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Denise Tsang

MTR Corp has expanded its retail bond offering from HK$1 billion to HK$3.5 billion, as a result of strong demand.

The offering, which caters for retail investors, attracted 18,162 investors and had locked in HK$5.6 billion in subscriptions at its closing last Friday.

It represented a subscription ratio of 5.6 times.

Treasurers said the good response demonstrated retail investors' preference for lower risk but with decent and stable returns, in volatile equity and property markets and a low interest-rate environment.

It also illustrated improved awareness and acceptance of fixed-income products.

Treasurers expected more retail bond offerings in the coming months.

The offering is the first Hong Kong dollar-denominated retail bond issued by a listed company.

An MTRC spokesman said the decision to raise the offering was due to the overwhelming response and the company's funding needs.

The corporation recently said its capital spending this year stood at HK$6 billion.

With the bond issue raising HK$3.5 billion, another HK$2.5 billion will be raised over the rest of this year.

'We'll explore what type of funding we will seek in coming months, which depends on the market situation,' the spokesman said.

Funds would be spent on working capital and the Tseung Kwan O rail extension, which will start services in August.

The retail bond is divided into three tranches, maturing in 2004, 2005 and 2006.

The 2004 tranche was the most popular, accounting for 48 per cent of the subscription.

The issue size of the 2004 tranche is HK$1.25 billion.

The 2004 tranche is priced at 101.01 per cent, with an annual yield of 3.25 per cent and an annual coupon of 3.75 per cent.

The least popular was the 2006 tranche, which is the smallest at HK$1 billion.

The 2006 tranche is priced at 102.17 per cent with an annual yield of 4.45 per cent and an annual coupon of 5 per cent.

The pricing of the 2005 tranche is 101.48 per cent on an annual yield of 4.01 per cent and an annual coupon of 4.5 per cent. The 2005 tranche was worth HK$1.25 billion.

A treasurer of a Chinese bank said: 'The distribution of subscription monies shows that retail investors are sensitive to interest-rate movements.'

In spite of the prevailing low interest-rate regime, there is a market expectation that the United States' Federal Reserve might start unwinding its interest-rate rise cycle after August.

'Even if the interest rates do go up, it will take a very long time to catch up with that of the retail bond,' the treasurer said.



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Bonds

Strong demand prompts MTRC to increase issue size