Early mammoth gets enthusiastic investors

THE big banking mammoth, Hongkong Bank, ended the market's rumour-mongering yesterday by issuing its first floating-rate note - and it was enormous.

Being the first bank in Hong Kong to issue sub-ordinated debt, the size and its good reception attest to the bank's good credit quality. But it also gives a big dose of confidence to the local capital market.

Although the subordinated nature of the notes will have reduced banks' appetite for it - especially for those that are not allowed to buy subordinated paper - the strong selling group members will ensure that the paper will be placed to end-investors.

Instead of forming a large syndicate, Wardley chose to organise a selling group consisting of investment banks with large local fund management arms, such as Jardine Fleming and Schroders.

Apparently, these members will help place the paper with fund managers, who will then pass it on to end-investors.

To cater for international investors, a European, a Japanese and a US house were invited to complete the group.

But the rosy picture cannot cover up the warning signals on the lack of Hong Kong dollar funding.

After the initial surprise that the largest retail bank in Hong Kong needed to tap the Hong Kong dollar market, the message is clear: finding the funding is going to be tough.

With tier-two capital ratios standing at 14.03 per cent for the bank and 12.9 per cent for the group at June this year, there would seem to be no reason to worry.

The leading position of Hongkong Bank will be put to the test when the construction of various infrastructure projects starts in the middle of a tense political situation.

The bank's keenness to participate in these projects is considered necessary, not only because of its powerful financial base but also because it will help to indicate confidence in the projects and the territory as a whole.

Recognising its important position in the market, Hongkong Bank is wise to tap the local market before the investment enthusiasm that is currently being pushed to new heights subsides towards the year-end.