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LONDON, May 24 (IFR) - HSBC is marketing a US dollar Additional Tier 1 deal, the first from a UK bank this year and with the UK’s EU referendum less than a month away.
The UK lender set initial price thoughts of 7.25% area on the perpetual non-call five-year self-led benchmark in Asia’s trading session on Tuesday in a test of investor appetite for the riskiest type of bank debt.
The deal is coming less than a month before the June 23 referendum on the UK’s EU membership, which has hung over markets for much of this year. However, market participants downplayed the impact on HSBC, which is seen as a global rather than a UK bank.
While Brexit remains a concern, much of its impact has been priced in, said one banker, and recent polls have been in favour of a vote to remain.
“We’ve seen an outperformance of UK banks recently as people look to get ahead of it and get back to market weight. Now investors feel they should be adding in primary, where at least there are new issue premiums,” he said.
HSBC also enjoys some of the best ratings in the AT1 market. The SEC registered bonds are expected to be Baa3/BBB by Moody’s/Fitch.
“They’re pursuing a strategy of just executing deals, regardless of market conditions. It’s admirable, not all banks can do that,” he said.
Even so, the widespread turmoil in the AT1 market earlier this year seems to have taken its toll, even on HSBC.
Its US dollar perp callable 2020s and perp callable 2024s issued in September 2014 carry much lower coupons of 5.625% and 6.375%.
“We’re in a very different pricing environment,” the banker said.
The US$1.5bn 5.625% deal was bid around 6.80% on Tuesday morning, according to Thomson Reuters data.
HSBC said in the middle of May that it expected to be “pretty busy” every quarter for the next three years as it needs to issue up to US$70bn to replace debt due to mature by the end of 2018.
It also needs to issue more debt to meet new global total loss-absorbing capacity rules. (Reporting by Alice Gledhill, editing by Julian Baker)