Shortly before Christmas, the HK Financial Secretary announced the birth of the first Belt and Road bond in HK, the latest in a line of financial gimmicks designed to avoid meaningful regulatory reforms.

Belts and Burqas
10 January 2018

Scrolling through Government press releases at the end of December we came across the latest puff piece for "Belt and Road". On 20-Dec-2017, said that Financial Secretary Paul Chan Mo Po (Paul) "welcomed the issuance of the first Belt & Road bond by the China Development Bank in Hong Kong". On the same day, the HK Monetary Authority announced that its Chief Executive Norman Chan Tak Lam (Norman) had visited CDB (where? we are not told) and met with its President Mr Zheng Zhijie. Norman "welcomed CDB's issuance of its first Belt and Road bond in Hong Kong to finance projects across Belt and Road countries."

Neither Paul nor Norman said exactly when the bond was issued, how much it raised, or what currency or maturity the bond had. So excited were we to find out what a Belt and Road Bond (or perhaps "BAR Bond") looks like, that we searched the stock exchange announcements. For days. Eventually, after a lot of Christmas pudding, on 28-Dec up pops this listing announcement, of a US$350m 5-year bond by CDB's HK Branch. This bond is indistinguishable from any other CDB bond - they've been issuing bonds in HK since at least 2012, and by our count this is the 30th bond they've listed on the Stock Exchange of Hong Kong since then.

The CDB BAR-Bond is denominated in US dollars (not politically correct to mention that in a Government press release). The small issue is only enough to finance about 600 metres of say, the HK-Zhuhai Macau Bridge, and with a 5-year maturity, it isn't long enough for any Belt-and-Road infrastructure project to pay it back. It's just another piece of regular fund-raising by CDB. Labelling it as the first BAR Bond was just a publicity stunt. The money raised is fungible with all of CDB's other money and the bond is not secured against any particuar project.

The only surprise is that they didn't also try to tag a "Green" label on the bond too. That's another gimmick that the HK Government and its Financial Services Development Council has been keen to promote, even announcing in Carrie Lam's 2017 policy address (para 98) that the Airport Authority would issue a green bond. Try not to laugh: raising money to reclaim land from the sea and build a third runway to increase local air pollution is "green" finance. The government-controlled MTR Corp Ltd (0066) has also issued "green" bonds to finance its "low-carbon transportation" systems - or what we call "trains". The greening process involves paying for a "Second Party Opinion" from the consultancy gravy train.

Before HK was declared to be a "belt and road" hub and a "green finance" hub, it was an "Islamic finance" hub, issuing bonds under the euphemism of "sukuks" or "trust certificates" - which walk and talk in every way like regular bonds but involve greasing the palms of religious scholars to bless them as "Shariah-compliant". Your tax dollars at work. If the HK Government actually needed to borrow money (which it doesn't), then it could do so without the expense of dressing up bonds in a burqa.

It is surely now just a matter of time before a government-backed issuer combines these themes and issues its first green Belt And Road Burqa bond or "Green BARBie Bond".

Incidentally, pratically all bond-listings on SEHK are fake listings designed to qualify for certain investor portfolios by claiming to be "listed", carrying the implication that there is a centralised marketplace for the instrument. For structural and anti-competitive reasons, there is no material bond-trading on the Stock Exchange, but that's a topic for another day. Such important topics are avoided by policy-makers by deflecting attention with financial gimmickry.

©, 2018

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