Hong Kong Plans to Sell HK$10 Billion Linkers in Fifth Such Sale

Hong Kong’s government plans to sell as much as HK$10 billion ($1.3 billion) of inflation-linked bonds to local residents, the fifth issuance of such debt since a debut offering in 2011.

The linkers “have been well received by the public and helped promote the retail bond market,” John Tsang, Hong Kong’s financial secretary, said in his budget speech to lawmakers Wednesday. Interest payments on the notes are based on the average inflation rate over the previous six months, and the Hong Kong Monetary Authority will announce details “in due course,” he said.

Consumer prices may climb 3.5 percent this year, compared with 4.4 percent in 2014, Tsang said. The linkers due August 2017 sold last year traded at HK$105.1 as of 11:58 a.m. in Hong Kong, down from a peak of HK$105.95 on Aug. 28 last year. The notes paid 4.95 percent interest for the six months through December.

Hong Kong first introduced inflation-linked bonds to help citizens preserve purchasing power and boost the local debt market. Demand for the securities receded last year on anticipation that the Federal Reserve would soon end its near-zero interest-rate policy, which the city has to follow as its currency is pegged to the dollar. Slower economic growth in China also led to lower expectations of price gains.

The government received HK$28.8 billion in subscriptions from 488,170 people for a HK$10 billion linker sale last year, according to the HKMA. In 2013, there were HK$39.6 billion subscriptions from 520,823 people for an issuance of the same amount.

Hong Kong “will consider actively a further sukuk issuance when market conditions are favorable,” after a debut $1 billion sale of the Islamic debt last year, Tsang said. He didn’t give a timetable for the potential issuance.

The city attracted orders 4.7 times the amount last year for the sovereign sukuk. They were allocated to more than 120 global institutional investors, with 47 percent in Asia, 36 percent in the Middle East, 11 percent in the U.S. and 6 percent in Europe, according to the government.

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