HSBC launches US$2.5 billion AT1 bond issue in Hong Kong after market standstill

HSBC Holdings plans to raise US$2.5 billion by issuing two tranches of additional tier-1 (AT1) bonds, marking the reopening of such offerings after the US and Israel war on Iran rattled global financial markets. The biggest lender in Hong Kong and Europe by assets said in a stock exchange filing before the market opened on Wednesday that it intended to issue the AT1 bonds, officially named perpetual subordinated contingent convertible securities, on March 24 to strengthen its capital. The offering comprises US$1.25 billion in five-year bonds at 6.75 per cent per year, and another US$1.25 billion in 10-year bonds at 7 per cent. “The company intends to use the net proceeds from the sale for general corporate purposes and to maintain or further strengthen the bank’s capital base under regulatory requirements,” it said. HSBC had entered into agreements with 33 banks to sell the securities, including Citigroup, Morgan Stanley and Goldman Sachs, the filing said. This is the first AT1 bond offering since the February 28 outbreak of the war between the US and Israel against Iran, which halted such deals. AT1 bonds are considered high-return but high-risk products for investors. “HSBC’s placement signals renewed investor appetite for high-yield, subordinated bank debt after periods of caution,” said Tom Chan Pak-lam, honorary president of the Institute of Securities Dealers, an industry body for local stockbrokers. “Overall, this enhances HSBC’s capital flexibility and resilience, supporting its strategy in high-growth markets like Asia while maintaining a solid capital ratio.” Shares of HSBC rose 1.5 per cent to HK$126.70 at the noon trading break on Wednesday following the announcement. “It is natural to see the first major AT1 bond offering issued in Hong Kong as the city is relatively more stable than many other markets,” said Wilson Chan, adjunct professor at City University, who was a banker for three decades. “The HSBC offering should be able to attract a lot of Middle East and other international investors who want to diversify their risk portfolio amid geopolitical tensions,” he said. “HSBC is making a majority of its profit from Asia, which is far away from the war zone and is the world’s fastest-growing area.” He said the fundraising came after HSBC completed a US$14 billion buyout of its subsidiary Hang Seng Bank in January, which required strengthening its capital for further expansion. HSBC raised US$2 billion last May via the same instrument at an annual rate of 7.05 per cent. Major banks issue AT1 bonds from time to time to support their lending businesses. Wilson Chan said he expected more Chinese lenders to issue AT1 bonds in Hong Kong to capture international funding for mainland China infrastructure projects under the new 15th five-year plan. HSBC’s AT1 bond will be traded on the Global Exchange Market of the Irish Stock Exchange in Dublin within 30 days of the issue date, with a denomination of US$200,000. Investors cannot redeem the instrument during the tenure, but can exchange it for HSBC shares if the bank’s capital adequacy ratio falls below 7 per cent. The ratio stood at 14.9 per cent at the end of December.