Emerging Markets Bond House and Middle East Bond House: HSBC

IFR Awards 2021
9 min read
Sudip Roy

Targeting the core

HSBC’s strategy has evolved to focus on the most important markets, clients and products. Its business is still global but no longer all-encompassing. This more targeted approach is paying off, especially in its core regions. HSBC is IFR’s Emerging Markets Bond House and Middle East Bond House of the Year.

HSBC is going through a change in its debt capital markets business. The strategy is no longer to chase every deal in as many countries as possible. Instead, it’s to make a difference in the areas that matter to clients, be that in terms of product, currency or structures.

It still has global reach – as shown by the fact the bank helped its EM clients print in 17 different currencies across public and private formats – but its strategy is more nuanced than before.

The change has been driven by the group’s management, with the bank cutting back exposure to certain markets and the DCM business having to adapt as a result.

Adam Bothamley, global co-head of debt capital markets, describes the strategy as “a bottom-up approach".

In practice that means taking leadership positions on the most high-profile transactions. It’s about continuing to develop the EM asset class through products such as ESG, sukuk and Formosa bonds. And it means taking the knowledge and understanding the bank gains from having a presence in particular countries, such as China, and applying that to clients around the world.

What it doesn’t mean is chasing volume for volume’s sake. “We don’t set ourselves a target to be number one by volume,” said Bothamley.

The upshot is that though all of the developing regions are important to the business, Asia and the Middle East are key.

Leaders in the Middle East

The bank’s leadership in South and East Asia is well known. For 2021, IFR is also recognising HSBC’s business in the Middle East, with the bank winning the award for Middle East Bond House of the Year as well as that for overall Emerging Markets Bond House of the Year.

“We really ticked all the boxes – ESG, bank capital, currency diversification, project bonds,” said Khaled Darwish, head of DCM, Middle East and North Africa.

The bank can point to several successful sovereign and FIG deals from the region but what really stands out is its corporate portfolio.

Corporate issuance was a big theme in the Middle East in 2021 and HSBC was involved in almost all of the most important deals. Thanks to its local presence and international distribution, HSBC was able to win and then execute transactions for the region’s blue-chip issuers in quick succession and across different markets.

Between late April and early May, for example, it was the only international bank to be on bond deals for energy company Taqa, telecom company Etisalat and infrastructure company Abu Dhabi Ports. Taqa's deal was a US$1.5bn dual-tranche transaction that included a US$750m 30-year Formosa bond; Etisalat also brought a dual-tranche deal but in euros, raising €1bn; and Abu Dhabi Ports' trade was a single-tranche US$1bn 10-year conventional note.

More structured, project-based financings are becoming a bigger theme in the region. The bank was a global coordinator on a US$3.92bn transaction by Galaxy Pipeline Assets BidCo to cover the outstanding amount of a jumbo bridge loan on a vital piece of Abu Dhabi’s infrastructure.

Initially the company was seeking to raise about US$2.5bn but a book that doubled in size after the US market opened led to a reassessment of plans. That meant Galaxy was able to complete the refinancing of an US$8bn bridge loan that still had US$4bn outstanding.

HSBC was also involved in three record-breaking corporate deals from the region. At the end of June, Qatar Petroleum printed the biggest corporate deal ever from the GCC region: a US$12.5bn four-tranche deal to fund investment projects.

It marked the first high-profile Qatari corporate deal for HSBC since the bank had sought to regain its status as a leading debt underwriter in the Gulf state. HSBC had decided to step down from high-profile transactions in Qatar in the wake of a diplomatic crisis between Doha and Saudi Arabia and its allies in 2017, prioritising business in Saudi Arabia instead.

But with relations thawing between the two sides and after missing out on a jumbo offering from Qatar in April 2018, the bank changed its strategy. It had already worked on a number of Qatari FIG deals but QP was a different scale.

“We really delivered on the Asia side,” said Bothamley, highlighting HSBC’s role as billing and delivery manager on the US$4bn 30-year Formosa tranche. “Overall demand from Asia was instrumental for the deal.”

The second record deal was Saudi Aramco’s US$6bn sukuk in June, the biggest corporate sukuk issue. While Aramco is a credit that sells itself, in this instance it was less straightforward as it became the first test of the sukuk market following the adoption of certain sharia-compliant standards by the UAE.

Those regulatory changes meant that any sukuk issuer wanting UAE investors involved in their deal needed to adapt their structures. HSBC was sukuk structuring agent as well as bookrunner. “It took two months,” said Darwish.

The third deal was Israeli firm Teva Pharmaceuticals' US$5bn-equivalent dual-currency sustainability-linked bond, the biggest deal ever in that structure. Although there were some quibbles about the pricing strategy, especially for the euro tranches, the performance of the bonds after they were free to trade suggested the deal’s execution was spot on. HSBC was an ESG structuring agent as well as a lead manager.

Going green

ESG was a big theme for the bank’s Asia business. “We’ve done a lot of innovative deals,” said Sean McNelis, global co-head of debt capital markets.

In China, for example, it was structuring adviser on 13 ESG-related deals, including a US dollar/renminbi dual-tranche deal for Bank of China HK, which was the first transition bond aligned to ICMA's Climate Transition Finance Handbook. Another highlight was the first sovereign sustainable sukuk, an US$800m 10-year deal for Malaysia. HSBC was sole green structuring adviser.

The bank was also a green structuring agent on Delhi International Airport’s US$450m four-year green bond. This was an example of bringing a sector back to the market after being badly hit by the effects of the pandemic.

Away from ESG, in Asia the FIG sector was an area in which HSBC did especially well. Its work for AIA Group is a good illustration of the bank’s capabilities, helping the insurer raise subordinated debt in US dollars, euros and Singapore dollars in three separate transactions.

“It shows what HSBC can do across all of these different types of products,” said McNelis.

In corporates, the highlight was leading a four-tranche deal for Chinese technology company Tencent that included 30 and 40-year tenors, fitting in with the theme of duration that was so evident in bond markets in 2021.

As for other aspects of its corporate business in the region, one question that has been asked of the bank is its exposure to the Chinese property sector, which has experienced several defaults, most notably by China Evergrande Group.

The bank’s management has publicly stated that “we do not have any exposure to Evergrande”. Overall it has said that its exposure to mainland Chinese property companies was US$14.7bn, as of the end of the third quarter, and that the bank is “comfortable with our exposure” to the sector.

Outside the Middle East and Asia, the bank may not be as high in the league tables but it still had some notable transactions, particularly in those areas that it is keen to stress: ESG, local currency and liability management.

“We may not be in the top three in terms of volume, but we have increased our profile,” said Bothamley about the bank’s Latin America business.

In January the bank was a lead on Chile’s US$4.25bn-equivalent green and social bond issues. The deal, which was in US dollars and euros, included the biggest social bond out of Latin America.

To see the digital version of this report, please click here

To purchase printed copies or a PDF of this report, please email leonie.welss@lseg.com