(From left) William Shek, managing director and head of markets and securities services; Julian Lee Pui-hang, finance executive director at the Airport Authority Hong Kong; and Arnold Chow, deputy general manager of the personal digital banking product department at Bank of China (Hong Kong), attend a news conference on retail bonds issuance on Jan 5, 2024. (ZHANG TIANYUAN / CHINA DAILY)

HONG KONG – The Airport Authority Hong Kong announced on Friday the launch of its first-ever local currency-priced retail bonds worth up to HK$5 billion ($640.2 million), available to eligible Hong Kong residents to finance the construction of a third runway at Hong Kong International Airport.

The offering presents a 2.5-year bond with the coupon set at 4.25 percent, payable quarterly. The issuance is open to people holding a valid Hong Kong identity card. Retail investors will be able to buy the bonds for as little as HK$10,000, which will be sold on Jan 17-25.

The move came hot on the heels of the airport authority’s initial local-currency bond offering on Wednesday, which was well-received by the market with an oversubscription rate of 2.75 times and also aimed at funding the third runway.

Julian Lee Pui-hang, finance executive director at the Airport Authority Hong Kong, said the third runway project requires significant funding, and that he hoped to involve the public in financing it through the issuance of retail bonds.

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According to the airport authority’s official website, between fiscal years 2019-20 and 2022-23, the total debt to fund the third runway expansion surged from HK$5.2 billion to HK$102.8 billion. The airport authority issued debts in US dollars with $3 billion raised last year following a $4 billion issuance in 2022.

There has not been a retail bond issuance by any institution in Hong Kong since 2008, making it an opportune time.

Julian Lee Pui-hang, Executive Director (Finance), Airport Authority Hong Kong

He noted that the airport authority’s overall financing costs, including this issuance, are at a manageable level of 3 percent.

“There has not been a retail bond issuance by any institution in Hong Kong since 2008, making it an opportune time,” Lee added. 

Hong Kong Securities Clearing Co, HSBC Holdings and Bank of China (Hong Kong) Ltd are leading the retail bond sale. The dealers struck an upbeat note on the bond’s subscription. 

The bond issuance is likely to be oversubscribed due to the recent significant drop in the HIBOR rate — the cost for banks to borrow local dollars from each other for a month — and a sharp decline in bank deposit interest rates, making the bond’s interest rate attractive, said Arnold Chow, deputy general manager of the personal digital banking product department at Bank of China (Hong Kong).

With expectations that US interest rate hikes have peaked, and with market uncertainties weighing on investors’ portfolios, Chow anticipates that the coupon rate on this batch of retail bonds will attract at least 200,000 applicants.

William Shek, managing director and head of markets and securities services, Hong Kong, HSBC, said that the bond issuance “is set to further diversify and strengthen the retail bond market in Hong Kong”. 

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“With the anticipation of the rate hike cycle nearing its end, the issuance will provide retail investors with an appealing option that offers stable returns in the short- to medium-term,” Shek said. 

The bond sales have come as Hong Kong’s airport passenger traffic has rebounded to about 80 percent of its pre-pandemic level, according to the airport authority’s statement released on Dec 27. Passenger traffic at the airport is expected to fully recover to the pre-pandemic level by the end of 2024, it said.

Contact the writer at tianyuanzhang@chinadailyhk.com