HSBC Reopens AT1 Bond Market with $2.5 Billion Raise

HSBC Holdings Plc has successfully reopened the market for Additional Tier 1 (AT1) bonds, raising $2.5 billion through a dual-tranche offering. This marks the first major-currency AT1 bond sale since the outbreak of the conflict involving Iran in late February, which previously halted activity in this high-risk segment of the credit market.

Details of the Offering

The offering consists of two perpetual notes, callable in 5.5 years and 10 years, respectively. HSBC raised $1.25 billion through each tranche. The 5.5-year bonds yield 6.75% annually, while the 10-year bonds offer a 7% yield. These yields are approximately half a percentage point tighter than initial marketing levels, indicating strong investor demand Bloomberg.

AT1 Bonds and Market Conditions

AT1 bonds are deeply subordinated and considered high-risk investments, but they typically offer higher returns. Issuance of these bonds had stalled due to concerns surrounding the war in the Middle East and banks’ exposure to private credit. Despite the recent market volatility, existing AT1 debt has largely avoided significant sell-offs Business Times.

Investor Sentiment

Investors are reportedly holding onto existing AT1 bonds, anticipating opportunities to re-enter the market at attractive prices once conditions stabilize. Simon Adamson, head of financials at CreditSights, noted that the recent spread widening presented a favorable opportunity to purchase HSBC AT1s at more attractive levels Business Times.

HSBC’s Position

HSBC is the largest issuer of AT1 bonds globally, with over $23 billion outstanding. The bank intends to use the net proceeds from the sale for general corporate purposes and to bolster its capital base in accordance with regulatory requirements. HSBC engaged 33 banks, including Citigroup, Morgan Stanley, and Goldman Sachs, to facilitate the sale of the securities Business Times.

HSBC too has a £1 billion AT1 bond with its first call date scheduled for September Business Times.