West Kowloon arts hub seeks US$1 billion in first bond sale to fund operations

The loss-making authority that manages Hong Kong’s West Kowloon arts hub will sell bonds for the first time, aimed at raising up to US$1 billion to fund its operations. According to documents submitted to Hong Kong Exchanges and Clearing on Thursday, the West Kowloon Cultural District Authority appointed the Hongkong and Shanghai Banking Corporation and Standard Chartered Bank (Hong Kong) as arrangers for the medium-term note programme. This will mark the first time the authority, which manages the West Kowloon Cultural District, has tapped the fixed-income debt market. The arts hub has relied on ticketing revenue from museums, corporate sponsorship and commercial income, in addition to bank loans. The authority averted a financial crisis in 2024 when the government granted it the right to sell residential properties on site, after repeated warnings that its HK$21.6 billion (US$2.7 billion) endowment from 2008 was expected to run out by mid-2025. As the first step towards issuing bonds, the authority created the programme, which will allow it to issue them in series and tranches. “The launch of the medium-term note programme will broaden the authority’s sources of funding in the Hong Kong market,” a spokesman said. “The WKCDA is confident in achieving financial sustainability and will continue to ensure prudent financial management and increased revenue, while vigorously advancing the development of commercial projects to lay a solid foundation for long-term financial sustainability.” In the financial years 2025, 2024 and 2023, ending March 31, the authority recorded underlying operating deficits of HK$769 million, HK$578 million and HK$718 million respectively, according to the document. One of the risk factors detailed in the offering document was that the government had neither provided nor expressed any intention to provide a guarantee regarding the authority’s debt obligations. The document further highlighted that the authority could continue to incur deficits, citing its persistent operating shortfalls since the financial year ending March 2023, and the structural operating deficits of its arts and cultural facilities, including museums and performing arts venues. The arts hub comprises the M+ museum and the Hong Kong Palace Museum, along with performing arts venues and other commercial buildings under construction. The authority said it would face future capital expenditures, with construction progress reaching 84 per cent as of August 2025, and that its income remained sensitive to fluctuations in the property market and ticket sales. According to the circular, other risk factors included the non-recurring nature of fundraising income and potential damage or loss to museum collections and credit, environmental, litigation and intellectual property risks. Billy Mak Sui-choi, an associate professor at Baptist University’s department of accountancy, economics and finance, said the cost of bond issuance could be quite high for the authority, given the significant size of the offering and the fact that United States interest rates were “not low right now”. Hong Kong is influenced by the US interest rate regime due to the currency peg between the two. Mak added that it was important to look at the authority’s future income, noting that it planned to sell prime-location residential real estate with a harbour view that would “definitely” command a premium price. “These could serve as collateral or assets to support interest or principal repayments in the future,” Mak said, adding that while the authority was financially independent from the government as a statutory body, it was still regarded as an entity affiliated with the government. “[The authority] is seen as a semi-governmental organisation. Let’s say the authority encountered a financial issue, investors would think, ‘Would the government back it up? Would the government completely ignore the situation?’” With US job growth beating expectations by adding 130,000 positions in January, while unemployment edged down, Mak said interest rates might not fall as the US dollar strengthened. He held a “mixed view” on whether to buy the authority’s US dollar bond now but noted there were more variables in the medium and long term affecting whether rates would come down.