NEW YORK: HSBC could bring a large Additional Tier 1 trade as early as next week, potentially following Barclays into the US dollar market after its successful subordinated bond, market sources told IFR.
If HSBC chooses to issue in dollars, the deal would be the year’s first AT1 issue from a UK bank in that currency.
With the UK set to vote on whether or not to leave the European Union in June, bankers and investors said a trade next week would be well timed.
“Bonds are back up at their highs for the range, and spreads have come in materially,” said Phil Jacoby, chief investment officer at Spectrum Asset Management, a buyer of bank capital.
“It’s a good time to issue paper; there are buyers everywhere.”
Barclays took advantage of tighter spreads on Thursday to print the year’s second US dollar subordinated bond from a UK bank.
It built a US$2.7bn book for the US$1.25bn 10-year deal and the issue was 4bp tighter than its reoffer spread of 345bp over Treasuries on Friday.
Lloyds Banking Group’s 4.65% March 2026 Tier 2, the only other US dollar sub bond from a UK bank this year, was trading at 272bp on Friday, having widened to as much as 310bp mid-April. It priced at T+278bp in March.
Market participants put some of the recent tightening in subordinated debt down to receding concerns about Britain’s potential exit from the EU.
“It definitely feels like the market is pretty relaxed around the outcome,” said a syndicate banker. “Markets have swayed towards the UK staying in the EU.”
HSBC said it would be “pretty busy” with new issuance every quarter for the next three years as it faces having to print up to US$70bn of debt to meet new capital adequacy requirements.
The dollar market is an attractive proposition for that issuance, particularly following Barclays’ success in sub debt earlier this week, said bankers.
“It would give the safety net of the Asian retail bid and the ability to make a global offering,” said a DCM banker.
“They have to hit any window as they come, especially as conditions can become volatile very quickly.”
HSBC printed a well-received US$7bn holding company bond in March, its largest ever in dollars.
The deal counts towards the bank’s Total Loss Absorbing Capacity requirement, a new regulation introduced by the Financial Stability Board last year.
That trade was followed by successful TLAC-eligible holdco deals from other European issuers, including Royal Bank of Scotland and Credit Suisse.
“US dollars is a deeper market for holdco debt, investors are happy to buy it, whereas European investors are wondering if it’s the right time or not,” said Laurent Frings, global head of credit research at Aberdeen Asset Management.
Copyright Reuters, 2016
Courtesy : BRecorder