HSBC issues £1 billion perpetual securities to meet EU capital rules

PUBLISHED : Friday, 21 September, 2018, 12:20pm
UPDATED : Friday, 21 September, 2018, 9:56pm

HSBC plans to issue £1 billion (US$1.33 billion) of perpetual debt, with an interest rate of 5.875 per cent, in order to strengthen its capital base to meet European Union regulations.

The net proceeds from the issuance are expected to be £990 million, after deducting the commission fees.

“The company intends to use the net proceeds from the sale of the securities for general corporate purposes and to further strengthen the company’s capital base pursuant to requirements under CRD IV,” HSBC said in a filing to the Hong Kong stock exchange on Friday.

“CRD IV”, introduced by the European Union in 2013, is a legislative package that is intended to strengthen regulation of the EU’s banking sector and implement the Basel III agreement – a set of global measures drawn up in response to the financial crisis. It contains enhanced requirements for investment banks and credit institutions about the quality and quantity of capital, new liquidity and leverage rules, and macroprudential standards.

HSBC CEO Flint says bulk of the group’s planned US$15-17b investment targeted at Asia

The rules have been phased in since 2014 and will come into full force on January 1 next year.

The so-called subordinated contingent convertible securities will be issued via stock exchanges in London, Hong Kong, New York, Paris, and Bermuda, where HSBC Holdings is listed, the bank said.

If underwriters exercise the over-allotment option in full, the total amount will increase to £1.1 billion, HSBC added.

As with other perpetual debt, the notes have no specified maturity date. But they are callable on September 28, 2026, and every five years thereafter, meaning the issuer has the option to repay the principal on those dates.

If a “capital adequacy trigger event” occurs, these securities will be automatically converted to ordinary shares, at a conversion price of £2.70 per share, equivalent to a maximum 370.37 million conversion shares, it added.

A capital adequacy trigger event, as defined in the filing, occur if the ratio of a bank’s common equity tier-1 capital to its risk-weighted assets falls below 7 per cent.

Like other subordinated debt, the securities rank after other debt and can only be paid after all other debt and loans have been settled, should the borrowing company fail.