THE Bank of China launched its first Hong Kong dollar-denominated debt issue yesterday, raising $1.2 billion for the Macau airport project. Sociedade do Aeroporto Internacional de Macao is the borrower, with unconditional guarantees by the Bank of China (Macau branch). The issue is split into two equal tranches of fixed and floating rate papers. The more popular tranche of $600 million in eight-year floating rate notes is priced at 125 basis points above the three-month Hong Kong interbank offered rate. Not surprisingly, the other tranche of fixed rate bonds was not as well received as investors are still wary of interest rate movements. The interest for the second $600 million tranche of seven-year bonds is 9.1 per cent. ''Although fixed rate papers are obviously not the favourites of investors these days, the borrower would want to lock in cost of funding for part of the project cost,'' said a dealer. China Development Finance Co is the arranger, with Schroders Asia, Oakreed and Wardley in association with HSBC Markets as co-lead managers. The papers were considered generously priced. ''Compared with the global 10-year fixed rate US dollar issue by the [Chinese] Ministry of Finance earlier in London, which is about 95 basis points above the London interbank offered rate when swapped to a floating rate, this one is quite attractive,'' said the dealer. The issue is expected to set a benchmark for Hong Kong dollar borrowings by quality Chinese enterprises, as the market equates risk for the bank with the country risk.