Bond House, Domestic Bond House
In a year marked by rapid swings in sentiment in both global and local currencies, one bank picked the right deals at the right time and still managed to introduce new issuers and unique structures to the market. For deftly negotiating difficult market conditions, HSBC is IFR Asia’s Bond House and Domestic Bond House of the Year.
HSBC passed every test that came its way in 2016, dodging market volatility to raise funds for its clients and fending off intense competition to grow its share of the debt underwriting business.
The year blew hot and cold, as risky assets sold off in the first quarter, bringing Asian issuance to a halt. The market had turned by May, and even the volatility caused by the UK’s unexpected vote for Brexit in June could not interrupt the momentum for long. By August, Asia was in the midst of a full-fledged bull run, which would last until the US election in early November.
Negotiating those conditions meant being able to act quickly and tread nimbly, choosing the right windows and identifying the best pockets of demand. HSBC was quick to help its clients seize the right moment, whether it was high-quality issuers like China Development Bank, Ping An Insurance or Korea Development Bank selling bonds to cautious investors in search of safe havens during the first quarter, or higher-yielding issuers and structures meeting the hunger for yield from mid-year onwards.
“Despite increased competition in Asian G3 bonds, we succeeded in growing market share,” said Alexi Chan, global co-head of debt capital markets at HSBC. “Issuers turned to HSBC to help them navigate the markets and for best execution, in a year where the global economic and political landscape evolved rapidly.”
In a highly competitive Asian DCM market, HSBC achieved 10.1% market share and booked US$28.8bn from 161 deals in Asia ex-Japan G3. Not only was that an increase on the previous year’s total of US$24.7bn and 9.6% share, it also widened the gap from the second-place challenger.
The bank landed roles on deals for most of the major Asian sovereign issues during the year, working with Indonesia, the Philippines, Malaysia and Sri Lanka. It was also there for quasi-sovereign issuers like Korea Development Bank and Temasek, when the latter made its debut in euros, and multi-tranche offerings for major Chinese state-owned enterprises like Sinopec and State Grid.
Bank capital was a major part of the Asian bond market this year, and HSBC took part in more offshore Basel III issues than any other house. It had to educate investors about different loss-absorption frameworks around the region as Singapore and India launched their first US dollar Additional Tier 1 issues, while Woori Bank issued Korea’s first AT1 under new, less investor-friendly guidelines. It was also a joint global coordinator when China Cinda Asset Management entered uncharted territory with the first AT1 issue from a Chinese asset management company.
In Australian FIG, it helped QBE Insurance take out old-style capital and replace it with new Tier 2 US dollar bonds, while repeat deals for Westpac culminated with a huge US$5bn senior trade in August.
HSBC brought the first fixed-for-life perpetual deal in Asia this year for Cheung Kong Infrastructure Holdings, a blistering success that was increased in size to US$1.2bn and opened the door for others like New World Development to lock in attractive pricing.
A US$400m perpetual non-call three private placement backed by a total return swap for Greentown China Holdings and the first perpetual hybrid from a Chinese AMC, for China Huarong Asset Management, showcased HSBC’s strengths in structuring.
It was a global coordinator when Bank of China sold a US$500m senior secured three-year in November. The issue was an important step towards the development of a covered bond market for China, using a pool of Green renminbi-denominated bonds as security to earn a one-notch rating uplift.
HSBC also played a crucial part in the comeback of the high-yield market. Chinese supply dominated Asian high yield, and allowed issuance to keep going, albeit at small deal sizes, during the risk-averse conditions of early 2016, but HSBC brought deals from the Philippines’ Vista Land, Indonesia’s Sri Rejeki Isman and India’s Samvardhana Motherson Automotive Systems, too.
Its trade for China’s Road King Infrastructure in early August was one of the year’s most eye-catching: even though the US$450m three-year trade priced far tighter than the its curve would have suggested, it traded well enough to allow Road King to return the same month for a further US$500m from a five-year non-call three.
“HSBC’s solutions-driven approach delivered innovation for our clients across numerous segments of the Asian debt markets,” said Chan. “This included sustainable finance, where we helped lead a step-change in Green bond issuance from the region in 2016.”
As Green bonds grew in importance, HSBC made sure it was involved in some of the most significant transactions, whether it was the first corporate issue from Hong Kong, for Link REIT, the first offshore issue from an Indian commercial bank, for IDBI Bank, or the largest deal of all time, for Bank of China.
Asian issuers dipped into the euro market selectively, and HSBC helped bring the likes of CK Hutchison Holdings and Telstra there, as well as working with Singapore’s United Overseas Bank for its covered bond debut, the first in that currency from an Asian bank. It also led the wave of Australian issuers into the currency, leading deals for Telstra, Scentre, ANZ and Westpac.
HSBC added to its credentials in Asian local currency markets, too, playing a big role in deepening the onshore Panda market and in making the first corporate Masala bonds a reality.
On the Masala front, HSBC was involved in the first Green bond issued in offshore rupee, acting as joint bookrunner when NTPC printed an Rs20bn (US$291m) five-year at 7.35% in August. The transaction managed to price through NTPC’s onshore curve and saw strong take-up from European investors, notably dedicated Green funds from Germany and Denmark.
The bank was also part of a Masala offering from British Columbia, which was the first from a sovereign or sub-sovereign issuer. HSBC acted as arranger for a concurrent Rs5bn private placement from HDFC of a matching tenor, allowing BC to invest the proceeds in that bond, earning 7.50%, having raised its own debt at 6.62%.
HSBC has also positioned itself strongly in the Panda market, and has acted as lead underwriter for more Panda bonds than any other non-Chinese firm.
This year, HSBC blazed a trail in the sovereign Panda space. In December 2015 it helped the Republic of Korea become the first foreign government to issue onshore in renminbi, with an Rmb3bn (US$434m) three-year print at 3.0%, serving as joint lead underwriter. The next month it brought British Columbia to the Panda market, making it the first from a sub-sovereign, and also set a record low coupon at 2.95%.
Then, in August, HSBC brought another first-of-its-kind Panda to the market, serving as the joint bookrunner and joint lead underwriter for the Republic of Poland’s Rmb3bn three-year Panda that printed at 3.40%. This was the first onshore renminbi bond issued by a European sovereign and the first Panda bond bought in significant quantity by foreign investors.
HSBC was also a joint bookrunner when the World Bank sold bonds denominated in special drawing rights, the first in the IMF’s synthetic reserve currency in decades. The bonds were sold in China’s onshore market and settled in renminbi, but the complications of the structure, and the razor-thin 0.49% coupon for three years, were no hindrance to demand.
In July, HSBC combined its strengths in the renminbi market and Green financing, helping to arrange the debut issue of New Development Bank, a multilateral development bank formed by the BRICS emerging market countries. The Rmb3bn five-year onshore issue was the first onshore renminbi bond sold by a supranational issuer this decade, and the largest-ever by a multilateral development bank.
It was just one more first in a year peppered with them, and a reminder of the global connectivity HSBC brings to the Asian bond market.
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