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BC-HONGKONG-BUDGET
: BC-HONGKONG
UDGET
Ms Marde Bol Mer Stand
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Manen 7/3.
ISSUE BONDS TO FUND AIRPORT, OFFICIAL SAYS
By Victoria McGlothren
CC. T. FURNESS HILD RFCO
HONG KON March 6, Reuter Hong Kong plans to issue two- to three-year bonds later this year to help fund a planned new airport.
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**I have decided that a well-structured and managed borrowing programme through the issue of short-term government bands would now be appropriate for Hong Kong, Financial Secretary Sir Piers, Jacobs said in his 1991-92 budget speech to the colony's Legislative Council on Wednesday.
A government official, who spoke on condition of anonymity, told reporters: "This borrowing would play a significant role in funding the new airport.""
The government has estimated the entire cargo port and airport complex and supporting infrastructure will cost 127 billion dollars (16.2 billion U.S.) at 1989 prices.
Beijing, which resumes sovereignty over Hong Kong in 1997 has attacked that amount as too high.
**To ensure there is a reasonably continuous spectrum of maturities for trading and hedging purposes, I intend, for the programme of government bonds, to start with issues of two, or possibly three-year maturities,"" Jacobs said in his budget speech.
While the government would initially issue shorter-term, two- to three-year bonds, probably in September or October, it would aim gradually to lengthen bond maturity and eventually to approach lenders on the international market the official said. Financial industry sources said they expected government bonds to produce the welcome side-effect of broadening the British colony's underdeveloped capital market.
However some noted that the bonds would bear ever greater risk as their maturity dates approach, and eventually pass, Hong Kang's 1997 return to Chinese sovereignty. The government official acknowledged this
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**We are still in discussions with China, the official said. He said the longer the bonds, the more political risk
attached to them in the run-up to 1997.
"Obviously if we issue seven- to 10-year bonds, there will
,
be political implications," the official said.
**At some stage, these bonds are going to have to roll beyond 1997. But we believe we have plenty of time to move towards maturities of five years and 10 years and, in the meantime, establish the Hong Kong government as a borrower of quality.
In the short term, the bonds will help to nourish an anaemic local capital market, financial industry sources said.
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* "The government short-term bonds will strengthen the local capital market by creating new products and thereby expanding the market, said Francis Yuen, chief executive of the Stock Exchange of Hong Kong.
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"There are very few high-quality borrowers in the local fixed-rate debt market, Yuen said.
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Industry sources said the government would probably be viewed as a strong borrower on the local market, as well as a catalyst for enhancing the local capital market and, in turn, Hong Kong's overall image as a world financial centre.
**Of course, the government must carefully study using short-term- money to finance the long term debt,'' Yuen said.
The official told reporters the government was well
a need to be prudent in its borrowing.
aware of
**We don't like moving too swiftly and suddenly,'' he said. **We are not thinking of borrowing imprudently. Any borrowing is for the capital account, not for recurrent expenditures.
·"Pirst of all, we have to build up the market appetite,
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which is what the Exchange Fund Bills have been achieving NICELY./HIE