Hongkong Electric and URA tap local market
Two Hong Kong issuers, Hongkong Electric and Urban Renewal Authority, successfully raised bonds in the local currency, adding to the growing activity in the domestic market.
Hongkong Electric sold its debut Hong Kong dollar bond on Monday, a HK$2bn (US$256.8m) 3.3% five-year note. Urban Renewal Authorities raised HK$8bn on Wednesday from a dual-tranche bond comprising HK$5bn 2.95% five-year and HK$3bn 3.48% 10-year tranches. All of the senior bonds were sold at par.
The Asian Development Bank also printed a HK$5bn 2.789% three-year bond on Tuesday.
Bankers said all three deals were well supported by investors, and while they targeted the same audience, the market has shown it has sufficient liquidity to absorb the supply.
"The deals were spread over three days, so they're not competing per se," said a banker involved. "It's hard to know how the market will be in a week and how rates are going, so we suggest issuers take the window while they can."
The local currency is a natural choice for the two domestic names, which benefit from cheaper funding costs compared to the US dollar market as liquidity is quite strong, said bankers.
David Yim, head of capital markets for Greater China and North Asia at Standard Chartered, said there has been a movement into Asian currencies, which offer investors a good opportunity to diversify away from the dollar. As part of this trend, more foreign investors are swapping US dollars into the local currency to buy bonds from Hong Kong issuers, he said.
"It’s not common to see three Hong Kong dollar deals in a row and the response to all the deals indicates the depth of the HKD market. The Hong Kong dollar market has the potential to grow, and I believe that more high-quality household names, international and local, not just SSAs, can tap the market," Yim said.
Fifteen public Hong Kong dollar bonds were printed by both international and domestic issuers last year, up from eight in 2024, according to IFR data. The Hong Kong government and Hong Kong Mortgage Corporation sold 30-year bonds, while the other deals had short to medium tenors.
Hongkong Electric is a rare corporate in the local market, which is dominated by sovereign and quasi-sovereign issuers.
The first banker said the utility has access to different financing options, but Hong Kong dollar bonds offer a competitive absolute yield.
Despite not having sold a bond in any currency for more than five years, it successfully completed an intraday execution. The leads were confident that it would get a good reception as one of the two main electricity suppliers in the city.
Hongkong Electric last tapped the bond market in 2020, when it sold a US$500m 1.875% 10-year bond.
Orders grew to HK$2.5bn before noon and reached HK$4.65bn at final guidance. With Hongkong Electric only aiming to raise HK$2bn, the leads tightened the pricing by 32.5bp from the initial guidance of the 3.625% area.
The first banker said it was hard to pinpoint fair value because of the lack of clear comparables, but said the deal achieved very tight pricing with no new issue premium.
Final orders were over HK$2.95bn, including HK$790m from the lead managers, from 31 accounts.
The deal was solely allocated to Asian investors. Banks and financial institutions bought 74%, asset managers 25% and private banks 1%.
The Reg S notes will be issued by Hongkong Electric Finance and guaranteed by Hongkong Electric. They will be rated A– by S&P, in line with the guarantor.
Proceeds will be used for general corporate purposes, including for refinancing.
HSBC and UBS were joint global coordinators, bookrunners and lead managers.
URA returns
URA attracted strong investor demand thanks to its AA+ (S&P) rating, the same as the Hong Kong government. Investors brushed away concerns about the company being loss-making in the past three years.
"It's a high-quality quasi-sovereign name with strong government support. It's a very rare name with a good following from investors," said the first banker.
URA capped the deal size at HK$8bn to match its funding needs, despite drawing a book of HK$25bn at final guidance. The capped size and strong demand allowed it to tighten by 45bp and 42bp from initial guidance, more than it expected.
"This deal did better than the debut issue in August 2024 in terms of the order book, number of investors, and the yield was lower. It ticks all the boxes,” said Yim. He said the statutory body paid a negative new issue premium.
The agency raised HK$12bn in 2024, split between HK$4bn 3.35% three-year, HK$5bn 3.45% five-year and HK$3bn 3.55% 10-year bonds.
The latest bonds were trading around par in the secondary market.
Final orders for the five-year totalled HK$12.3bn, including HK$5.855bn from the leads, from 60 accounts. Hong Kong took 85% and others 15%. Banks and financial institutions accounted for 80%, asset and fund managers and private banks 17% and insurers 3%.
For the 10-year, the final book reached HK$9.3bn, including HK$2.75bn from the leads, from 65 accounts. Hong Kong bought 82% and others 18%. Banks and financial institutions took 48%, central banks and official institutions 10%, asset and fund managers and private banks 37% and insurers 5%.
Bank of China (Hong Kong), Credit Agricole, HSBC, Standard Chartered and UBS were joint global coordinators, as well as joint bookrunners and lead managers with Citigroup, DBS Bank, ICBC (Asia), JP Morgan and Mizuho. Agricultural Bank of China Hong Kong branch, ANZ, Bank of Communications, Barclays, BNP Paribas, Bank of America, CMB Wing Lung Bank, Goldman Sachs (Asia), Morgan Stanley and OCBC were joint lead managers.
The Reg S senior bonds will be rated AA+ by S&P.
The proceeds will be used for capital expenditure on urban renewal projects as well as general corporate purposes. It expects to spend around HK$46bn on projects in the five years to March 31 2030, according to its bond prospectus.