Hong Kong Aims at USD3.1bn Securitisation Market

14 Jan, 2020 20:34
source: Singularity Financial

Author: Carol

Financial institutions and regulators in Hong Kong are discussing the possibility of opening up the securities market to promote the city as a regional securitization hub.

On Monday (Jan 13, 2020), the Asia-Pacific Structured Finance Association, the Hong Kong Institute of Bankers and the Asian Academy of International Law jointly issued a white paper, discussing the possibility of issuing more lower grade infrastructure and small and medium enterprises bond for institutional investors.

Anthony Francis Neoh, the chief adviser to the China Securities Regulatory Commission, told the reporter that associations are going to talk to Chinese regulators in the next three to six months. “We are going to discuss it with the state council level first,” Neoh said.

Neoh said the securitisation proposals will help infrastructure projects and SMEs in Guangdong-Hong Kong-Macao Greater Bay Area to get funding from institutional investors directly. Institutional investors such as insurance companies didn’t get access to bond and loans with lower-grade as some SMEs and infrastructure projects failed to get the international investment-grade level.

But surely there is an appetite for such investment among investors. “The market should really open up and remove hurdles for professionals,” said Kyson Ho, managing director and head of structured finance at HSBC.

The proposal in the report already got support from the Hong Kong Monetary Authority, according to Neoh, who is also the advisor of the released report, titled “Hong Kong – a Securitization Financing Hub for Infrastructure and Small and Medium Enterprises”.

“We are also talking to the Hong Kong Stock Exchange as well. But HKEX hasn’t come to a conclusion yet because we don’t have a product at the moment,” Neoh said. “The question is that the listing cost of these securities will be pretty low.”

Most of the issuer of these securities will be local infrastructure and SMEs, and they can’t afford a high listing cost that HKEX may charge. This is one major discussion between the associations and HKEX.

James Pedley, the legal consultant at Clifford Chance, said at the press conference that the report has set out a number of steps to be taken to further implement laws, regulations tax rules and market infrastructure to support such change. The report proposed that Hong Kong should change some of the regulations to allow a faster clearing system and lower tax for these securities issuance.

There is a total $3.1 billion funding gap between the infrastructure projects in the world and the actual funding injected. Hong Kong has the edge of becoming a securitisation hub as it locates right next to the second-biggest bond market in the world.

Promoting Hong Kong in securitisation will help the local SMEs and attract fresh funding from all around the world, said Carrie Leung, CEO of Hong Kong Institute of Bankers. Such a proposal will aim for projects in Greater Bay Area and Belt & Road Initiatives first, she said.

Howard Lee, deputy chief executive of the Hong Kong Monetary Authority, commented that market participants should have more options when choosing the right asset class to invest. And HKMA will roll out more implementation and discussion in the next six months time.