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By Aimee Donnellan
LONDON, Sept 2 (IFR) - HSBC is preparing to sell its debutcontingent convertible bond following a global investor roadshowas it seeks to meet new regulatory requirements and replenishits stock of Tier 1 capital.
The bank is planning on selling a US dollar bond but is alsoconsidering a euro issue. HSBC has USD16bn worth of Tier 1capital outstanding, of which USD14bn is eligible forgrandfathering, leaving USD2bn that will need to be replaced asit amortises by 2021.
"This is a logical step for HSBC to take to make its capitalstructure more efficient," said a hybrid capital expert.
The new deal will also help the bank improve its leverageratio, although a banker close to the deal said that was not themotivation for the trade.
UK banks are facing the prospect of having to raise evenmore capital to reach a proposed leverage ratio requirement of5.75%.
The Bank of England's Financial Policy Committee isreviewing plans to increase UK bank leverage ratio requirementsthat could prove yet more onerous than the 3% imposed upon themjust over a year ago, with the largest chunk to be met withCommon Equity Tier 1.
European banks have been actively topping up their capitalbuffers with Additional Tier 1 bonds since the market openedlast year, as it provides a cheaper source of capital thanequity for improving their leverage ratios. HSBC's ratio is4.3%.
Europe's largest bank by assets has hired its own investmentbanking unit as sole bookrunner and coordinator to market theSEC-registered Additional Tier 1 securities.
The bonds will feature a 7% common equity tier 1 triggerwith equity conversion. The bank's common equity ratio is 11.3%on a fully-loaded basis, as of the end of the first half of theyear.
Investor meetings will commence on Thursday and concludenext Tuesday, with the bond issue expected to follow thereafter.
The bonds are expected to be rated Baa3 by Moody's and BBBby Fitch. HSBC's senior ratings are Aa3/A+/AA-.
HSBC has previously said it is planning to raise USD15-20bnof Additional Tier 1 capital in the coming years.
Under the Basel 3 framework, banks can raise 1.5% of their6% Tier 1 capital ratio in the form of non-dilutive equity-likeinstruments.
HSBC has focused its capital raising efforts on Tier 2paper. In March, the bank sold US$3.5bn-worth of Tier 2 capitalthat offered investors coupons of 4.25%-5.25%. (Reporting by Aimee Donnellan; editing by Sudip Roy)
