Hong Kong banks waive fees to boost investor participation in AAHK’s $640 million bond offering

Banks, including HSBC, Standard Chartered, and Bank of China, are offering various fee waivers for retail investors considering the subscription of Airport Authority Hong Kong (AAHK)’s HK$5 billion (US$640 million) bond.

HSBC, Standard Chartered, and Bank of China are among the financial institutions waiving a variety of fees for retail investors interested in the Airport Authority Hong Kong (AAHK)’s HK$5 billion (US$640 million) bond.

The bond, which opens for subscription from January 17 to 25, is aimed at funding AAHK’s third runway project, designed to increase the Hong Kong airport’s capacity by an additional 30 million passengers annually. HSBC, the largest bank in Hong Kong, plans to waive eight types of charges, including subscription fees, safe custody fees, and transaction costs, to encourage retail investors to participate in the offering.

Retail investors are being presented with an opportunity to secure a fixed interest rate from a high-quality issuer for 2.5 years, particularly at a time when anticipation suggests that interest rates have peaked. Eugene Ng, Managing Director of Debt Capital Markets and Investment Banking at HSBC Asia Pacific, expects the bond to be well-received. The 4.25% coupon and 2.5-year note will pay interest quarterly, and investors have the option for early redemption.

This marks AAHK’s first retail bond offering for the general public in two decades, with the funds raised directed toward the third runway project, a crucial development for the Hong Kong airport’s global aviation hub status.

Amid a quiet IPO market and limited policy support for private firms, investors are eyeing opportunities in the bond market. Bright Smart Securities, the largest local broker offering margin financing for IPOs, has committed to waiving 12 types of fees for investors, including subscription, custodian, and redemption charges.

Despite the potential impact on financial firms’ profit margins due to fee waivers, there is a recognition that attracting new customers through such incentives may lead to long-term business opportunities. The fee waivers come at a time when the IPO market in Hong Kong has been relatively quiet, making high-quality retail bonds, such as the one offered by AAHK, attractive to investors seeking low-risk opportunities with stable returns.

Last year saw a significant decline in fundraising from IPOs in Hong Kong, dropping 53.5% to a 20-year low of US$5.9 billion from 68 listings. The AAHK bond is expected to gain popularity, particularly with declining interest rates in the city and expectations of a rate cut later this year.

The bond’s quarterly interest payments, as opposed to the Hong Kong government’s retail green bonds with half-yearly interest payments, make it an appealing option for small investors.