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Date: Mon, 11 Oct 1999 17:18:57 +0800
Subject: HK's Sale of Tracker Fund: Frequently Asked Questions
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HK's Sale of Tracker Fund: Frequently Asked Questions (Update1)
10/11/99 2:48
HK's Sale of Tracker Fund: Frequently Asked Questions (Update1)
(Adds question about selling shares short at the end.)
Hong Kong, Oct. 11 (Bloomberg) -- Hong Kong will today
publicly unveil plans for the sale of between $1 billion and $2
billion of shares in an index-tracking fund, the first securities
of their kind in Hong Kong.
Following are frequently asked questions about the Tracker
Fund, its initial public offering, fees, bonus share and
arbitrage opportunities.
The information has been culled from the investment banks
arranging the sale and from the government.
--Is the Tracker Fund a mutual fund or a stock?
It's closest to a stock, which will be traded through
brokers and quoted on the Stock Exchange of Hong Kong just like
companies' shares. Tracker Fund shares, however, are technically
units in a trust -- the trust owns enough shares in all 33 Hang
Seng Index constituents to correspond to the amount of
outstanding units.
Unlike a mutual fund, in which units are redeemed with the
management company that runs the fund, Tracker Fund shares need
to be bought and sold through a broker. And they can be bought
and sold at any point while the exchange is open.
--Can foreigners buy shares in the IPO?
There are two parts of the initial sale. Local residents can
apply for batches of 1,000 shares and are eligible for a loyalty
bonus after one year. That offer is open to Hong Kong citizens
and foreigners who have an identity card issued by the
Immigration Department.
Shares are also being sold to foreign institutions. The
initial discount of the shares may be different for residents
than for institutions. Money managers outside Hong Kong can buy
the shares from a syndicate of 16 investment banks hired to help
sell the securities.
Residents will be able to pick up application forms at the
offices of the 16 banks selling the securities, including several
HSBC Holdings Plc and Bank of China branches.
--How much will it cost?
Each Tracker Fund unit will be priced at about 1/1000 of the
level of the Hang Seng Index. The index closed at 13,112 on
Friday, so Tracker Fund shares would trade at about HK$13.112
($1.69) on that day. Tracker Fund shares may trade at more or
less than the index level, a difference estimated to be no more
than 2 percent.
--What price will I have to pay in the initial public offering?
Tracker Fund shares will initially be sold at a price lower
than the corresponding index level to give investors an incentive
to buy them. The precise amount of that discount will be
announced when the IPO starts on Oct. 25. The discount is likely
to be between 5 percent and 10 percent. The shares will begin
trading Nov. 12.
Banks and brokers selling the shares during the IPO will
receive 2.5 percent of the amount they sell as commission from
the government. Individuals will pay a 1 percent brokerage fee,
which includes the government's stamp duty. Those fees are the
standard charges for initial public offerings in Hong Kong.
--Should I sell my shares on the first day of trading?
There will be a bonus to Hong Kong residents who resist
selling their shares right away to profit from the IPO discount.
Hong Kong residents -- anybody with a Hong Kong identification
card -- will receive one free share for every 20 they own after
one year. That bonus is equivalent to a 5 percent gain in the
number of shares owned.
--If the price of the shares falls below the index level, can I
trade in the shares for the stocks they represent?
Yes. Tracker Fund shares can be exchanged for the 33 Hang
Seng Index stocks they represent at any time -- though only at a
minimum of 1 million Tracker Fund shares at a time, meaning that
the option is mostly aimed at institutions.
--What happens if the Tracker Fund shares trade at a higher level
than the index?
The opposite exchange can also be made. With the right
number of shares in each index constituent, an investor can trade
them for Tracker Fund shares. The number of each company's shares
required to make that trade at any given time will be published
on financial screen services and constantly updated.
--Can I sell borrowed shares?
Yes. Local regulators approved short selling Tracker fund
shares. Short selling is the practice of selling borrowed shares
-- hoping to repurchase them later at a lower price -- in order
to bet the share price will fall.
--Jason Singer in the Hong Kong newsroom (852) 2977-6600/as/pjg
Story illustration: To see the government's stock portfolio, type
55785 27 <Client> PDSP <Go>. To track Hong Kong's benchmark Hang
Seng stock index, type HSI <Index> GP <Go>.
Company news:
HKMA HK <Equity>
EFIL HK <Equity>
8490Z US <Equity>
GS US <Equity>
JFLM HK <Equity>
INTNC NA <Equity>
STT US <Equity>
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