The Hong Kong Mortgage Corporation Limited is launching a $2 billion mortgage-backed securities series, for institutional and retail investors.

"This issue is the first retail MBS in the whole of Asia," HKMC Deputy Chairman Joseph Yam said at the signing ceremony today.

"I believe this issue will make a significant contribution to the development of a more efficient and mature secondary mortgage market as well as galvanising the further growth of the MBS market in Hong Kong."

Bauhinia MBS Limited will act as the series' issuing vehicle. The HKMC guarantees the payment of principal and interest, secured over underlying mortgage loans the corporation purchased from the Hong Kong Housing Authority over the past two years.

In addition to the HKMC's guarantee, holders of the notes can also turn to the underlying mortgage loans for payment of principal and interest.

Professional notes for the institutional investors come in two tranches, whose individual features have been well received by pension funds, investment funds, insurance companies and banks.

Notes for retail investors come in three tranches. Notes with a straight maturity of one-year carry a fixed rate coupon of 1.7%; three-year notes have a fixed rate coupon of 2.65%; and four-year notes have a fixed rate coupon of 3.05%.

Ratings agencies expected to give thumbs up

All classes of notes have credit ratings of AA- from Standard & Poor's and Aa3 from Moody's. A summary of the key terms and conditions, issue structure and the characteristics of the underlying mortgage loans are available at the Hong Kong Monetary Authority website, www.hkma.gov.hk.

The notes' subscription prices will be determined on November 3 by reference to the relevant Exchange Fund Bills & Notes as specified in the prospectus.

The offer period for the retail notes will begin at 9am on Wednesday, October 20, and close at 2pm on Friday, October 29. Any retail investor who wants to subscribe for the notes needs a bank account and an investment account with one of the 19 placing banks. The subscription money will be deducted from the applicant's account on the closing date.