Fund plans to raise €500m from Chinese in Hungary residency bonds

By bne IntelliNews February 28, 2014

Kester Eddy in Budapest -

The opaque Hungarian State Special Debt Fund (HSSDF), which has the exclusive right to sell so-called Hungarian "residency bonds" in China, is targeting sales of "a minimum €500m" to 2,000 individuals and families, Lian Wang, HSSDF chief executive, told a press conference in Budapest on February 27. Wang was less forthcoming, however, on the ownership and governance of the fund.

The €500m target represents a doubling of the sales rate for the fund, which began operations only in the middle of 2013. In its first six months, HSSDF targeted sales of 400 bonds, but outperformed by selling 415 bonds and raising almost €104m in debt finance for Hungary's state coffers.

In 2014, despite the dearth of economic activity in China during its New Year holiday, the fund has so far received "160 applications and sold 70 bonds. We expect activity to pick up significantly, starting from Marc ... we are very confident that this will be a good year," Wang said.

The HSSDF is certainly working hard: in just six months, it had signed contracts with a network of 105 agencies working from 200 offices in 46 major Chinese cities. "There are about four-five offices per city, with an average population of 3m people, so these offices cover a population of 150m. That's our strategy, which [covers] between 10-20% of the developed portion of the country," he said.

The agencies organise seminars for potential investors, typically attracting 50, but sometimes in excess of 100 participants.

And the deal? Punters stump up €250,000 for the bond, redeemable in full after five years. They receive no yield, but gain eligibility for themselves and immediate family for temporary residence in Hungary. After six months in the country, they then become eligible for fast-track permanent residency. Applicants are still subject to screening for suitability - they must have a clean criminal record, for example - but otherwise the process is expected to be routine.

As the Hungarian state does not pay for the marketing costs - these are covered by a separate, non-refundable €40,000 registration fee - it takes on none of the marketing risk. "In order to get serious people coming to Hungary, our agents have to do a lot of marketing. About 90% of the time they are talking about culture, history, tourism and local products. I'm certain that at almost every event they mention Tokaj wine," Wang said, adding however that since many of the would-be emigrants are entrepreneurs and small business people, the state of the economy and government relations are also "very important."

In this respect, potential bond buyers have been reassured by the flurry of high level bi-lateral visits of late, including Hungarian Prime Minister Viktor Orban's delegation to China earlier this month, he stressed.

Economic boost

The residency deal looks good for Hungary on an economic level, says Balint Hada, head of research at Quaestor, a Budapest-based financial advisory. "This fits the strategy that the government is trying to finance the budget more and more from the public [rather than institutions], making it less vulnerable to market swings. If you consider Italy and Spain, the former has, or had, more debt than the latter, but Italy is more indebted to the public, so investors are not [so] concerned," he says.

Some journalists at the press conference were somewhat less confident in the setup, however. Who exactly owns the management rights to the HSSDF (which is registered in the Cayman Islands)? one asked. Are there, for example, any Hungarian owners?

The Fund is fully transparent and compliant, Wang insisted, and all information regarding the investors and owners is provided to the Hungarian government.

Fine, but are there any Hungarian owners in the management company? the questioner repeated.

"The whole structure has been disclosed to the Hungarian government, and there is no indirect holding whatsoever," Wang replied.

Well, if it's been disclosed and is all so public, could Mr Wang be clearer on the ownership?

"We're a private company, so we disclose the information as required by law, to the authorities," he retorted.

It was now getting somewhat tedious; but are there any Hungarian owners? the question was put for the third, or possibly fourth, time.

"I think, primarily, we're like Chinese, Hong Kong citizens, I believe there might be European citizens. I'd have to check, because, you know, the information has been disclosed to the government," Wang said.

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