Abbey National upgrades operations in Hong Kong

Q: You have had a representative office in Hong Kong since 1996. Why upgrade it to a bank branch now?

A: The disadvantage of not having a bank licence here was that we couldn't run a Hong Kong dollar book. We couldn't quote prices to take deposits and to sell deposit-type papers in the Asian time zone. We tried quoting prices from our London office for some time with staff coming in at 1am. But we found our Asian clients are more comfortable dealing with people in the same time zone.

Q: How big is your operation in Hong Kong?

A: At the moment we have around ú1 billion ($1.43 billion) in assets that we've lent. We can easily see that grow by two or three times in the next three years. These are the highly liquid corporate bonds that we buy. We're involved in the Mass Transit Railway issue, which was just priced [November 2], as well as the Kowloon and Canton Railway Corp $1 billion bond issued last year.

Q: How much?

A: We can't tell you how much exactly we've invested in that.

Q: What area of the debt financing business do you want to grow?

A: There are three or four things that we would like to grow. We'd like to do more private equity. We've done a bit of that in Asia but we would like to do more. We certainly would like to do more leasing, either operating or finance leasing, particularly in the railway sector. We'd like to do more syndicated loans and more project finance. And we have some people in Australia looking at trade leasing down there.

Q: What financing projects does Abbey have in Hong Kong?

A: In terms of acquisition finance, we mostly deal with high profile deals. We are involved in the financing of PCCW [Pacific Cyber CenturyWorks] when they bought HK Telecom. We are also involved in the Disneyland project as well as the container terminal number 9.

Q: In hindsight how do you view the PCCW financing deal?

A: The reality was everybody wanted a piece of every telecom deal if you go back to the start of this year. There were more telecom deals than you could poke a stick at. It was feast or famine for banks. I think PCCW was probably overhyped when it bought HK Telecom, [but] HK Telecom is still a tremendous asset. I don't see any particular reason why the PCCW share price has fallen quite so far. Certainly as far as lending to PCCW is concerned, I don't see why people should have any concerns.

Q: There is talk about PCCW asking for a bargain rate to refinance. How do you view that?

A: They are talking about borrowing at less than 1% over LIBOR, which I think may be fair enough. But if they think they can borrow on terms as fine as the two railway companies at high 60s (0.06%) or low 70s [over LIBOR] I think they might be a bit optimistic given that PCCW has a lot of competition in telecoms. And a lot of telecoms want to borrow an awful lot of money at the moment. But it's always like this in the market. It goes too high for a while and too low for a while.
But this is early days. They are still in negotiations. No doubt we'll be invited at some point and we'll see what we should do. I think 90 to 95 basis points is probably where they'll end up. But I may be wrong. They may have more negotiation magicians and friends than we think.

Q: How big is your investment in PCCW?

A: $250 million. And it's due to be refinanced in February.

Q: Why invest in Disneyland?

A: Every single bank in Hong Kong wanted to be involved in the lending of that project. As a result they all have a very small allocation. Normally we would go for about $100 million but we got scaled back. Ours is around HK$105 million ($13.46 million) with a 1% margin, which is more than PCCW's. That's small, but it'll do.