TNAG-1310-FCO40-1667-Future-of-Hong-Kong-1984 — Page 190

HONG KONG LEGISLATIVE COUNCIL — 14 March 1984

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my budget speech on 29 February 1984 I said that I proposed to handle the et deficit expected in 1984-85 by raising recurrent revenue, by drawing down on our fiscal reserves and by a moderate degree of borrowing. I then outlined my intention of selling bonds. The bond issue, which I commend to you, will be structured along the lines of that made in 1975, i.e. in the form of fixed-rate Hong Kong dollar denominated bearer bonds with a term of five years.

In order to benefit from prevailing relatively low interest rates, preparations began a few weeks ago and work has progressed satisfactorily. I propose that the bonds be offered for sale on 30 March 1984 with tenders closing on 9 April. They will have a face value of $50,000 and interest will be payable half yearly. It is, however, premature to decide now on the coupon and the minimum tender price, which should for obvious reasons be determined at the latest possible

moment.

In considering tenders, those with the highest offered prices will be accepted to the extent required to attain the amount we wish to raise. This is subject, as always, to the provisions that the Government reserves the right to accept or reject any or all tenders in whole or in part and that no tender will be considered where the price offered is less than the minimum price. The issue price will be the price of the lowest tender or tenders accepted whether accepted in whole or in part. I will explain the proposition by example. Let us suppose that $500 million worth of bonds are tendered at, say, 105 per cent of the face value, $500 million at 104 per cent and $500 million at 103 per cent. As we only need one billion dollars, those who tendered at 105 and 104 would receive a full allocation and tenders priced at 103 would be rejected. All successful tenderers would pay for the bonds at the lowest accepted price of 104. This is an over simplification, but the example will illustrate how the pricing arrangements work. Where the cheque accompanying a successful tender exceeds the amount required, the surplus after providing for the value of bonds allotted will, of course, be refunded.

It is intended that the bonds will be specified as liquid assets under the Banking and Deposit-taking Companies Ordinances. Interest payments as well as profits o the sale of the bonds will be exempt from profits tax and interest tax.

I propose that the net proceeds of the bond issue, after defraying expenses, should be credited to the general revenue in the first instance for subsequent transfer to the Capital Works Reserve Fund for the purpose of productive capital investment. The issue will, of course, provide an opportunity for investment in the future of Hong Kong.

Sir, I beg to move.

Question put and agreed to.