HSBC, Standard Chartered, Bank of China among lenders waiving fees for Hong Kong airport operator’s US$640 million retail bond

Banks and brokers are waiving a range of fees for retail investors eyeing Airport Authority Hong Kong (AAHK)’s highly anticipated HK$5 billion (US$640 million) bond, which opens for subscription on Wednesday.

HSBC, Hong Kong’s biggest bank, plans to waive eight types of charges for the airport operator’s bond, including subscription fees, safe custody fees and other transaction costs, to support retail investors subscribing to the offering from January 17 to 25.

“Given anticipation that interest rates are at a peak, it makes sense for retail investors to lock down such a rate from a high-quality name for 2.5 years,” said Eugene Ng, managing director of debt capital markets and investment banking at HSBC Asia Pacific. “The bond is expected to be well-received.”

The 4.25 per cent, 2.5-year note will pay interest quarterly. Investors can request early redemption from the AAHK, allowing them to get their entire principal plus interest due on the date of redemption.

This is AAHK’s first retail bond offering targeted at the general public in 20 years to fund its third runway, which will allow the Hong Kong airport to handle an extra 30 million passengers each year and strengthen its status as an international aviation hub.

Bright Smart Securities, the biggest local broker to offer margin financing for initial public offerings (IPO), said it would waive 12 types of fees for investors, including subscription, custodian and redemption charges.

Investors who open new accounts at Bright Smart to subscribe to the bonds, the brokerage said it would give each new client 20 units of Tracker Fund, 10 shares of HSBC and two shares of Nasdaq-listed football club Manchester United.

Other banks such as Bank of China (Hong Kong), Standard Chartered, ICBC Asia, Citibank, and Shanghai Commercial Bank are also offering a range of incentives for investors, including forgoing handling and custodian fees.

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Katerine Kou, chairwoman of the Hong Kong Securities Association, said brokers and banks are waiving fees with an eye on the future.

“The fee waivers could mean financial firms may not be able to make a profit from the deals, but could attract new customers who may bring long-term business opportunities,” Kou said.

“The IPO market is quiet at the moment, so high-quality retail bonds such as the one offered by the Hong Kong airport authority would be popular with investors as the risk is low and the returns are high,” she added.

Fundraising from IPOs in Hong Kong last year fell 53.5 per cent to a 20-year low of US$5.9 billion from 68 listings, according to Refinitiv data. The city dropped to eighth place last year in the global IPO table, the lowest since 2001 when it ranked No 14, compared with third in 2022.

Alson Ho, head of wealth management at Standard Chartered Hong Kong, expects the AAHK bond to be popular, pointing to the declining interest rates in the city amid expectations of a rate cut later this year.

Hong Kong’s one-month interbank rate, or Hibor, stood at 4.7616 per cent on Monday, compared with 5.3969 per cent a month earlier, according to data from the Hong Kong Association of Banks.

“Against this backdrop, the Airport Authority Hong Kong’s retail bonds could be an appealing option for retail customers who are looking for stable returns with relatively low risk,” Ho said.

Investors clamour to invest in Hong Kong airport’s perpetual bonds

The AAHK retail bonds’ quarterly interest payment versus half-yearly for the Hong Kong government’s retail green bonds is another attraction for small investors, said Jonathan Wan, deputy head of retail banking and wealth management department at ICBC (Asia).

“The retail bonds of AAHK only require a minimum investment of HK$10,000, which is a low threshold,” Wan said. “The more frequent interest payment, flexible features and low risks mean the bonds would be attractive.”

Daisy Chan Yin-hei, senior vice-president and head of the investment products department at Shanghai Commercial Bank, said the bond’s features – interest payment each quarter and flexible redemption – make it interesting.