Hong Kong to unveil details on pilot scheme to boost bond market as soon as next month
The plan includes subsidies to encourage issuers to offer bonds in the city, as well as a government issue of green bonds
The Hong Kong Monetary Authority will announce next month details of a grant scheme to support first-time bond issuers, as part of a government initiative to expand the city’s bond market, according to a senior official.
Vincent Lee Wing-sing, an executive director at the HKMA, the city’s de facto central bank, told reporters on Friday that matters still to be ironed out included a clear definition of first-time issuers, and whether multiple issuers within one umbrella group of companies would be allowed to claim benefits more than once.
“We hope to announce the details in May,” Lee said.
The HK$2.5 million (US$318,606) three-year pilot scheme aims to cut the costs of issuing bonds in the city by giving grants to issuers, so as to attract more of them to sell bonds in the city. Hong Kong faces competition from other places for the investor dollar, particularly Singapore, which launched its own grant scheme for bond issuers in June 2017.
Hong Kong’s plan also includes extending a tax exemption on debt instruments from those with an original maturity of not less than seven years to those of any duration. That would mean Hong Kong investors would enjoy tax concessions on interest income and trading profits from a wider range of debt instruments, the government has said.
However Lee said this step may take a longer time as it requires the approval of Hong Kong’s Legislative Council.
Also part of the planned boost to the local bond market, the third largest in Asia excluding Japan after mainland China and South Korea, is the issue of green bonds, an idea first announced by the city’s financial secretary in the budget in late February.
The government plans to issue up to HK$100 billion worth of green bonds to fund “green public works” projects. The plan is pending approval by the Legislative Council, after which one or more bond arrangers would be appointed to handle the sale, Lee said.
“The target is still very much within the financial year of 2018-19 as set out in the [government’s] policy address and the budget speech,” Lee said.
“This green bond issue will have a demonstration effect that shows the government’s commitment to promoting sustainable economic development in Hong Kong, and will help attract other [local or overseas] issuers to issue green bonds in Hong Kong,” he added.
The government also plans to subsidise qualified issuers of green bonds of at least HK$500 million in size to offset the cost of obtaining an external review of the bond’s green credentials by the government-owned Hong Kong Quality Assurance Agency. The grant ceiling is HK$800,000 per issue.
Experts have said that Hong Kong has the potential to become a major centre for green bonds, particularly in linking mainland Chinese issuers with overseas buyers.
While green bond issuance in Hong Kong fell to US$313 million last year from US$1.1 billion in 2016, according to Dealogic, Lee said issuance so far this year had already far exceeded full-year volumes of last year and 2016, thanks to a US$1.5 billion issue by the European Investment Bank and a HK$1 billion bond by the World Bank earlier this month. The Asian Development Bank also issued a green bond in the city last month.