LONDON (Alliance News) - HSBC Holdings PLC Tuesday said it will issue USD2.25 billion of 6.375% perpetual subordinated contingent convertible bonds, with the proceeds to be used to strengthen its capital position and for general corporate purposes.
Contingent convertible securities, known as cocos, are being used by banks to bolster their capital ratios to meet tougher regulatory requirements following the financial crisis of 2007-09. HSBC has previously issued EUR1.50 billion of 5.25% cocos, USD2.25 billion of 6.375% cocos, and USD1.50 billion of 5.625% cocos.
HSBC said the bonds, which have no fixed maturity date, are callable in March 2025 and every five years beyond that point, with interest payments to be paid semi-annually.
As is the case with all cocos, a so-called trigger event can result in the bonds being converted into ordinary shares in HSBC in order to defend its capital strength. Such a trigger event takes place in the case that HSBC's end-point Common Equity Tier 1 ratio - the relation between common equity tier one capital and risk-weighted assets - falls below 7.0% "as of any business day on which the company calculates" the ratio.
In the case of automatic conversion as a result of a trigger event, the bonds would be converted to equity at a price fixed initially at USD4.03488.
HSBC shares were down 0.4% at 576.40 pence on Tuesday morning in London.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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HSBC Holdings (HSBA)