SSAR Bond House: HSBC

IFR Review of the Year 2016
5 min read

Political uncertainties in the West erupted in the run up to the Brexit vote and the US elections – and have only boiled over further now after the outcome was unexpected in both cases. Those shocks, coupled with continued central bank bond buying, created an extraordinary year in the public debt market.

Successful SSAR bond arrangers had to contend with three major trends – negative yields, ultra-long duration debt and, in the first quarter, the most volatile SSAR market in recent memory. HSBC stood out by staying one step ahead to show up on the top line of exemplary trades that took advantage at each turn.

“We love volatility because it gives you the opportunity to differentiate yourself,” said Adam Bothamley, global head of debt syndicate. “And we can execute and opine in a number of different currencies.”

The breadth of currencies that HSBC not only offers but has a robust market share in – from euros, US dollars and sterling through to local currencies – was another factor that helped the bank pip its rivals to the post.

HSBC was at the forefront of some of the year’s biggest trends in the SSAR market, beginning early in the year when issuers were cramming into primary before the major political events took place.

In the first two months of 2016, HSBC was on more SSAR transactions (including emerging market SSAR) than any other bank, with 73 deals to its name.

It was not just insignificant league table-bolstering stuff, either. The bank brought early show-stoppers such as the largest-ever non-UK DMO sterling tap, a £1.5bn reopening of existing 1.5% February 2019s for the European Investment Bank, and the largest-ever US dollar transaction for the Asian Development Bank with a US$3.25bn January 2019 issuance.

“HSBC was a key facilitator as issuers aimed to avoid major market events,” said Ulrik Ross, global head of public sector and sustainable finance.

Ultra-long duration bonds were an important part of the sovereign issuance landscape this year, and once again HSBC was on the front line.

The bank was one of the arrangers on France’s €9bn 20 and 50-year transaction, which proved to investors and issuers that there was enough demand at the 50-year part of the curve to support euro issuance. The deal led to a spate of other European sovereigns pushing into the tenor and has helped shape the long end of the market this year.

“Deep demand was found at longer maturities in euros,” said PJ Bye, global head of public sector debt syndicate. “HSBC led the way in identifying this trend, backed by research, and in executing ultra-long deals.”

In US dollars, HSBC was an arranger on Saudi Arabia’s eagerly awaited US$17.5bn triple-tranche blockbuster in October.

“There has been a globalisation of the dollar and we have a platform that none of our competitors can offer clients,” said Alexi Chan, global co-head of debt capital markets.

Away from the standout trades, HSBC was running a powerful business in niche currencies, at a time when many rivals have moved away from these smaller markets.

The bank was the only non-Chinese arranger on the World Bank’s three-year Special Drawing Right-denominated bonds that were priced in September, in a trade that reopened the synthetic reserve currency market after a 35-year hiatus.

The trade, settled in China, was the first-ever renminbi-settled SDR bond.

HSBC was also instrumental in reopening the Panda bond market, underwriting the first-ever onshore renminbi bond by a sovereign – a Rmb3bn December 2018 trade for South Korea – before cementing the market with a Rmb3bn January 2019 deal for British Colombia.

“Dim Sum was the route to Pandas,” said Robin Phillips, co-head of global banking. “It was part of the opening-up process, a morsel. It will always be the little brother, although important – a bit like the Reg S dollar market.”

And HSBC will no doubt be at the forefront of new markets to take advantage of fresh opportunities as they appear.

“The fact is that we are relevant whatever the backdrop,” said Jean-Marc Mercier, global co-head of debt capital markets.

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SSAR Bond House: HSBC