Bond House: HSBC

Two steps ahead

As international bond issuance soared to a record pace in Asia, one bank maintained its leadership and added to its already enviable market share. For playing to its strengths, HSBC is IFR Asia’s Bond House of the Year.

HSBC broke away at the top of the table despite tough competition, booking US$35.9bn from 327 issues in Asia ex-Japan. Not only did the volume of deals rise 37%, but the bank also grew its market share by 130bp to 8.9%.

Risk appetite at the start of IFR’s review period in November 2018 was weak, due to expectations that the US Fed would raise rates several times in 2019. HSBC resisted the temptation to push through deals in a soggy market and instead advised some issuers to wait for better conditions in January.

That paid off with a strong start as fund managers put cash to work in the new calendar year, before markets became more bullish as rate expectations reversed.

“At the start of the year, market conditions were challenging, but we later enabled issuers to push out duration,” said Sean McNelis, co-head of debt capital markets for Asia Pacific alongside Sean Henderson.

The blockbuster US$6bn multi-tranche Yankee for Tencent Holdings was a highlight, as the first deal of the year to take an Asian issuer out to 30 years.

That tenor would become increasingly popular among investment-grade issuers as the year went on, but the desire for duration allowed HSBC to make use of its expertise in structuring perpetual bonds and hybrid capital for Asian issuers.

It had already shown the possibilities in November 2018 when it brought Thai hospitality group Minor International to market for a debut dollar deal, a US$300m perpetual non-call three with a guarantee from Bangkok Bank to help finance a European acquisition.

HSBC brought Greentown China and New World Services to market with perpetual bonds in January, before China’s Ministry of Finance published guidelines on the accounting treatment of perpetual corporate bonds later that month.

While the guidance was never translated into a formal set of rules, it made Chinese issuers think twice about hybrid issuance. HSBC was the first to reopen the market in June, structuring a deal for China Railway Construction Corp with a low step-up to reduce pressure on the issuer to redeem at the first call date and ensure that it could earn equity treatment. The US$1bn subordinated perpetual was the first from a Chinese state-owned enterprise since the guidelines and set a template for future issuance.

The Asian high-yield market hit new heights in 2019, driven by Chinese property developers, and HSBC was one of the leaders in that market. Volatile conditions and changing sentiment meant that issuers had to pick their timing carefully and print in manageable sizes to avoid overwhelming investors. HSBC avoided reckless underwriting, but still managed to stay at the front of the pack.

Issuers rewarded the bank with repeat business. HSBC brought Zhenro Properties to the dollar market eight times, moving from a 363-day US$200m issue in January to a US$200m perpetual by June as the market improved.

Duration and high yield demand combined in July when HSBC acted as financial adviser to power producer Mong Duong 2 on its US$678.5m 9.8-year project-type amortising bond, the first international bond from a Vietnamese project.

The bank also took advantage of rule changes in India to bring issuers offshore, notably from the renewable power sector.

That aligned with its strengths in ESG finance, too. It brought green or sustainable bonds from the Republic of Korea and Hong Kong, as well as a green sukuk for the Indonesian sovereign, a debut green bond for the Philippines’ AC Energy, and a dual-currency issue for Korea’s LG Chem as it diversifies into batteries for electric vehicles.

Again, HSBC was able to combine its strengths when it worked on a liability management exercise for property company China Jinmao Holdings Group, exchanging 2021 senior notes for new green bonds, including a new-money tranche.

HSBC maintained its usual strong showing in FIG. It brought a US dollar Tier 2 from Australia’s Westpac and AT1 issue from Hong Kong’s Bank of East Asia, which were the first in their jurisdictions to include language around loss-absorbing capacity ahead of the introduction of TLAC.