Linklaters advises The Hong Kong Mortgage Corporation Limited on third infrastructure loan backed securities issuance in Hong Kong SAR

Linklaters has advised The Hong Kong Mortgage Corporation Limited (HKMC) on the offering of the third infrastructure loan backed securities (ILBS) in Hong Kong, with a total value of approximately US$450.5m. The HKMC acted as collateral manager, sponsor and retention holder on this issuance.

This successful issuance marks another key milestone in establishing ILBS as an important channel for directing capital market investment into infrastructure assets. Known as “Bauhinia 3”, the issuance marks the largest offering of ILBS in Hong Kong since the HKMC’s debut of the asset class in 2023 and the second issuance in 2024, which Linklaters had also advised on.

The issuance is executed via a Hong Kong incorporated orphan, bankruptcy-remote, special purpose vehicle and comprises five classes of rated notes, with an aggregate principal amount of US$427.9m. The rated notes are listed on The Hong Kong Stock Exchange.

Bauhinia 3 sets multiple new benchmarks for the structure of ILBS issuances in Hong Kong, including the following:

1. The Class A1-SU tranche (US$117m) represents the largest sustainability tranche of the Bauhinia ILBS series backed by sustainable, green and social assets.
2. Class D notes were issued at non-investment grade, the first of its kind in Asia, which further enhances the efficiency of the capital structure and showcases increased level of investor interest and confidence in ILBS and their structure.
3. For the first time in an ILBS issuance in Hong Kong, Bauhinia 3’s diverse portfolio included not just infrastructure loans but also infrastructure bonds, with a number of the assets in the portfolio denominated in non-USD currencies. This structural innovation required the introduction of tailored hedging arrangements by the HKMC to manage interest rate and foreign exchange risks to stabilise investors’ return, setting a new benchmark for asset diversity and risk management in Hong Kong ILBS transactions.

The cross-jurisdictional Linklaters team was led by partner and Asia Head of Capital Markets Victor Wan, supported by William Fong and Victoria Lau.

Linklaters has an established reputation as a leader in Asia’s asset backed securitisation and infrastructure financing space. The team’s technical expertise has been demonstrated by some of the most high-profile and innovative transactions in Asia including advising on Bauhinia 2 and The Airport Authority of Hong Kong’s US$7bn equivalent multi-currency bond issuance.