Agenda

1
Agenda

1. Introduction (Background about HKMC)
2. Compare between US Mortgage Corporation with HKMC
3. How Retail Bond Issuance Programme works
4. Benefits and Limitation for Investing in the
   Programme
5. Recommendations for Improvement
6. Conclusion

2
HKMC - Introduction

• Hong Kong Mortgage Corporation Limited (HKMC)
• Established in March 1997
• Hong Kong-incorporated liability company
• Public sector entity
• Wholly owned by HKSAR Government through the
  Exchange Fund

3
Core Missions of HKMC

1. Enhance the stability of the banking sector --
   offer a reliable source of liquidity
2. Promote wider home ownership in Hong Kong
3. Facilitate the growth and development of the debt
   securities and mortgage-backed securities markets
   in Hong Kong

4
4 Major Businesses

1. Mortgage Purchase Programme
2. Mortgage Insurance Programme
3. Debt Issuance Programme
4. Mortgage-Backed Securitisation

5
Financial Performance
6
Financial Performance
323.9 x 2648m
323.9m
7
Comparison of HKMC and U.S. Mortgage
corporation(Fannie Mae )

• Mission
• Similar
• To promote wider home ownership
• Different
• To enhance the stability of the banking sector
  (HKMC)
• To facilitate the growth and development of the
  debt securities and mortgage-backed securities

8
Comparison of HKMC and U.S. Mortgage
corporation(Cont)

• Type of Company
• Wholly Owned by HKSAR through the Exchange Fund
  (HKMC)
• Shareholder-owned Company (Fannie Mae)

9
Comparison of HKMC and U.S. Mortgage
corporation(Cont)

• The Source of Fund
• Exchange Fund, debt securities Bonds issued
• Shareholder debt securities (Fannie Mae)

10
Comparison of HKMC and U.S. Mortgage
corporation(Cont)

• Primary Lender
• Most likely Commercial Bank e.g. Hang Seng Bank,
  Bank of China, DBS etc. (HKMC)
• Mortgage companies, savings and loans, commercial
  banks, credit unions, and state and local housing
  finance agencies. (Fannie Mae)

11
Comparison of HKMC and U.S. Mortgage
corporation(Cont)

• Secondary Market
• Placing backs also perform the role of market
  makers for the bonds, facilitating transactions
  in the secondary market. (HKMC)
• exclusively in the secondary mortgage market,
  where we help to ensure that money for mortgages
  is available to home buyer (Fannie Mae)

12
Retail Bond Issuance Programme

• Established in May 2004
• Debt securities are issued by HKMC through 19
  designated placing banks
• eg. Bank of China (Hong Kong) Limited,
• Citibank (Hong Kong) Limited,
• The Hongkong and Shanghai Banking
• Corporation Limited, etc.

13
How This Programme Being Indispensible to HKMC

• Enhance HKMCs fund-raising capabilities
• Promote the development of an active bond market
  in HK
• Provide high quality retail bonds to meet
  increasing investor demand

14
How investors apply ?

• Need both a bank account and an investment
  account
• May apply through following methods
• 1. Application in person through a
  designated branch of a placing bank
• 2. Application through internet
• 3. Application through phone banking
  facilities

15
What price will investor pay? (1)

• When applyApplication price handling fee of
  0.15 of application price
• Actual pay
• Subscription price (retail bonds allotted)
  handling fee of 0.15 of subscription price

16
What price will investor pay? (2)

• Application price
• 102 of the principal amount of each tranche of
  retail bonds applied for
• Min. HK50,000
• Subsequent increase in multiples of HK50,000
• Subscription Price
• is the actual purchase price
• Determined at or around 1130 a.m on the price
  fixing date

17
Reminders (1)

• HKMC does not issue individual certificates
• Not available to US persons
• Interest rate may affect the retail bonds price
• Interest rate ? ? retail bonds price ? (vice
  versa)

18
Reminders (2)

• If application price gt subscription price
• Relevant part of the application monies will
  be refunded
• If subscription price gt application price
• Successful applicants are required to make
  additional payment to make up the difference

19
How It Works?

• Agreements
• Trust deed
• Trustee DB Trustees (Hong Kong) Limited
• New supplemental trust deed
• Right to create and issue more notes of a
  particular series

20
How It Works?

• Agreements (Cont)
• Paying agency agreement
• Principal paying agent
• Bank of China (Hong Kong) Limited

21
How It Works?

• Agreements (Cont)
• Programme agreement
• placing bank agreement
• market maker agreement
• underwriting agreement
• Dealers and underwriters

22
How It Works?

• Issuance and Custody
• Issued in bearer form
• Each series represented by a single global note
• Central Moneymarkets Unit Service (CMU)

23
How It Works?

• Interest, Principal and Notice
• Accounts of the banks in CMU which are holding
  the notes
• Forward to their investors

24
How It Works?

• Buy, Sell and Cancellation
• Buy and sell at any price
• Purchases are made by tender
• Hold, resell or decide to cancel the notes at
  HKMCs choice

25
How It Works?

• Buy, Sell and Cancellation (Cont)
• Secondary trading market
• Not responsible for the establishment or
  maintenance

26
Benefits and Limitations for Investing Retail
Bond Issuance Programme

• Benefits
• Enlarged Placing Bank network

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27
Benefits

• Choices on tenor and return
• 2-year maturity3-year maturity 4-year
  maturity
• Established market making arrangement
• Quoting firm bid prices for the retail bonds

28
Limitations

• Additional handling fee 0.15
• Minimum denomination 50,000

29
Recommendations for Improvement

• Reduction on minimum application fee
• Issue certificates to investors for keeping
• Promotions through medias