“We want to issue the retail bonds to give Hong Kong residents a chance to participate in the third runway project,” Julien Lee, executive director of finance at AAHK, said at a media briefing on Friday.

The retail bond’s interest rate is slightly higher than that offered to institutional investors, he added.

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.

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

The HK$4 billion, 3.5-year bond sold to institutional investors on Tuesday carries an interest rate of 3.83 per cent. However, AAHK’s retail bond’s interest rate is lower than the 4.75 per cent green bond offered by the Hong Kong government in September.

Hong Kong residents will be able to subscribe to the notes in increments of HK$10,000 at placing banks, securities brokers or the Hong Kong Securities Clearing Company from 9am on January 17 until 2pm on January 25. The bond will be issued on February 5, followed by a listing on the Hong Kong stock exchange the next day.

Still, Bank of China (Hong Kong) (BOCHK), which together with HSBC is the co-arranger of the deal, expects the retail bond to be popular with investors.

“We expect the market reaction will be positive, and the possibility for oversubscription is high,” said Arnold Chow, deputy general manager of the personal digital banking product department at BOCHK, at the same briefing.

Chow said the interbank interest rates and the time deposit rates offered by banks have been dropping noticeably since December, so the 4.25 per cent interest rate was attractive.

“We believe the US rate hike has peaked, with the general expectation of a rate cut in the second half of this year,” Chow said. “The AAHK retail bonds provide a very good possibility to lock in returns for a relatively longer tenor.”

The early redemption option also enhances the attractiveness of the AAHK retail bonds, Chow said, as it allows investors the flexibility to exit without any losses.

“The bonds are suitable for those who want to invest in low-risk, relatively high-return products. BOCHK will allow investors to subscribe to the bond at its over 170 branch network as well as through digital channels,” Chow said.

William Shek, managing director and head of markets and securities services at HSBC Hong Kong, said the deal will further diversify and strengthen the retail bond market in the city.

“With the anticipation of the rate hike cycle nearing its end, the issuance will provide retail investors with an appealing option that offers stable returns in the short to medium-term,” Shek said at the briefing.

The airport authority frequently issues US dollar bonds, raising US$3 billion last year and US$4 billion in 2022.

The AAHK completed most of the financing for the third runway through a series of bond offerings to institutional investors during the Covid-19 pandemic, which will be supplemented by the retail bond.

The authority’s cash flows are also recovering after travel gradually returned to normal since the border reopened in January last year.

Traffic at Hong Kong airport has recovered to 80 per cent of pre-pandemic levels and is expected to reach pre-pandemic levels by the end of 2024, AAHK said in a statement on December 27.

The airport saw a new post-pandemic record of 164,000 passengers on December 23 during the Christmas holiday travel peak.

“Our financing focus in the next few years will shift to refinancing,” AAHK’s Lee said.