Asia-Pacific Structured Finance Issue: Hong Kong Mortgage Corp’s US$404.8m CLO

IFR Awards 2023
2 min read
Morgan Davis

Building the future

Hong Kong Mortgage Corp’s debut project finance collateralised loan trade in May was strategic not only for the issuer, but also for Hong Kong.

The US$404.8m transaction was years in the making, as the government-owned entity spent time building its internal skillset and preparing for a structured trade that could bring new investors to project finance and bridge the funding gap for infrastructure in Asia.

HKMC, which buys mortgages from banks to help them free up liquidity, began eyeing the potential of the new product in 2018 when it established its infrastructure financing and securitisation division, following in the footsteps of now-established borrower Bayfront Infrastructure Management from Singapore. In February 2022, it decided it was time to pursue a sale.

The borrower, while Hong Kong-based, has a global reach, and its notes were backed by 35 bank syndicated project finance and corporate infrastructure loans to 25 projects in Asia-Pacific, the Middle East and South America. The transaction comprised five public tranches, one of which came with a sustainability label.

HKMC worked with its global coordinators ING, MUFG and Standard Chartered to explain the structure to investors, many of whom were first-time buyers in the asset class. Many investors from Asia in particular had not been involved in securitisation or project finance transactions before.

HKMC conducted a non-deal roadshow, giving investors plenty of time to ask questions and obtain internal approvals. Unusually, HKMC released a pre-issuance impact report that quantified the impact of the underlying loans in the sustainability tranche, providing extra transparency.

The sustainability tranche achieved a 10bp greenium over the conventional notes, beating the 5bp greenium achieved by Bayfront previously. Pricing also came inside equivalent US CLO trades.

A US$100m class A1-SU, the sustainability tranche, was priced at six-month term SOFR plus 160bp, and a US$199.6m class A1 conventional tranche at 170bp. A US$36.5m class B was priced at 250bp, a US$18.25m class C at 395bp, and a US$10m class D at 595bp. A US$40.43m subordinated tranche was retained by the issuer.

This was Hong Kong’s first publicly listed securitisation deal since the global financial crisis, and made use of a Hong Kong special purpose vehicle, rather than using a Singapore-based SPV as Asian securitisations tend to do.

HKMC plans to bring a structured deal annually, and its trailblazing in 2023 should spur other Hong Kong and regional issuers to fund infrastructure this way.

The Reg S trade was issued by Bauhinia ILBS 1 and sponsored by HKMC.