iBonds vie for inflation-conscious investor interest

Hong Kong's third sale of inflation-linked bonds may compete with at least eight initial public offerings aimed at raising a total of HK$22 billion amid improving sentiment in the stock market.

The Hong Kong Monetary Authority is selling another HK$10 billion of three-year iBonds to inflation-conscious residents as part of a long-term effort to promote the city's bond market and educate retail investors about it.

This year, initial share sales have continued to slow, in part because the wave of listings by big state-controlled firms is over and because of persistent weakness in the equity market.

New share offerings raised a paltry US$1.2 billion in the first four months, 65 per cent less than in the same period last year. Some newly listed stocks had performed badly, with several trading below their listing prices.

However, the capital-raising channel has shown a significant recovery amid a surge in regional markets due to Japan's latest stimulus efforts. This month has been the most active this year, with US$3.43 billion raised, thanks to the listing of two large state-owned firms - China Galaxy Securities and Sinopec Engineering (Group).

At the time of last year's iBond sale, the listings market was in a short-lived upward trend. Volume surged from US$909 million in June to US$1.5 billion in July. Listings then virtually stopped for two months until a pickup in the last quarter of the year.

At least eight firms - including Hopewell Hong Kong Properties, a spin-off of Hopewell Holdings; hotel-casino operator Macau Legend Development; and China Harmony Auto Holding, a mainland luxury car dealership - hope to list next month.

Secretary for Financial Services and the Treasury Chan Ka-keung said yesterday the size of the latest iBond issue would not be bigger than HK$10 billion - the same as in the past two offerings - even though the government had proposed to raise its borrowing ceiling to HK$200 billion from HK$100 billion.

The increase would pave the way for more government bonds to be issued in the next few years, promoting the further development of the bond market.

Unlike debt-laden countries in the West, Hong Kong aims to broaden its investor base to non-bank institutional investors - insurance firms, pension funds, investment funds and foreign public-sector investors - from traditional buyers, such as the commercial banks.

According to official data, the amount of government bonds outstanding in March was HK$70.5 billion - HK$50.5 billion had been issued to institutional buyers and two HK$10 billion batches of iBonds had gone to retail buyers.

Chan reaffirmed that "the proportion of retail to institutional tranche must stay at a reasonable level" and the issuance of iBonds "should not be treated as a regular mechanism", suggesting that the government might suspend the offering in future.

The three-year bonds offered a relatively short holding period and because of their lower risk should continue to attract retail buyers, Chan said.

The subscription period for the iBonds will be from June 4 to 13. They will be issued on June 24 and listed on the stock exchange the next day.