Bond House, SSAR Bond House, Covered Bond House and Asia Bond House of the Year: HSBC

IFR Awards 2018
17 min read
Helene Durand, Daniel Stanton, Tom Revell, Sudip Roy

It’s been a tough year in the debt capital markets – and that’s been reflected in lower issuance volumes.

Global cross-border supply fell by more than US$500bn in this year’s awards period compared with the last, according to Refinitiv data, a decrease of some 13%.

All of the leading global banks saw a fall in their market share, except one: HSBC.

The UK bank increased its share of all international business by 20bp to 5.8%. That might not sound a lot, but given that the banks above HSBC in the global league table – the US trio of JP Morgan, Citigroup and Bank of America Merrill Lynch – all suffered market share falls of more than 90bp, it’s quite a feat, especially given the slump in overall issuance.

The reason behind this growth? Consistency. The bank has been strong in emerging markets for some time but maybe didn’t always punch its weight in other areas. Not this year.

“We’ve had a pre-eminent year in emerging markets again but this year we’ve married that with a leading position in a range of other markets,” said Alexi Chan, who was appointed earlier this year to co-head a new global capital markets group that brings various businesses such as debt and equity capital markets, leveraged and acquisition finance, structured finance and corporate risk solutions under one umbrella.

The bank is, for example, leading the way for global financial issuers over the awards period and is top three for SSAR and SRI, as well as emerging markets. In terms of currencies, HSBC is ranked number one for non-G3 transactions, number one in sterling, third in euros and seventh in US dollars.

DOLLAR GAINS

That dollar ranking might not seem much to boast about, but again the bank’s relative performance is impressive. HSBC recorded a 40bp gain in market share in US dollar transactions whereas the big five US firms that ranked ahead of the UK bank saw their market shares decline. Of the firms that ranked higher in the US dollar league table, only Barclays bettered HSBC’s performance.

“Our progress in dollars has been a journey but it’s earned us the right to be on the top deals,” said Ray Doody, the other co-head of the capital markets group.

HSBC has been on some of the biggest Yankee deals of the year, including Bayer’s US$15bn offering as part of its acquisition funding for Monsanto and Vodafone’s US$11.5bn deal, its first in the dollar market in more than five years, again for acquisition financing reasons.

But it’s not just Yankees. Right across the spectrum HSBC is providing solutions to its clients’ needs.

A good example is Daimler, a company that HSBC has helped raise funds in US dollars, sterling, offshore renminbi and onshore renminbi – the latter requiring the bank to use structured products such as total return swaps to bring in offshore investors who could not otherwise participate due to membership requirements.

“The global nature of our platform has been critical in giving us the intelligence to advise clients on the best markets and windows,” said Adam Bothamley, global head of debt syndicate.

This year that advice has been more important than at any time since the financial crisis given the volatile nature of markets.

The bank characterises 2018 as one of “guerrilla-style” issuance – that is borrowers having to be agile to take advantage of opportunities in different currencies and markets.

“We could foresee this year would be tougher,” said Jean-Marc Mercier, global co-head of debt capital markets. “Borrowers had to be ready to jump in.”

Equally, HSBC had to be ready to help borrowers jump in. January and September were two obvious windows when liquidity would be better – and, like other banks, HSBC targeted those two months. But HSBC was in the markets on almost 200 days this year.

“We demonstrated in times of volatility our ability to take clients to different markets such as the Yankee, local currency, sukuk,” said Mercier.

And this was irrespective of whether the issuer was seeking a jumbo-sized deal or something more niche.

SPOTTING CHANGES

HSBC’s ability to spot changes in market conditions early and deliver competitive funding was key to the bank clinching the SSAR House of the Year award.

“We don’t just do the big €5bn KfW trades, we also do smaller transactions for the smaller regions – not just the league table trades that can make or break the numbers,” said Asif Sherani, co-head of the SSA and FIG syndicate for EMEA at HSBC.

As the list of non-executed mandated or pulled corporates and financial institutions deals grew in 2018, volatility in the public sector market manifested itself in other forms.

