HSBC Boosts Debut Sale of Riskiest Bank Bonds to $5.75 Billion

HSBC Holdings Plc is debuting about $5.75 billion of contingent capital bonds as demand for the riskiest bank debt allowed it to increase the offer.

Europe’s biggest bank is selling $3.75 billion and 1.5 billion euros ($1.94 billion) of the securities, according to a person familiar with the matter. The London-based lender told investors last week it planned to raise as much as $5 billion.

HSBC is marketing additional Tier 1 bonds, which are designed to shift a bank’s losses to investors instead of taxpayers in a crisis, as European lenders rebuild their capital to meet regulatory requirements. It’s the single biggest issue of the debt since the market opened in April last year and the first that will have investment-grade rankings from two ratings companies.

“The investment-grade rating is luring a new investor base in,” said Jorge Martin, a money manager at Lombard Odier in London, which oversees about $3 billion of fixed income. “On top of that, HSBC is big, systemic and present all over the world and this is its inaugural deal.”

HSBC is issuing $2.25 billion of notes to yield 6.375 percent, $1.5 billion to yield 5.625 percent and euro securities to yield 5.25 percent, according to the person, who asked not to be identified because they’re not authorized to speak about the sale. The notes will convert to equity if the bank’s capital ratios fall below 7 percent of assets weighted by risk.

Additional Tier 1 bonds are the riskiest bank debt because they have optional interest payments and no set maturity, meaning cash outflows can be prevented in a crisis.

Average yields on contingent capital bonds rose 14 basis points this month to 5.91 percent, according to Bank of America Merrill Lynch index data.

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