Landing the jumbos
HSBC demonstrated the breadth and depth of its emerging markets platform in 2016. It participated in the year’s four biggest emerging markets transactions, dominated in Asia, pioneered niche markets, and led some of the most challenging transactions. HSBC is IFR’s Emerging Markets Bond House and Asia Bond House of the Year.
Saudi Arabia, Argentina, Teva, Qatar – the four biggest bond deals in emerging markets during 2016. And only one bank acted as a global coordinator on all of them: HSBC.
While size isn’t everything, it’s still a statement of success for the bank to be on the top line on all of these transactions. “These are defining trades,” said Jean-Marc Mercier, global co-head of debt capital markets.
And the deals were anything but routine. When Argentina returned to the international bond market for the first time in 15 years in April, it was still in technical default as it had yet to end its long-running battle with holdout creditors.
But hard work by the new government and banks in the months beforehand ensured the success of the US$$16.5bn transaction – an emerging markets record at the time. HSBC was central to that, one of a handful of banks that lent money to the country’s central bank to support the currency ahead of the lifting of foreign exchange restrictions.
“If we’d not been able to do that, none of the conversations with the holdouts would have worked,” said Katia Bouazza, head of Latin America capital financing and global banking.
The other three jumbo transactions showcase the bank’s strengths in the Middle East. Saudi Arabia and Qatar were the two biggest sovereign bonds out of the region during 2016, raising US$17.5bn and US$9bn respectively.
Teva, meanwhile, is the biggest corporate financing ever from a company headquartered in a developing economy. The Israeli drugmaker sold six US dollar tranches to raise US$15bn, before moving to Europe to sell €4bn in three euro tranches, and SFr1bn in three Swiss franc tranches.
That meant in effect three separate fundraisings over the course of a single week. HSBC was one of only three banks that was on every leg of the overall fundraising, demonstrating the breadth of its distribution capabilities.
Teva’s acquisition-driven financing took advantage of pent-up demand for corporate paper in a yield-starved market. In Europe, for example, it issued bonds that were priced up to 35bp inside its secondary curve. Those outstanding bonds, in turn, tightened by an incredible 40bp during the execution process. Bankers said that such a result was unprecedented for an M&A-driven trade.
Although these trades dominated the EM market during the year, HSBC nonetheless had a busy year in Asia, the emerging region where the bank is dominant.
That was especially true in China, where the bank led 18 jumbo deals – defined as a size of US$1bn-plus equivalent – during the awards period, acting as a global coordinator on 11 of them.
One deal in particular stands out: Bank of China’s US$2.25bn and €500m multi-tranche offering, the biggest Green bond ever issued. The deal came less than a fortnight after the UK’s Brexit vote, but nevertheless was not only able to achieve size but pricing too, coming flat to secondary levels.
HSBC’s story in 2016 was about more than just jumbo trades, however. As Matthew Westerman, co-head of global banking said: “The diversity of the business flow this year stands out.”
One area it has been innovative is in bank capital. It had to educate investors about different loss-absorption frameworks as Singapore and India launched their first US dollar Additional Tier 1 issues.
A deal for DBS – a US$750m perpetual non-call five bond – was priced at 3.6%, the lowest coupon for any US dollar AT1. While some may question such a level, HSBC’s bankers say it was merited.
“This year has been about understanding where the right pockets of demand have been. So if Asians will buy DBS at 3.6%, so be it,” said Alexi Chan, global co-head of debt capital markets.
HSBC has stood out in corporate hybrids, too. It was the only bank to lead all three fixed-for-life perpetuals – for Cheung Kong Infrastructure, New World Development and Li & Fung. The first deal, which was priced in February, stood out for the emergence of an increasingly important investor base this year: Taiwanese life insurers.
Not only are they supporting bigger and longer-dated deals in the Formosa market – EDF’s US$2.655bn dual-tranche offering of 30-year and 40-year notes in October being the most notable trade, a deal HSBC was involved in – but Taiwanese life insurers are also becoming important investors in the international markets.
They were, for example, anchor investors on Saudi Arabia’s 30-year tranche, as part of its record-breaking transaction.
Having an insight into the needs of this investor base and then being able to match them up with issuers around the world marks out the bank.
“You need the right network to know that Taiwanese insurance companies will have appetite for a Mexican utility,” said Chan, pointing to a US$375m 30-year private placement that HSBC arranged for Comision Federal de Electricidad.
That global network is evident across all sorts of products. Take the sukuk market, for example, and deals for the likes of the Malaysian sovereign and Tenaga illustrate the two-way flow between the South-East nation and the Middle East.
Or take HSBC’s successes in local currency, especially in the renminbi market. Two transactions, in particular, stand out: one for the Republic of Korea; and the other for the Republic of Poland.
The former’s Rmb3bn (US$465m) three-year offering in December 2015 was the first-ever onshore bond issuance by a non-Chinese sovereign and represented a significant step towards the opening of the onshore renminbi market.
Poland’s Rmb3bn deal, meanwhile, was the first Panda by a European sovereign and the first onshore renminbi deal with foreign investors.
For HSBC, these trades are important steps in the development of a market that could challenge the US dollar and euro markets one day.
HSBC was also present on some of the biggest Dim Sum offerings of the year, underpinning the Chinese government’s strategy to further internationalise the renminbi.
And HSBC has been at the heart of the Masala bond market’s development, leading deals for the likes of HDFC and NTPC. The latter was the first Masala bond issue by an Indian corporate and the first in Green format.
With such a broad reach, it’s not surprising that HSBC has executed more deals and across more currencies than any other bank. Even in a currency such as the euro, where other banks can claim a bigger market share, HSBC has executed more deals. In total, it was involved in 28 euro deals during the awards period.
“Euro issuance continues to increase in importance in emerging markets,” said Mercier, who pointed to deals done for America Movil, Temasek and CK Hutchison.
But the emerging markets business is not perfect. Weaknesses include Africa and – to an extent – Russia. A one-day switch tender offer for South Africa, in which HSBC acted not only as a joint lead but was the billing and delivery bank too, was a significant step for its Africa business. The key will be to build on this.
Generally, though, HSBC’s ability to deliver for emerging markets clients shows no signs of diminishing. Even in countries such as Brazil and Thailand, where it has exited its retail business, it continues to win bond mandates.
“We’re working closer together, country by country, product by product, sector by sector,” said Westerman.
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