This general view shows cars on a motorway running between commercial buildings between the Admiralty and Wanchai areas of Hong Kong island, and a view of Kowloon (back, left) across from Victoria Harbour, in Hong Kong, May 12, 2021. (ANTHONY WALLACE / AFP)

Assets of Hong Kong’s Bond Fund have swelled to HK$152.84 billion (US$19.61 billion) for the year ended March 31, from HK$121.05 billion in the year before, inching gradually toward its projected HK$191.5 billion borrowing capacity forecast to be reached by end 2022.

Total receipts of the fund, which shows funds raised under the Government Bond Program, are at HK$53.9 billion. 

The surplus is HK$31.79 billion, a report on Wednesday on government accounts shows.

Bond issuances have generated HK$49.3 billion for the fund, or 91 percent of the total, while investment income is HK$4.6 billion, or 9 percent of the receipts.

The details of the fund’s assets and liabilities were tabled in the Legislative Council this morning by the Director of Audit John Chu.

READ MORE: HK's new Silver Bonds to target more seniors

The Bond Fund was set up on July 10, 2009 by a resolution under section 29(1) of the Public Finance Ordinance (Cap. 2) on July 8, 2009.  The Hong Kong Monetary Authority assists in managing the fund’s investment.

The fund, which is placed with the Exchange Fund for investment, is not a part of the government’s fiscal reserves and is managed separately from government accounts. The fund’s liabilities of HK$126.93 billion as at March 31, 2021 include outstanding bonds with nominal value of HK$119.16 billion and alternative bonds with nominal value of US$1 billion.

Outstanding bonds include Silver Bonds with nominal value of HK$2.93 billion (HK$2.86 billion in 2020).

Payments of the fund are HK$22.1 billion. This includes repayment of bonds of HK$20.2 billion, accounting for 91 percent of the total. The remainder is interest payment for bonds, periodic distribution payments for alternative bonds and others, of HK$1.9 billion.

A resolution was proposed by lawmakers in April this year under section 3 of the Loans Ordinance to authorize the government to borrow for the Bond Fund amounts not exceeding HK$300 billion. Borrowings will be credited to the fund.

In the February budget, Financial Secretary, Paul Chan Mo-po announced a plan to expand the size of the Government Bond Program from HK$200 billion to HK$300 billion

The April resolution replaces the previous resolution passed by LegCo under the Loans Ordinance on May 22, 2013, setting the current ceiling of borrowings of HK$200 billion.

In the February budget, Financial Secretary, Paul Chan Mo-po announced a plan to expand the size of the Government Bond Program from HK$200 billion to HK$300 billion.

Chan made the proposal to raise the borrowing limit, to help promote the sustainable development of the bond market in the city.

Hong Kong is the leader in Asia as the arranger of international bond issuance, accounting for 34 percent of transactions, or US$196 billion of Asian international bonds in 2020, followed by the United States (18 percent), the UK (17 percent) and Singapore (5 percent), a report from the trade body, International Capital Markets Association shows. The data are from Dealogic, as of January 2021. The main location of arrangement is the jurisdiction which more than 50 percent of the lead managers of a deal comes from.

In 2020, US$575 billion worth of international bond issuances were arranged in Asia. 

Asia’s bond market, however, is relatively small compared with the United States and European markets.

ALSO READ: HKSAR govt welcomes launch of Bond Connect's southbound leg

Before 2010, mandates were mostly granted to UK-based and US-based banks.

Since then, banks based in Asia, especially Hong Kong, have continued to win mandates for international bond issuance.

That Hong Kong continued secure mandates, could mainly be attributed to the increasing share of offshore issuances from China, and Hong Kong’s role as an established hub for international Chinese transactions, the ICMA says, citing market participants.

The ICMA is the trade group for the international capital market with about 600 members from more than 60 countries, including banks, issuers, asset managers, central banks, infrastructure providers and law firms.

Hong Kong is also a leader in arranging first-time bond issuance, accounting for 75 percent (US$18 billion) of the Asian market, compared with Singapore (9 percent) and the UK (5 percent).

Aiming at the further development of the domestic bond market, Financial Secretary Chan said in his February budget that he would lead a steering group to create a policy and strategy roadmap.

Also, the northbound Bond Connect has been successful in the four years since launch.

In 2020 alone, the average daily turnover was nearly 20 billion yuan (US$3.11 billion), accounting for 52 percent of foreign investors’ total turnover in the China Interbank Bond Market market.

Bond Connect has also helped to speed up the development and liberalization of the mainland’s bond market after foreign investors were allowed direct access in early 2010.

As for the Government Bond Program, under its institutional part,  bonds - mostly denominated in Hong Kong dollars - with tenors ranging from three to 15 years are tendered regularly to ensure a steady supply of public debt paper to meet the demand from institutional investors, such as pension funds, banks, and insurers. 

Under its retail part, retail bonds are issued to cater to the public demand. These include the iBond, an inflation-linked retail bond, and Silver Bond for seniors.

The total outstanding amount of bonds under the Government Bond Program was HK$124.3 billion as of end 2020, government data show. This includes 11 institutional issues of HK$80.6 billion, three batches of Silver Bond totaling HK$20.9 billion, one batch of iBond of HK$15 billion, and one batch of US dollar sukuk (Islamic bond) with an issuance size of US$1 billion.