Buyers line up for third batch of low-risk bonds

Number of subscribers for latest tranche of iBonds, which are linked to inflation, jumps 40 to 50 per cent from last year's offering

PUBLISHED : Tuesday, 04 June, 2013, 12:36pm
UPDATED : Wednesday, 05 June, 2013, 4:01am

The third batch of HK$10 billion inflation-linked bonds is proving a sell-out despite low inflation, with investors piling into the risk-free product in a sluggish market.

The number of subscribers jumped by 40 to 50 per cent from last year at major banks such as HSBC, Bank of China (Hong Kong), Bank of Communications' Hong Kong branch and DBS as they started taking orders for the so-called iBonds yesterday. The rise was more significant at smaller banks due to a lower base, with China Citic Bank International seeing more than double the applicants from last year.

Around 7,000 investors yesterday placed orders at seven major local brokers, including Phillip Securities and Bright Smart Securities, according to data obtained by the South China Morning Post. The total number of applicants is estimated to have already reached 35,000, with the subscription amount hitting HK$1.54 billion as of yesterday.

"We think the final number of subscribers will at least exceed 400,000 this time, compared with 330,000 last year and 155,000 in 2011," said Gary Leung Wai Kei of Bank of China (Hong Kong).

Investors who bought iBonds in 2011 would get total returns - combining secondary-market gains and interest payments - of 12 per cent if they sold now, Leung said. Those sold last year would similarly deliver primary subscribers a 10 per cent return as of yesterday. But returns on the third batch may not be that high as the expected inflation rate this year is around 3.5 per cent. The first batch in 2011 saw high inflation and returned a yield of 6 per cent. But analysts expect demand for the bond to be solid given the near-zero interest rate on bank deposits and the sluggish performance of new stocks.

The bonds carry a floating interest rate linked to the consumer price index for the preceding six months. The minimum interest rate is 1 per cent - payable every six months. Hong Kong ID card holders can apply for iBonds until 2pm on June 13. They will be issued on June 24 and listed on the stock exchange the next day.

The iBonds issued in 2011 rose 6.7 per cent on the first day of trading, while the 2012 batch rose 5 per cent on debut. "We expect iBond prices to rise to HK$105 on the first day of listing, given the current yield of three-year Hong Kong Exchange Fund notes is 0.3 per cent," said AMTD Financial Planning. As the bonds entail a minimum subscription of HK$10,000 per lot, investors would only make a profit of HK$500 per lot.

"If it pays for a few yum cha trips, I'll be satisfied," said 77-year-old retiree Chan Yun-tong, a first-time investor, who said he wanted to put in HK$50,000.

Additional reporting by Kanis Li