 2011 and 58 per cent up on the 332,467 who applied for last year's batch.

The value of the subscriptions, however, about HK$40 billion, fell short of last year's HK$49.8 billion. Market watchers said that was because brokers capped margin lending to subscribers and investors placed smaller orders, expecting hot demand to mean a limited supply.

Figures from 10 major brokers in the city showed they capped lending to subscribers at HK$30,000 to HK$50,000 per person, far less than last year's average of about HK$100,000. Subscribers applied for 7.6 HK$10,000 lots on average, about half of last year's 15 lots and even fewer than the 8.4 lots in 2011, HKMA figures show.

Investors expect a lower return from this batch of iBonds, as their yield is linked to inflation, which has declined.

Some subscribers were caught in a battle between banks and brokers for new customers. Banks including HSBC, Bank of China and Standard Chartered stopped lending money this year to brokers wishing to offer margin to iBond buyers, the South China Morning Post reported last week.

In the event, the number of subscriptions at well-funded brokers such as Phillip Securities and Prudential Brokerage doubled from last year, while major banks also enjoyed healthy growth in subscriptions.

HSBC said it received an "overwhelming response", with a significant increase in the number of subscribers. The bank said the total number of loan applications for iBond subscriptions rose more than 10 per cent over last year.

Dah Sing Bank said the number of subscriptions jumped nearly 50 per cent from last year, and the number at DBS Bank rose nearly 20 per cent.

Secretary for Financial Services and the Treasury Chan Ka-keung, said yesterday: "In general, we have seen some effects of deepening the city's understanding of the bond market through promoting the iBonds."

Asked whether the government would consider increasing the size of the issue next year, Chan said, "It would depend on the market condition."

He dismissed the suggestion by some market observers that recent postponements of initial public offerings were the result of hot demand for iBonds instead.