Construction workers have already started the work toward filling in part of the South China Sea to make room for Hong Kong airport's third runway. The project is also set to make bankers busy.

The Airport Authority Hong Kong needs to raise HK$69 billion (US$8.8 billion) to fund the runway, and should consider selling bonds and tapping the loan market, according to a report by its financial consultant HSBC Holdings Plc.

Asia's busiest international airfield needs capacity to counter growing competition from North Asia. The construction of the third runway, estimated to take eight years, will require massive capital expenditure for the government-backed Airport Authority. In addition to the borrowings, the authority will need another HK$47 billion, funded by its operating surplus, and HK$26 billion, to be financed through airport construction fee, the study said.

As Airport Authority is government-owned, there should not be a problem with its credit profile and it may offer a premium for the retail bonds to attract investor interest, according to Pheona Tsang, Hong Kong-based head of fixed income at BEA Union Investment Management Ltd.

The report recommended these key sources of debt financing:

-U.S. dollar bonds and Hong Kong dollar loans

-The authority should also consider offering Hong Kong dollar bonds to individual investors to raise as much as HK$5 billion. That would be its first retail offering since 2003, according to the study

-The depth of the Hong Kong dollar retail note market is "more limited" and tenors achievable are shorter, HSBC said. The benefit of using such securities "would however need to be considered alongside the higher interest costs associated with a retail bond which is more expensive than borrowing from the bank or institutional bond market," it said

-The authority should also consider the sale of green bonds, or environmentally friendly securities

HSBC also recommended a higher proportion of fixed-rate borrowings.

That's "in view of the substantial amount of debt to be raised for the project, the long tenor involved for some of the borrowings" and the lack of an obvious link between the Airport Authority's revenues to interest rates, it said.