“One of the big themes this year has been the move in the cross-currency basis, whether it’s the euro/US dollar basis or the US dollar/sterling basis,” said Sherani. “We were at the heart of that trend and helped our issuers maximise their costs of funding.”

The moves, which saw the basis moving from negative to positive, had a material impact on issuance patterns.

For example, HSBC brought a £1.25bn December 2022 for the World Bank in mid-January, the largest sterling SSA benchmark since 2012, which it later followed with trades for US dollar-based issuers such as NIB, EDC and Quebec.

It also led a £1bn December 2022 for KfW, the issuer’s largest in the currency.

The move in the basis also opened up opportunities for foreign issuers looking at the European market, including an inaugural euro deal for the Province of Alberta, helping HSBC bring some projects that had long been in the pipeline, another one of the bank’s strengths in SSA.

“We had been monitoring the euro market for them for years and years and years and finally the stars aligned when the basis moved in their favour,” said Hector Snuggs, head of public sector debt capital markets origination. “It’s that kind of long-gestation product that helps set us apart.”

HSBC also helped its clients access duration in the euro market, in a year when long-dated volumes dropped by about 40%, whether it was bringing a €6bn 30-year benchmark for the Kingdom of Spain or more bespoke trades such as Austria’s tap of its Century bond.

HSBC played a pivotal role in the growth and development of sustainable financing, leading ground-breaking inaugural issuances across multiple regions and currencies.

“The public sector has been a real driver of sustainable finance and continues to be,” said Snuggs. “In 2018, we not only brought new issuers to the market but also repeat issuers.”

HSBC worked on Ireland’s inaugural Green bond and was also a lead manager on a deal for Societe du Grand Paris that was not only the first ever bond issue from the borrower but also the first transaction to be launched from a fully Green EMTN programme.

It also led the European Investment Bank’s US dollar seven-year Climate Awareness Bond, which was timed to coincide with the ICMA Green AGM in Hong Kong.

But while plain vanilla large benchmarks form a large part of banks’ SSA business, 2018 was also a year when innovation came to the fore as banks, issuers and investors started to consider the move to a world of risk-free benchmarks.

HSBC was on the top line on the EIB’s £1bn Sonia-linked transaction, IFR’s SSA and Sterling bond of the year, a deal that cracked open the market and was not only followed by other public sector issuers such as the Asian Development Bank but also financial institutions.

“This will be the norm in 2019 and EIB kicked it all off,” said Sherani.

COVERED SONIA

Indeed, a Sonia transaction was the most important in the sterling covered bond market too.

Lloyds Bank, which appeals to a global investor base and is one of the biggest sterling covered bond issuers, was deemed an ideal candidate to pick up the baton of Sonia-linked issuance.

HSBC also participated in follow up Sonia supply from Yorkshire Building Society. These trades were part of the covered bond product’s internationalisation – a theme that HSBC has led with the bank ranked at the top of the league tables after combining euros, sterling and US dollar deals.

This unmatched ability to bring issuers to different covered bond markets is one of the key reasons behind its award of Covered Bond House of the Year.

In the US dollar market, for example, HSBC played a role in spotting opportunities, such as Lloyds’ first covered bond in the currency, a US$750m print.

Meanwhile, in the bread-and-butter euro market, while HSBC has not matched the numbers of some of the European powerhouses this year, it scored successes from a variety of issuers, from ABN AMRO’s €1.25bn 20 year – the tightest 20-year covered since the financial crisis – to punchy shorter-dated Canadian offerings.

HSBC has demonstrated the reach of its global coverage, winning mandates from Spain to Singapore, Italy to Australia, taking advantage of its presence in Europe, Asia and North America and its active balance sheet.

“Covered bonds came to the fore, and HSBC has been at the forefront of that,” said Hugo Moore, head of frequent borrowers and covered bonds.

The strength of HSBC’s financials platform is not just based on its covered bond expertise, however. It has acted as a bookrunner on several important deals across the capital structure, most notably Restricted Tier 1 deals from insurers and Additional Tier 1 transactions from banks.

These can be complex deals requiring a collegiate approach between the structuring, origination, and syndicate teams. In the RT1 sector, for example, there is no standard structure, with deals adopting different loss-absorption mechanisms and tax and legal considerations.

