The Hong Kong government has opted for a decidedly touchy-feely team to handle its first securitization. With its emphasis on enticing retail punters into the local bond markets the territory's government has opted for HSBC and Citibank to act as arrangers on the much-hyped tunnels deal.
Legislators passed a resolution authorizing the deal just over a week ago and on Friday Frederick Ma, the secretary for financial services and the treasury, hired the two banks to handle the deal, saying that he expected them to widen the distribution of the bonds as much as possible.
Having advised the government on the structure of the transaction HSBC's appointment comes as no surprise. But few securitization professionals were tipping Citi to pick up the other half. High-profile government mandates have typically favoured banks such as UBS and Goldman Sachs.
Citi's presence has prompted rumours that the two banks pitched jointly for the deal. HSBC's ability to distribute any kind of bonds in Hong Kong is unquestioned, but despite its promising start - last year's deal for the Hong Kong Mortgage Corporation and a high-profile offer backed by its own taxi loan receiveables - the securitization team is still relatively young. By teaming up the two banks offer the government a tantalizing opportunity to further its goal of attracting mom-and-pop investors to a product that they might otherwise find intimidating.
At the same time, Citi and HSBC offer more than just a friendly face. When plans for the deal were first announced sceptics thought it unlikely the government could achieve the twin goals of maximizing revenue and deepening retail involvement in Hong Kong's bond market. But few of them had contemplated the formidable pairing of Citi and HSBC. Their vast network of institutional clients ensures they will also be able to help the government raise as much cash as possible to fill the hole in its budget.
The bonds, which are expected to raise about HK$6 billion ($770 million), will be backed by revenue generated from the government's five toll-paying tunnels and the Lantau Link, which comprises the Tsing Ma bridge, Ma Wan Viaduct and Kap Shui Mun bridge. On an average day the Lantau Link carries 38,000 vehicles while the five tunnels - Aberdeen, Cross-Harbour, Lion Rock, Shing Mun and Tseung Kwan O - help almost 400,000 vehicles negotiate Hong Kong's mountains and deep-water channels.
The income they generate is both substantial and stable, and therefore ideally suited for packaging to ABS investors. "A figure of six billion is not unrealistic at all," says a banker familiar with the deal. In total the bridges and tunnels contribute net revenues of about HK$1 billion a year to the government purse. The government plans to schedule HK$600 to HK$700 million a year for repayment of principal and interest.
Perhaps more important for an initiative designed to appeal to retail investors, the assets backing the deal are a highly visible feature of everyday life in the territory.
Ma said in a statement that he hopes preparations for the deal to be completed by the end of April.
