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Saturday, 22 September 2018

Emerging Markets Bond House and Asia Bond House: HSBC

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Heart and soul

HSBC remains at the forefront of innovation in the emerging markets. The bank’s ability to connect bond issuers to markets around the world is unparalleled, especially in Asia where it remains the dominant shop. HSBC is IFR’s Emerging Markets Bond House and Asia Bond House of the Year.

Many banks talk about the importance of emerging markets, very few practise what they preach. But emerging markets are intrinsic to almost everything HSBC does.

“EM is at the heart of HSBC,” said Jean-Marc Mercier, global co-head of debt capital markets.

Nowhere more so than in the world of bonds, an arena in which the bank has once again excelled. It’s not quite the undisputed number one in the league tables for international issuance over the awards period – Citigroup is marginally ahead on volumes, though HSBC is well out in front on deal count.

But no other bank can do some of the trades that HSBC does – for example, take Mexican state-owned utility CFE and help it raise funds in Taiwan’s Formosa market. Or take Hungary to the onshore Chinese Panda market.

“This connectivity is extremely important for our clients,” said Alexi Chan, the other global co-head of debt capital markets.

And, as these deals show, no bank can compete with HSBC in the biggest regional market – Asia.

CFE and Hungary were niche Asian market deals but even in the mainstream markets HSBC dominated G3 issuance from the region again in 2017.

It led deals that set the trend for the rest of the market and helped issuers around the region make the most of supportive conditions.

It was quick to spot changes in investor sentiment throughout the year, helping financial issuers from across the region access regulatory capital and allow corporate clients to bolster their balance sheets with low-cost or perpetual funding.

HSBC took a leading role in the Additional Tier 1 market with a debut issue for Industrial Bank of Korea, and a tightly priced benchmark for Singapore’s United Overseas Bank, which came at the tightest reoffer spread for an AT1 in US dollars.

It was also on the top line of Postal Savings Bank of China’s US$7.25bn capital raising, the largest single-tranche Asian US dollar issue to-date. Not only was it the biggest AT1 issue from a Chinese bank, but it was also priced at one of the lowest yields on record, paying just 4.5%.

HSBC extended that expertise to corporate issuers, bringing a wave of hybrids to the market to meet investors’ desire for yield. That enabled companies such as Hong Kong’s Cheung Kong Properties and the Philippines’ Ayala Corp to print daring fixed-for-life perpetuals – an unlikely achievement in a rising rate environment.

HSBC leveraged its distribution strengths to bring issuers such as China National Chemical Corp, Motherson Sumi Systems and UOB to the euro market, the latter with a bold dual-currency covered bond offering that paid virtually no new issue premium.

It also won roles on significant sovereign issues, whether it was China’s rapturously received return to the US dollar market – for which HSBC took on the prized billing and delivery role, Indonesia’s issue of the largest South-East Asian sukuk offering, South Korea’s successful 10-year print following its president’s impeachment, or Sri Lanka’s latest professionally-executed US dollar trade.

In Indonesia, HSBC was one of two global coordinators on Paiton Energy’s US$2bn dual-tranche project bond deal, the first such issue in Asia for many years, demonstrating that the bond market could be a viable financing avenue for infrastructure if deals were structured to meet investor needs.

M&A TRADES

It was equally comfortable arranging bond issues related to mergers and acquisitions, bringing trades in US dollars and euros, respectively, for Sunac China Holdings and Bright Food Group.

Sunac was just one of the dozens of high-yield issuers to rely on HSBC to bring it to the offshore market. As Asian high-yield enjoyed a resurgence, the bank won repeat mandates as well as leading debut trades for issuers such as Pan Brothers from Indonesia and private equity vehicle Marble II in India.

Liability management became an important trend for issuers either addressing changes in their corporate structures or simply taking advantage of market conditions to cut their funding costs, and HSBC remained at the forefront. It helped Malaysia’s Sime Darby buyback and exchange its sukuk as part of a reorganisation into three companies, and allowed Tianjin Binhai New Area to address a potential technical default via a consent solicitation.

It showed commitment to Green and socially responsible bonds, a growing trend in Asia, working on ICBC’s dual-currency trade, the first from China to obtain both Chinese and international Green bond certification, as well as debut Green bond issues from DBS and Korea Development Bank.

On top of that, it comfortably topped the league table, recording US$27.9bn of league table credit for Asia, ex-Japan, ex-Australia, from more than 200 deals, increasing its total volume by nearly 18% from a year earlier. It maintained clear water between itself and its rivals, despite growing competition, to achieve a 9% market share.

Little surprise, then, that HSBC is IFR’s Asia Bond House of the Year.

NOT JUST ASIA

But it would be a mistake to think that the bank is just an Asia powerhouse. In Latin America, HSBC was at the forefront of many of the big trends – duration, liability management and the internationalisation of local currency trades.

On duration, for example, it was a lead on Argentina’s US$2.75bn Century bond.

“This was the cleanest trade that got them size, duration and did not change the performance of their dollar curve,” said Katia Bouazza, co-head of global banking, Latin America.

In liability management, HSBC was one of the banks involved in Petrobras’ exchange offering targeting more than US$14bn of its outstanding bonds.

Instead of issuing new bonds and tendering for existing debt, as it normally does, the Brazilian oil company offered the opportunity to swap straight into new bonds.

Petrobras typically buys back bonds – sometimes at high premiums – as it prepares for upcoming maturities and reduces refinancing risks.

But that has resulted in significant one-off costs that management wanted to avoid as they try to right the company’s finances and emerge from a long-running corruption scandal.

That trade was Petrobras’ third bond market foray this year to address short-term liabilities – and HSBC was one of the banks involved in each of them.

GOING LOCAL

In local currency, deals for Uruguay and Peru stood out. The latter, in particular, marked the culmination of a long slog through several governments as Peru redressed what economist Ricardo Hausmann once described as the “original sin” – developing countries’ inability to borrow abroad in their own currency.

In emerging Europe, the Middle East and Africa, HSBC showcased its abilities across the region. In the Middle East, it was a lead on Saudi Arabia’s sukuk and conventional trade in 2017 as well as Kuwait’s debut international offering, among many other deals.

In Africa, a US$2.5bn offering in September from South Africa comprising 10-year and 30-year notes was an important transaction as it was the sovereign’s first since its downgrade to junk. The deal was priced successfully despite a sell-off in Treasuries and more bad news at the time on the economic front for South Africa.

HSBC was a global coordinator on Sibanye Gold’s debut transaction too. That came amid heightened volatility due to domestic issues, including the release of South Africa’s revised mining charter.

In Central and Eastern Europe, the bank was a lead on Poland’s €750m five-year note issue in what was the first sovereign Green bond offering. And keeping with the Green theme, it acted as a lead on Turkish development bank TSKB’s subordinated bond deal, which was the first Green Tier 2 issuance.

Turkey proved a ripe market for HSBC, with the bank leading 14 international transactions from the country over the awards period.

Other deals included the only Eurolira offering of 2017, from Yapi Kredi; a US dollar bond issue from Coca-Cola Icecek, which was priced inside the sovereign’s curve; and the first Turkish project bond trade to finance Elazig Hospital.

To see the digital version of this review, please click here.

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com.

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