Hong Kong minister lures RI firms to issue bonds

Hong Kong Special Administrative Region's Secretary for Financial Services and the Treasury Frederick S. Ma paid a two-day visit to Indonesia this week as part of his tour of Southeast Asia to discuss economic issues and to promote the bond market. He met with Minister of Finance Boediono, chairman of the Capital Market Supervisory Board (Bapepam) Herwidayatmo and members of the business community. The following are excerpts of the interview he gave on Tuesday to journalists, including The Jakarta Post's Johannes Simbolon on the results of the visit.

Question: What is the purpose of your visit? Answer: One of the purposes, other than to get a first-hand view of the Indonesian economy, is to tell your leaders here, both in the government and the private sector, about what is going on in Hong Kong. The economic pillars of Hong Kong, such as logistics, tourism and financial services, are all performing very well. Of course, we have the advantage of being part of mainland China.

(With regards financial services sector), about one third of Hong Kong's stock market 'cap' (capitalization) comes from the mainland's economy. Our market cap as of the end of March was number eight in the world. In terms of banking, 70 of the world's top 100 banks are operating in Hong Kong. We are number one in funds business management in Asia. We also have almost 100 insurance companies. And the government is pushing for the development of the bond market in Hong Kong, both in local currency and dollar currency.

Financial services account for 12 percent of our GDP, whereas our workforce in the sector is only 5 percent. This is a high value sector. We are doing very well and we continue to upgrade our regulatory framework in order to maintain our position as an international financial center. We believe one area of growth is private banking, wealth management. We are doing very well in that area, too. So, (the areas of growth for Hong Kong are) the bond market and wealth management.

On the bond market, we have just completed the largest individual securities transaction. The value is HK$6 billion or almost US$800 million. The government is also contemplating the issuance of a HK$20 billion government bond.

We would like to see more companies from Indonesia, if they are interested in raising long-term funds, to use Hong Kong as a market.

Why should Indonesian firms issue bonds in Hong Kong rather than in other financial centers?

Actually, Hong Kong has all the infrastructure. We have the rule of law, as well as legal and regulatory infrastructure. We have the clearing capacity to do it. We also have the talent. Almost all of the international banks are in Hong Kong. We feel that Hong Kong has a tremendous potential to (be the regional bond center). Already, a lot of bonds are being issued in Hong Kong. We just want to promote it further. Hong Kong is a very liquid market.

Indonesia also has a bond market.

I think particularly for local currency, it's important. Because Asia, in the last financial crisis, exposed its currency weaknesses. One (problem) is a maturity mismatch. That is why countries should develop bond markets. You don't want to fund long-term projects with short-term money. This is what happened in the past. Using bank loans, you'll face that kind of situation. If something goes wrong, banks want to get back their money. Then, it'll expose the corporations to tremendous risks. So developing the long-term funding is helpful to stabilize the economy. Another issue is currency mismatch. That, you cannot address by issuing foreign currency bonds. You can address the problem by issuing rupiah bonds. That would eliminate currency mismatch. Companies will use rupiah to pay rupiah. Thus, to issue local currency bonds is actually a very good idea.

How is the regional bond market developing now?

Compared to the mature markets like the U.S. and Japan, Asian firms and economies' reliance on bonds is still relatively small. But, I saw tremendous change from 1995 to the end of last year. According to my research, Indonesia, in 1995, relied 60.2 percent on bank loans, 30 percent on the stock market and 1.7 percent on the bond market. By 2003, bank loans were at 42.9 percent, the stock market at 51.3 percent. In other words, some of your financing shifted to the stock market thanks to the buoyancy of stock market. And Indonesia's (reliance on) the bond market was 5.8 percent (in 2003). Still small, but better. In the U.S., in 1995, the reliance on bank loans was 21.1 percent, stock market 30.4 percent, bond market 48.5 percent. So, the corporate economy relies heavily on bond markets, not so much on banks. (Compared to other countries in the region) in 2003, Hong Kong's (reliance on bond market) is 7 percent, South Korea 30.4 percent, Malaysia 22.4 percent, the Philippines at slightly lower, 4.7 percent, Singapore is at 20 percent, Taiwan 14.4 percent and Thailand 21.5 percent.