Bond house

IFR Asia Awards 2012
8 min read
Christopher Langner

In a record year when bond issuance reached a level that redefined Asia’s capital markets, one bank presided over the boom. For its imperious dominance, its unmatched geographic reach and ability to execute the most complex of deals, HSBC is IFR Asia’s Bond House of the Year.

Bond house 2012

HSBC led more than 100 US-dollar bonds for Asian clients during the year under review – more than total market just a couple of years ago. Its dominance was such that it arranged two thirds of the debut issues during the period, and won a similar share of the high-yield business. It covered every corner, bringing hybrid issues, perpetuals, Islamic bonds and all the key sovereign trades to market.

While HSBC has always run a big platform in Asia, it is only in recent years that the bank’s long and deep relationships with Asia’s corporate sector have become a source of frustration for its rivals. Rather than extending new loans to win capital markets business, however, the bank has managed to turn its existing relationships into mandates – a tactic that paid dividends during the review period.

HSBC’s execution skills were also first rate. Its ability to deliver a quality of execution that matched the breadth of its franchise was particularly impressive in a record-breaking year, and the bank’s ability to dodge the list of failed deals made it clear that quantity did not come at the expense of quality.

“In the global marketplace, unexpected news can have an immediate, unpredictable and profound impact. Only banks with good networks and strong relationships are able to deliver. The team at HSBC does this and provides top-notch service,” said the funding manager for an Asian sovereign.

The bank certainly benefited from a record year in its home market, with Hong Kong accounting for 12% of all dollar bonds sold during the year under review. While it would have been easy for HSBC to sit back and watch the local deals roll in, it did far more than that, however, winning landmark transactions all over Asia.

“We are the dominant bookrunner this year in G3 and we have led many of the landmark deals this year,” said Stephen Williams, head of debt capital markets for Asia Pacific at HSBC.

He has the deal roster to prove it. HSBC was a bookrunner on a jumbo market reopener from the Export-Import Bank of Korea in January, on the Citic Pacific deal that marked the return of sub-investment grade credits, on a deal for Sinopec where the 30-year tranche proved so popular it inverted the curve from 10 to 30 years. It also led a clutch of dollar deals for sovereigns, such as Indonesia, the Philippines and Sri Lanka, to name just three.

Execution skills

If there was ever any doubt of HSBC’s ability to read the market, the US$500m five-year benchmark for Hong Kong developer Sino Land more than answered it. The drive-by style transaction was a bold move because, just a couple of years ago, few Asian issuers dared come to market without an extensive roadshow and books took days to close. It paid off – and saw the bank rewarded with a rare sole mandate on a well-banked corporate name.

This was the first time any bank had tried announcing a Reg S-only transaction at the close of the Asian day, effectively limiting execution to just a couple of hours. HSBC announced the deal at 5pm Hong Kong time and priced it a couple of hours later at 99.561 to yield 3.346% on a 3.25% coupon.

The day was September 12, when Germany’s decision to approve the European Stability Mechanism came through in the middle of the Asian trading day. Ignoring common practice, and spotting the beginnings of a market rally, HSBC decided to go ahead and announced the deal at 5pm, Hong Kong time.

Within one hour, books had soared to US$3.5bn from 140 accounts. This allowed the company to revise price talk from 280bp over Treasuries to 265bp–270bp over, and to print at the tight end of that. At the reoffer spread, the bond offered only 5bp of concession versus Kerry and Henderson and was 30bp inside Nan Fung. Yet, it still performed well in secondary and was quoted at 255bp the next morning.

“Trades like these don’t come on a silver platter for HSBC, we delivered the expertise they expected,” said Alexi Chan, head of DCM origination for Asia at HSBC in Singapore.

It was also a bookrunner on an unusual trade for Hong Kong utility CLP Power, where it helped use the popularity of a heavily oversubscribed US$300m 10.5-year bond to add on a rare US$300m 15-year tranche late in the process.

Generating momentum

“HSBC has assembled one of the best syndicate teams in the region and brings its clients an insightful understanding of the market,” said the funding manager of a Hong Kong blue-chip.

The pricing strategy used on this deal, which involved coming out with a wide new-issue premium and tightening the price guidance some 20bp–25bp once momentum built, was a feature of HSBC’s trades, illustrating the bank’s ability to consistently generate momentum for its clients. The big price revisions became almost standard practice across the market in the second and third quarters.

HSBC was on most of the deals that employed the strategy, including the first ones to attempt it. For instance, the bank, along with JP Morgan and Standard Chartered, was on Wharf Finance’s US$600m Reg S only trade back in January. That transaction, the first after the Chinese New Year, priced 15bp inside price talk – a revision that was considered ultra-aggressive at the time, but later dwarfed by moves of as much as 100bp seen later in the year.

Wharf then returned just four weeks later with a US$300m tap of the same issue. Such reopenings were another feature of the market in the first half of 2012, and HSBC was all over this trend.

The practice initially unnerved investors, who complained that the taps limited their gains on the existing notes, but the added liquidity and the way the bonds rallied regardless of how many times they were reopened soon silenced the dissenters.

The fact that HSBC was so focused on its clients’ interests, yet still managed to keep the buy-side happy with so few bonds underperforming is a tribute to the bank’s read on the market.

“We are providing solutions for our clients,” said William Ross, head of commercial banking origination within the debt capital markets group.

Through the curve

That client-focused mentality was very much at play early in the year when HSBC helped establish the practice of pricing bonds through their curve, one that remained in place until mid-November, when investors finally started to see new-issue premiums again. In the second week of February, HSBC sole-led a US$500m 10-year Reg S only bond for Hong Kong’s Sun Hung Kai Properties, which priced at 270bp over US Treasuries, or just 5bp wide to the curve-adjusted spread of the issuer’s 2016s at the time.

Likewise, the spread between the five- and the 10-year bonds, Hutchison Whampoa launched in early November came in at just 35bp. This was possible thanks, again, to a strategy of coming out wide, with initial guidance at 280bp and tightening on the back of a US$3bn book.

Perhaps the best testimony to what a great year HSBC had is the fear that its rivals have about 2013. “To be honest, it’s going to be hard to catch HSBC,” said one rival banker.

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

Bond house 2012