Delivering solutions
The local markets bond business is the underappreciated arm of a debt capital markets franchise. But while attention naturally gravitates to the mainstream currency markets, niche markets continue to provide a crucial source of funding, especially during times of crisis. For its ability to lead transactions in markets across the world, HSBC is IFR’s Niche-Market Bond House of the Year.
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The bank is one of the few that can call itself truly global and that is reflected in its leadership in local and niche markets. “These markets have become more important for our clients,” said Ali Hussain, HSBC’s global head of MTNs and structured notes.
That’s reflected in the burgeoning Formosa market, where HSBC is one of the few banks that can underwrite and do the billing and delivery for 144A bonds. Among its highlights in the Formosa market were the debut deals it brought for Sabic and Sharjah.
Sabic’s US$500m 30-year note was the Saudi Arabian company’s longest bond and came 25bp inside the sovereign. The US$1bn 30-year deal for Sharjah was also its longest and was part of its broader issuance strategy in Asia, having made its debut in the Panda market in 2018, in a deal also led by HSBC.
HSBC’s deal-making in the Formosa market was just one part of its overall dominance in Asia. It was a leading player in a number of jurisdictions in the region and the only bank that executed transactions in all eight major Asian currencies during the awards period.
More than its regional reach, though, what stands out was the type of deals it brought to the primary market. In Singapore dollars, for example, it led a S$150m (US$111m) perpetual non-call 5.5-year bond for Central and Eastern European property company CPI. In so doing, CPI became the first European corporate issuer to sell a hybrid in the Singapore dollar market. Not only that, the deal priced flat to its euro hybrid curve.
In a similar vein, HSBC helped Swiss Re sell a S$350m 15-year non-call five Tier 2, the first benchmark Singapore dollar Tier 2 for a European insurer.
In the onshore renminbi market – where HSBC is the number one international dealer – two standout trades were for SMBC and AIIB. The SMBC deal was the first by a Japanese issuer to access the Panda market since 2018.
AIIB, meanwhile, made its debut in the CNY market with a Rmb3bn (US$424m) three-year note, which became the tightest ever priced Panda bond. HSBC also led AIIB’s debut Dim Sum bond in January, showcasing the bank’s ability to deliver in both markets.
It would be wrong, though, to think that HSBC was just an Asian market specialist. It also did deals in Canadian dollars, Saudi Arabian riyal and Polish zloty, among other currencies.
It was also particularly active in Latin American markets. In June, for example, HSBC was a lead on Uruguay’s combined Uruguayan peso inflation-linked and US dollar dual-tranche issue, which was concurrent with a one-day switch liability management operation.
It was the first capital raise by the sovereign following the Covid-19 outbreak. The centrepiece was a new 3.875% SEC-registered Ps68.5bn (US$1.6bn) 20-year inflation-linked bond that was issued for new money and liability management purposes and effectively reopened the local currency markets in global format for emerging markets issuers. The sovereign also tapped its US dollar 2031 bonds for US$400m.
“They hardly ever come to the markets so to do it at the peak of the pandemic was a vote of confidence in HSBC,” said Hussain.
“This deal is niche markets at their best. For global emerging markets this was still an extremely challenging time. The liability management piece was critical and the choice of currency was key.”
The deal encapsulated the very best of primary market deal-making: delivering a complex solution for an issuer at a time of global crisis.
The other theme that HSBC delivered on was ESG. It was a lead, for example, on Bank of China, Macau branch’s HK$4bn (US$513m) two-year Covid-19 alleviation notes. That was the first ever international bond with use of proceeds dedicated to Covid-19 impact alleviation.
“Within these niche markets, we bring the same focus on ESG,” said Hussain.
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