The Demise of the Corporate Debenture

Updated: Aug 4, 2021

Places in Hong Kong schools are very competitive — good schools have long waiting lists and lengthy application processes. Right?

Well, this used to be the case. And so employers moving their staff to Hong Kong sought to manage the risk. They did this by - essentially - buying security of a place in a top school.

This security came in the form of corporate debentures. An application to a school accompanied by a corporate debenture enjoys a high level of priority - often the highest level. All applicants must meet the entry requirements, but assuming they do, this is almost a guarantee of an offer, even in the case of a very late application.

Yet, these debentures have been costing companies tens of millions of dollars and are no longer necessary, in our opinion.

What is a Corporate Debenture?

A debenture is the traditional name given to a loan agreement where the borrower is an institutional borrower. For our purposes, the institution is a school. The money raised by the debentures becomes a part of the school’s capital structure, and the school may use the funds raised through debentures in any way it chooses.

Most schools state that the fees are generally set at a level which covers most if not all of the school’s running costs, but not its capital costs. So, debentures are how parents of students contribute to the long-term funding of the School.

Schools issue different types of debentures at different prices. Corporate debentures are the most expensive. Debentures of all types are issued in batches, in limited numbers.

For example, at HKIS, two types of corporate debentures are offered:

  1. Standard Corporate Debenture: HK$3 million Corporations may use this debenture to support one child’s application.