HSBC Holdings announced plans to issue $2.5 billion in convertible securities next week, joining a global surge in investment-grade bond issuance. This move comes as investors seek higher yields before a potential interest rate cut by the Federal Reserve. HSBC’s issuance includes $1.35 billion in perpetual subordinated contingent convertible securities with a 6.875% interest rate, callable during any 2030 optional redemption period, and $1.15 billion in 6.950% notes, callable during any 2034 optional redemption period.
This follows HSBC’s capital raising of $1.15 billion in June through a similar instrument at 5.25% per annum. Investors are eager to lock in higher yields, anticipating lower rates after the Fed’s upcoming meeting, where traders are predicting a 55% chance of a 25-basis-point rate cut and a 45% chance of a 50-basis-point cut.
Kenny Ng, a strategist at Everbright Securities International, commented that investors are showing increased interest in higher-yielding bonds, given the prospect of falling rates. The timing of HSBC’s bond issuance capitalizes on this demand, offering attractive yields for medium to long-term investors.
The securities will be listed on Euronext Dublin’s official list and traded on the Global Exchange Market of the Irish Stock Exchange. Each security will be denominated at $200,000 with integral multiples of $1,000. The conversion price is initially set at $3.55 per share, with the maximum potential issuance of 704 million ordinary shares, representing approximately 3.69% of HSBC’s enlarged share capital.
HSBC stated that the net proceeds, estimated at $2.475 billion after deducting the managers’ commission, will be used for general corporate purposes and to reinforce its capital base according to regulatory requirements.
In parallel, HSBC has been instructed by UK regulators to review its data practices within its commercial banking and global markets divisions. The Bank of England’s Prudential Regulation Authority identified weaknesses in the bank’s model risk, data quality, traded risk, and credit risk management. An independent review of HSBC’s practices is expected to follow.
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