Hong Kong’s first retail green bond drops in trading debut, in a lacklustre start for backers of environmentally sustainable investment

·3-min read

Hong Kong’s first green bond for retail investors slipped on its first day of trading, a disappointing start for supporters of environmentally sustainable investments following its oversubscription two weeks earlier.

The three-year note started trading at HK$99.70 per HK$100 bond on Thursday. The bond offers a 2.5 per cent return on a minimum investment of HK$10,000 (US$1,274). Its HK$20 billion offering was touted by Hong Kong’s government to be the biggest retail green bond issuance globally thus far.

It was a hit among retail investors, attracting 493,000 investors to pour HK$32.88 billion (US$4.2 billion) into the offering, translating to an oversubscription rate of 1.2 times on May 6.

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“The selling pressure is a bit heavy because there are a lot of short-term players subscribing and selling on the first day, expecting to make 3 to 5 [Hong Kong dollars] on a HK$100 dollar bond,” said Louis Wong Wai-kit, director of Phillip Capital Management.

Finance officials and executives during the 15 February 2022 press conference to launch Hong Kong’s first retail green bond, featuring (L to R) Bank of China’s Deputy General Manager Arnold Chow, HSBC Managing Director Head of Greater China Fixed Income Wong Cheuk, HKMA Deputy Chief Executive Edmond Lau, Financial Secretary Paul Chan Mo-po, Secretary for Financial Services and the Treasury Christopher Hui Ching-yu, Under Secretary for the Environment Tse Chin-wan, and Water Supplies Department Assistant Director/New Works Irene Pang. Photo: Jonathan Wong
Finance officials and executives during the 15 February 2022 press conference to launch Hong Kong’s first retail green bond, featuring (L to R) Bank of China’s Deputy General Manager Arnold Chow, HSBC Managing Director Head of Greater China Fixed Income Wong Cheuk, HKMA Deputy Chief Executive Edmond Lau, Financial Secretary Paul Chan Mo-po, Secretary for Financial Services and the Treasury Christopher Hui Ching-yu, Under Secretary for the Environment Tse Chin-wan, and Water Supplies Department Assistant Director/New Works Irene Pang. Photo: Jonathan Wong

Still, the weak performance is not a major worry for retail investors that can hold until maturity, as “the returns are not bad, [given that it is] principal guaranteed,” Wong said.

The bond will pay interest every six months, based on the inflation rate over that half-year period. It is guaranteed at a minimum of 2.5 per cent, which is more generous than the minimum 2 per cent rate on similar inflation-linked bonds known as iBonds. The interest rate for its first payout will be determined on November 4 and issued on November 18.

Inflation in Hong Kong stood at 1.7 per cent in March, while the government’s forecast for this year’s inflation was at 2 per cent.

“With an environment of rising interest rates, bonds are more vulnerable,” said Wong. “But with fixed deposits in Hong Kong offering less than 1 per cent, at least the [green bonds] get you something more.”

Hong Kong’s monetary authority raised the city’s official base lending rate twice this year, in lockstep with the US Federal Reserve to usher in an era of rising interest rates. Lending rates rose by 50 basis points to 1.25 per cent two weeks ago, while banks in Hong Kong have kept their prime rates unchanged for now.

The launch of retail green bonds was first announced in February by Financial Secretary Paul Chan Mo-po. The government had intended to sell HK$6 billion worth of green bonds from March 1, paying 2 per cent interest, before delaying it due to the fifth wave of the coronavirus outbreak.

In an earlier statement on Monday, Chan said the retail green bonds “provided the public with a green investment choice with a steady return”, while developing the local retail bond market.

Green bonds are fixed-income financial products designed to fund environmentally friendly projects. The offering forms an important part of Hong Kong’s plan to increase the use of wind and solar power, and waste-to-energy projects to generate electricity as the city strives to achieve carbon neutrality by 2050.

The government has issued over US$7 billion worth of green bonds to institutional investors, while this new offering is solely for retail investors.

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