LegCo Paper No. CB(1) 1461/96-97
(These minutes have been seen by the Administration)
Ref : CB1/PL/FA/1

LegCo Panel on Financial Affairs

Minutes of Meeting held on Monday, 24 March 1997, at 8:30 a.m. in Conference Room A of the Legislative Council Building

Members present :
    Dr Hon HUANG Chen-ya, MBE (Chairman)
    Hon Eric LI Ka-cheung, OBE, JP (Deputy Chairman)
    Hon David K P LI, OBE, LLD (Cantab), JP
    Hon Paul CHENG Ming-fun
    Hon Ambrose LAU Hon-chuen, JP
    Dr Hon LAW Cheung-kwok
    Hon NGAN Kam-chuen
    Hon SIN Chung-kai
    Hon Mrs Elizabeth WONG, CBE, ISO, JP

Members absent :

    Hon Martin LEE, QC, JP
    Hon Ronald ARCULLI, OBE, JP
    Hon CHIM Pui-chung
    Hon James TO Kun-sun
    Dr Hon Philip WONG Yu-hong
    Hon Andrew CHENG Kar-foo

Public officers attending :

    Mr Norman Chan, JP
    Deputy Chief Executive

    Hong Kong Monetary Authority

    Mr Albert K C LAM
    Principal Assistant Secretary for Financial Services (Banking and Monetary)
    Mr Paul CHUI
    Deputy General Manager of the Hong Kong Note
    Printing Limited

Clerk in attendance:

    Ms Estella CHAN
    Chief Assistant Secretary (1)4
Staff in attendance :
    Ms YUE Tin-po
    Senior Assistant Secretary (1)6 (Atg)

The Chairman said that the planned visit to the office of Hong Kong Federation of Insurers scheduled for 17 March 1997 had to be cancelled because only a few members could attend. Members agreed that the visit should be arranged again after the Budget Debate.

I. The implications of the sale of shares of Hong Kong Note Printing Ltd. to the China Bank Note Printing and Minting Corporation

2. Members were dissatisfied that no information paper had been provided by the Administration to facilitate the discussion in accordance with the normal practice of Panel meetings. At members’ request, Mr Norman CHAN undertook to provide a background paper on the Hong Kong Note Printing Ltd (HKNPL). HKMA

3. Mr CHAN informed members that HKNPL was a private company wholly owned by the Hong Kong Government. It was acquired through the Exchange Fund in April 1996 and its main line of business was the printing of Hong Kong dollar banknotes. On 5 March 1997, the Hong Kong Monetary Authority (HKMA) announced that HKNPL had sold 15% of its issued share capital to the China Bank Note Printing and Minting Corporation (CBPMC) for $42.5 million. This decision was made by the Financial Secretary after consultation with the Exchange Fund Advisory Committee.

4. On the reasons for the sale of shares to CBPMC, Mr CHAN explained that HKNPL did not possess the technical expertise in all stages of banknote printing and was relying on the technical advice and support of De La Rue Group for such activities as design and plate-making through a technical agreement. On the other hand, CBPMC possessed comprehensive expertise in banknote printing and other security printing matters, its participation as a minority shareholder would complement HKNPL in technical know-how and enhance its technical expertise. Furthermore, HKNPL could also strengthen its ability to diversify and explore security printing business opportunities in Mainland China through the connection. In response to members’ question, Mr CHAN said that HKNPL had started its business relationship with CBPMC since 1994, as the latter was responsible for the design and the production of printing plates for the HK dollar banknotes issued by the Bank of China.

5. Following the sale of shares to CBPMC, Mr CHAN advised that CBPMC would be entitled to nominate a director. At present, HKNPL had five Directors and Mr Joseph YAM, the Chief Executive of HKMA, was the Chairman. He also said that the Director representing CBPMC would have the right to attend the Board meetings but would not undertake operational duties in HKNPL.

6. As to the monetary gain from the sale of shares, Mr CHAN advised that the 15% shares were sold for $42.5 million, which represented a 11% gain over the original acquisition price of around $38.2 million for 15% share of HKNPL (i.e. 15% of $255 million). The Chairman remarked that after discounting 7% inflation, the gain was in fact very low. In response, Mr CHAN said that the benefit of the sale of shares should be viewed from a long term perspective and the sale price was a reasonable price for both parties. He also advised that although no target rate of return was set for HKNPL, the rate of return of over 10% (or 14% if annualised) for the past nine months’ operation was considered appropriate.

7. In response to members’ question about the prospect of selling more shares of HKNPL, Mr CHAN replied that HKMA was currently talking to three note-issuing banks, i.e. the Hongkong and Shanghai Banking Corporation Limited, the Standard Chartered Bank and the Bank of China to see whether they would be interested in becoming minority shareholders of HKNPL. Nevertheless, he assured members that the Hong Kong Government would retain majority ownership and management control of HKNPL.

8. Concerning the obligations of the note-issuing banks to HKNPL, Mr CHAN advised that the note-issuing banks could only make and issue legal tender notes in Hong Kong in accordance with the Legal Tender Notes Issue Ordinance (Cap 65) and that HKNPL was the designated company to print banknotes for the note-issuing banks within the territory. He confirmed that there were similar arrangements in other countries except in some very small countries where the demand for notes was so small that having its domestic printing company was not cost effective.

9. On how the security printing and minting business could be developed in China, Mr CHAN advised that no concrete and specific plans had been developed for the time being. However, HKNPL and CBPMC would embark on its long term business development plan as soon as practicable. Members were generally dissatisfied that HKMA had not carried out any detailed analysis nor had it developed a specific business strategy in penetrating the China market before the sale of shares to CBPMC. Upon members’ request, Mr CHAN undertook to conduct detailed market and product analysis and brief the Panel concrete plans for business development in China, including the marketing objectives, strategies, products, and technology and personnel exchange programmes. Mr CHAN said that it might take a bit of time to prepare such plans. He also agreed to inform the Panel of the party which initiated the idea of share sale in this case.Admin

10. The meeting ended at 9:45 am.

Legislative Council Secretariat
1 May 1997

Last Updated on 18 August 1998