Bond House: HSBC

IFR Review of the Year 2014
9 min read
Philip Wright

No bank can claim to be all things to all people in the bond world. But HSBC proved it could offer more things to more people than most, embracing and leading evolution and pushing the market to the next stage. HSBC is IFR’s Bond House of the Year.

The bond market is a changeable beast, with each year different from the one before, and 2014 was more transformational than most. As winds of change blew in largely from the East, boundaries were blurred as never before – allowing HSBC to capitalise on its strong distribution channels and relationships to move freely between investment-grade, emerging markets and high-yield.

“Our scope differentiates us and means that we can take advantage of the morphing of asset classes, such as EM sold into investment-grade buyers,” said Bryan Pascoe, HSBC’s global head of DCM. “Our global reach is one of the things that defines us.”

This was exemplified by rare euro outings for India’s Bharti Airtel and Chile’s Codelco, as well as for more mainstream issuers such as Walmart and PepsiCo keen to take advantage of a normalisation of euro market conditions and consequent improving cross-currency swaps.

Throughout the year there was a willingness – even a need – for borrowers and investors to diversify. Buyside and sellside alike were faced with a low-rates environment that had been expected in some areas, such as Europe, but came as something of a surprise in others such as the US.

Borrowers looked to lock in low levels in increasingly large size, investors sought to uncover incremental yield wherever they could – and HSBC seemed to come up with ready solutions for each.

“It’s a question of looking at market evolution and what your responses are to that,” Pascoe said.

Bull in China

It was away from the traditional areas that HSBC played its trump card. Given its Asian dominance (and roots), no institution was better placed to benefit from the rise of renminbi-denominated issuance. But the bank pushed further, opening the market up to greater numbers of international issuers.

In addition to financial and corporate borrowers taking advantage of what the Dim Sum sector could offer, the most eye-catching offering came from the UK, which saw the first offshore renminbi transaction from a non-Chinese sovereign – a deal that clearly lay down a marker for the future. It seemed only natural that HSBC was at the helm, as it was just a couple of weeks later, when British Columbia made its debut.

But the narrative was not just about what Dim Sum could offer. The proliferation of Chinese issuers accessing the international markets was an equally important development.

“The China story was probably the most transformational one of 2014 and we expect this to continue in the coming years,” said Pascoe.

“The volume of international issuance coming from the mainland has increased dramatically over the last two to three years. In fact, US dollar supply has tripled since 2011–12 to now stand at over US$60bn, ranking fourth globally in terms of issuance by jurisdiction after the US, Germany and Canada.”

HSBC also played to its strengths with another important phenomenon: the move away from traditional issuers in the Islamic finance arena.

HSBC and the UK Treasury teamed up again here – to deliver the first sukuk bond issue from a non-Islamic government. This was followed by more European supply from Luxembourg – though not before Hong Kong had also dipped its toe in the water.

These three deals encompassed sterling, euros and US dollars, further underlining the bank’s cross-currency competency.

Needless to say, HSBC all the while continued to act in the asset class for more traditional Islamic credits.

Meanwhile in dollars

While HSBC is never going to top the US dollar underwriting tables, neither would it be expected to. The bank’s central proposition is to be relevant in as many areas as possible, playing to its strengths while not neglecting any important sectors.

Although US dollar volumes have been falling over the past few years – to around 45% of total volume versus 50% in the 2011–2012 period – it remains a strategic area.

The US market remains dominated by domestic borrowers, although to a lesser extent than once was the case, and HSBC was successful in securing mandates from blue-chip credits such as Coca-Cola, Cisco, IBM and Ford, as well as a notable – and tightly priced – multi-trancher from ExxonMobil.

Meanwhile, as US dollar issuance has declined as a part of the overall stack, euro supply has grown – another phenomenon that plays into HSBC’s hands. The euro market is one of many that the bank, with its global positioning, could safely term a “home” arena.

The growth in euros relative to US dollars was partly driven by an increasing number of US corporates crossing the pond to issue in euros, and HSBC grabbed an increased share of business from those borrowers (8%, up from 5.5%), said Jean-Marc Mercier, global head of debt syndication.

From financials to corporates to public-sector issuers, HSBC boasted a strong deal roster across the region – and not just at the upper end of the spectrum. Peripheral European credits also featured in its list of achievements, alongside emerging market borrowers.

While some of the issues that stem from this market are by their nature one-offs, HSBC also maintained a strong showing for more frequent visitors, and not just in euros.

It boasted an enviable book of business from repeat issuers – the likes of KfW, EIB and the UK DMO at the high-grade, high-profile end of the market, to various EM geographies for Petrobras and Sinopec, through mainstream FIG and corporate credits. (See SSAR Bond House for more on HSBC’s public sector credentials.)

Regulation, regulation, regulation

Tough new capital requirements were also an important driver of issuance in 2014. This obviously was seen at its greatest extent in the financial sector. HSBC was a highly visible participant in the nascent new-style AT1 market, played a role in the renewed importance of Tier 2, and also helped insurance companies address their particular predicament.

In the corporate market, where hybrids enjoyed another banner year, HSBC was likewise never far from the cutting edge.

In terms of financials, HSBC’s own US$5.6bn-equivalent triple-tranche US dollar and euro AT1 in September was a major talking point. It marked a record size – until Bank of China’s US$6.5bn stole the crown the following month (with HSBC as a bookrunner) – but was by no means the only string to the bank’s bow. Instead, it was more an example for the market of what could be done – and what others might achieve given the right advice and execution.

“It’s a question of how you connect with what’s going on,” said Adam Bothamley, head of EMEA debt syndicate. “We’re currency-agnostic and don’t want to bias the argument. Essentially, we talk to the client.”

An impressive list of clients across the capital structure – and around the world – spoke of what Bothamley termed “touching all the bases across different platforms”.

And there were plenty of deals to back up his claim, from liability management – in which HSBC worked on the ground-breaking initiative for beleaguered Co-operative Bank – to one-day switch exercises for the likes of the EIB, Spain, Mexico, the Philippines and Uruguay.

In the socially responsible sector, HSBC worked for all types of issuers. Nor did the bank overlook non-core currencies, pricing deals in some 22 currencies altogether.

So while HSBC may not have been all things to all people, it certainly seemed to come close.

“We can provide solutions for all clients across all sectors and products,” said Pascoe. “It’s a story of quality and quantity, breadth and specialisation.”

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Bond House 2014
Winds of change