The Hong Kong Mortgage Corporation (HKMC) announced on September 11 the successful completion of its second infrastructure loan-backed securities (ILBS) issuance amounting to US$423.3 million.
The deal was executed through a special purpose vehicle (SPV), Bauhinia ILBS 2 Limited (Bauhinia 2), and it follows the success of HKMC’s first ILBS offering (Bauhinia 1) amounting to US$404.9 million in May 2023.
The Bauhinia issuances offer professional investors exposure to a diversified portfolio of project and infrastructure loans across multiple geographies and sectors.
HKMC executive director and chief executive officer Raymond Li says the success of Bauhinia 2 issuance demonstrates the investors’ growing interest in the infrastructure loan asset class. “The issuance further supports the development of Hong Kong as an infrastructure financing hub, facilitating inflow of market capital to high-quality infrastructure projects, and expanding the securitization market in Asia,” he adds.
Bauhinia 2 issuance received a strong investor response, with some repeat investors showing increasing comfort with the asset class and expanding their investment across a wider range of note classes, and an expanded universe of investors joining this space. The expanded investor base is well diversified, including insurance companies, pension funds, securities firms, and local and international financial institutions.
Anchor investor
Asian Infrastructure Investment Bank (AIIB), through its US$300 million investment programme into the HKMC’s ILBS issuance, participated in Bauhinia 2 as an anchor investor. AIIB’s investment programme continues to fulfil its objective to mobilize private capital into the infrastructure sector.
Bauhinia 2 has a portfolio of 28 project and infrastructure loans across 26 individual projects spreading across 14 countries and 10 sub-sectors, with a total value of approximately US$423.3 million. In total, five classes of notes are issued (Class A1-SU, Class A1, Class B, Class C and Class D), all of which are investment grade rated, with aggregate principal of US$386.7 million. HKMC acts as the sponsor, collateral manager and risk retention holder of the transaction, and the issued notes are listed on the Hong Kong stock exchange.
Within the capital structure of Bauhinia 2, Class A1-SU is a sustainability tranche amounting to US$107 million, which is rated Aaa by Moody’s Ratings and backed by sustainable, green and social assets. This tranche is issued in accordance with the HKMC’s social, green and sustainability financing framework, which aligns with the Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines released by the International Capital Market Association.
Class A1, amounting to US$209.5 million, is also rated Aaa, while Class B, worth US$34 million, is rated Aa1. Class C is worth US$20.5 million and rated A2, while Class D amounting to US15.7 million is rated Baa3. There is also an unrated subordinated tranche amounting to US$36.6 million.
In comparison, Bauhinia 1 also comprised of five tranches, including a sustainability tranche amounting to US$100 million. Its underlying asset pool consisted of 35 project and infrastructure loans in 25 individual projects across 12 countries in Asia-Pacific, the Middle East and Latin America. It covered nine sectors, including power generation and distribution, renewables, education, and telecommunications.
Standard Chartered is the sole global coordinator for the Bauhinia 2 transaction, as well as a joint bookrunner along with China International Capital Corporation Hong Kong Securities, ING Bank (Singapore), MUFG Securities Asia and Natixis (Hong Kong). Fubon Bank (Hong Kong) and Korea Investment & Securities are the co-managers.
