HKMC issues second infrastructure loan-backed securities

The Hong Kong Mortgage Corporation (HKMC) announced on September 11 the successful completion of its second issuance of infrastructure loan-backed securities (ILBS), worth US$423.3 million.

The deal was executed through a special purpose vehicle (SPV), Bauhinia ILBS 2 Limited (Bauhinia 2), and follows the success of HKMC’s maiden ILBS issuance (Bauhinia 1) worth US$404.9 million in May 2023.

The Bauhinia issuances provide professional investors with access to a diversified portfolio of project and infrastructure loans across multiple regions and sectors.

HKMC executive director and chief executive officer Raymond Li said the success of the Bauhinia 2 issuance demonstrates growing investor interest in the infrastructure loan asset class. “The issuance further supports Hong Kong’s development as an infrastructure financing hub, facilitates market capital inflows into high-quality infrastructure projects and expands the securitisation market in Asia,” he added.

The Bauhinia 2 issuance received a strong response from investors, with some returning investors indicating that they were becoming more comfortable with the asset class and expanding their investment into a wider range of note classes, and an expanded universe of investors joining the space. The extensive investor base is well diversified, including insurance companies, pension funds, securities companies and local and international financial institutions.

Anchor investor

Asian Infrastructure Investment Bank (AIIB) participated in Bauhinia 2 as an anchor investor through its US$300 million investment programme in the HKMC ILBS issuance. AIIB’s investment programme continues to fulfil its objective of mobilising private capital in the infrastructure sector.

Bauhinia 2 has a portfolio of 28 project and infrastructure loans across 26 individual projects spread across 14 countries and 10 sub-sectors, with a total value of approximately US$423.3 million. A total of five classes of notes are being issued (Class A1-SU, Class A1, Class B, Class C and Class D), all of which are investment grade, with a total amount of US$386.7 million. HKMC is acting as sponsor, collateral manager and risk retainer for the transaction, and the notes issued are listed on the Hong Kong Stock Exchange.

Within the capital structure of Bauhinia 2, Class A1-SU is a US$107 million sustainability tranche, 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 Sustainable Financing Framework, which is aligned with the Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines issued by the International Capital Market Association.

Class A1, worth 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 is rated A2, while Class D, worth US$15.7 million, is rated Baa3. There is also an unrated subordinated tranche worth US$36.6 million.

By comparison, Bauhinia 1 also consisted of five tranches, including a US$100 million sustainability tranche. The 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 spanned 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 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.