HSBC has been at the forefront of the product’s development, acting as a joint-structuring adviser and lead manager for Direct Line’s £350m perpetual non-call 10 in December 2017, which was the first sterling RT1 debt.

Away from RT1s, another insurance deal that stands out is a triple-tranche offering by Prudential that included sterling and US dollar notes. The innovative bond enabled Prudential to effectively pre-capitalise the future M&G Prudential before that company had even been set up.

Prudential unveiled plans in March to spin off the UK business from its US and Asian operations to create two separately listed companies.

The bonds contain a substitution clause enabling the issuer to switch to M&G Prudential once the group has split in two.

STANDOUT IN ASIA

Nowhere exemplifies HSBC’s DCM capabilities better than Asia, where it is again Bond House of the Year.

The bank led a string of sovereign issues from China, South Korea, Sri Lanka and Indonesia, as well as deals for state-linked enterprises, but it did not shy away from a challenge, helping first-time issuers and lower-rated credits access the market throughout the year.

Notably, with 17 Asian G3 deals pulled during bookbuilding during IFR’s review period, HSBC gave issuers greater confidence than its rivals that they would be able to complete their trades, without resorting to underhand tactics that were a feature of many Asian new issues in 2018.

HSBC held onto its place at the top of the G3 league table for Asia-Pacific excluding Japan and Australia, with US$21.8bn of volume from 205 deals during the awards period, according to Refinitiv data.

Market conditions were markedly weaker after February, and issuers and advisers had to adjust to a new world in which primary issuers had to offer suitable new issue premiums or fall short of size expectations.

As the year progressed, it became clear that there was demand for long-dated assets from high-quality issuers, and HSBC was quick to respond to that need.

In Singapore, its US$1.35bn trade for Temasek Holdings in July alerted the market to the clear appetite for long-dated paper from select issuers, laying the ground for deals to follow soon after at the same tenor from China Merchants Port Holdings and Singtel.

It did a similar thing in September, reopening the 30-year dollar market in Asia with a US$400m tranche as part of a US$2.4bn transaction for China Petrochemical Corp, to be followed by tranches at the same tenor from the Republic of Korea and the People’s Republic of China.

The bank was joint global coordinator for jumbo dual-currency deals from ChemChina and State Grid, as well as on Tencent’s US$5bn multi-tranche dollar deal, which repriced the tech company’s curve tighter in January.

It was ever-present in the challenging high-yield market, seizing on a period of calm in July after China announced a policy easing to bring new trades from property developers, and even venturing into frontier territory for Development Bank of Mongolia’s first standalone bond, a US$500m five-year issue in October.

HSBC continued to demonstrate its traditional strength with financial issuers. Among them, Woori Bank reopened the Asian offshore bank capital market in August with a US$300m Tier 2 offering, while Shinhan Financial Group’s US$500m AT1, the first such instruments to be issued offshore by a South Korean financial holding company, achieved tight pricing despite being the first dollar AT1 issue in Asia-Pacific in 2018.

In Singapore, HSBC brought United Overseas Bank to the 144A market in April for its first offering there, before taking it back to Europe for a €500m five-year covered bond in September.

The bank used its reach to add diversity to the G3 market. HSBC helped bring Thai Exim to market for its US dollar debut, making it the first Thai policy bank to issue offshore. This was followed by a US$1bn long-dated dual-tranche issue for Thai Oil, in its first dollar print since 2013.

Green and sustainable financing continued to bloom, and HSBC brought debut Green trades for the Indonesian sovereign, State Bank of India and Korea Hydro Nuclear Power throughout the year, as well as a €925m issue from ANZ that was aligned with the UN’s Sustainable Development Goals.

Liability management was a key theme this year too, and HSBC managed to convince new names such as Indonesian state-owned electricity utility Perusahaan Listrik Negara and Philippine refiner Petron to incorporate tender offers as part of their primary issue strategies.

Throughout heightened volatility, HSBC managed to react quickly and bring tailored deals to match changing investor demand.

To see the digital version of IFR Awards 2018, please click here.

To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

Bond House, SSAR Bond House, Covered Bond House and Asia Bond House of the Year: HSBC