HSBC adds calls on TLAC Samurai
Bonds Bank finds strong demand from Japanese investors for new structureBY DANIEL STANTONHSBC HOLDINGS introduced callable
TLAC bonds to the Samurai
bond market last week, as
investors flocked to the deal
despite the new structure and a
clash with a US dollar offering
halfway through the marketing
process.
The UK-headquartered bank
on Friday priced a ¥160bn
(US$1.4bn) three-tranche
Samurai offering that will
count towards its total loss-
absorbing capacity.
Orders were heard to reach
¥200bn, but the total size was
capped at ¥160bn. HSBC had
said it might drop one or two
tranches, subject to pricing
and demand, but the strong
response meant it was able to
go ahead with all three.
A ¥79.3bn six-year non-callfive tranche priced at par to
yield 0.575%, equivalent to five-
year yen offer-side swaps plus
40bp. Guidance had started at
40bp–44bp on Tuesday before
narrowing to 40bp–42bp.
A ¥13.1bn eight non-call
seven-year piece priced at par
to yield 0.797%, equivalent to
swaps plus 55bp. Guidance
started at 51bp–55bp before
being revised to 53bp–55bp.
A ¥67.6bn 10-year non-call
nine tranche priced at par to
yield 0.924%, equivalent to
swaps plus 60bp. Guidance
started at 56bp–60bp, before
narrowing to 58bp–60bp.
If the notes are not called,
the coupons will reset to six-
month yen Libor plus 40bp
for the 6NC5 and 50bp for the
8NC7. If not called, the 10NC
will reset to the one-year offer-
side swap rate plus 60bp.HSBC held a non-deal
roadshow a few months before
announcing the transaction,
and discussed the callable
structure with investors.
In response to feedback, a
different structure was used for
the 10NC9 tranche, as investors
preferred a fixed-to-fixed reset
at that tenor.
The callable structure was
used because such bonds no
longer count towards TLAC
when there is less than a year
to maturity.
This was the first callable
TLAC trade in the Samurai
market, but Credit Suisse
pioneered the structure in yen
when it launched a ¥57bn Pro-
bond euroyen transaction in
October 2017, meaning that
Japanese institutional investors
already had some familiarity
with the format.HSBC last visited the Samurai
market with a ¥181.8bn TLAC-
eligible transaction in 2016 that
used bullet maturities.
Most investors were said
to be comfortable with the
callable structure, with only
a limited number passing
on the deal as a result. The
Financial Services Agency’s
revised guidelines in April,
which clarified that regional
banks would only face higher
risk weightings on TLAC bonds
bought after April 1 2019,
also cleared the way for more
investors to come in.
A broad range of investor
types participated, including
trust banks, asset managers,
life insurers, property insurers,
regional banks, shinkin
banks, corporate investors,
foundations and central
cooperatives.
“They like the pick-up
and they thought there was
a premium for the callable
structure,” said a source close to
the deal, who said that HSBC’sTrikomsel test for arbitration
Restructuring Liquidators seek third-party funding in first case under new Singapore lawBY KIT YIN BOEYLiquidators of two Singaporean
subsidiaries of Indonesian
mobile phone retailer TRIKOMSEL
are looking to take advantage
of a recent change in the city’s
civil law to secure a landmark
litigation funding agreement to
pursue their recovery efforts.
Trikomsel liquidators
Cameron Duncan and Luke
Furler of advisory firm
KordaMentha have asked
the Singapore High Court to
authorise specialist litigation
funding company IMF Bentham
to finance their work. A hearing
is due on September 11.
The case, if it is allowed to
proceed, would be the first
time an independent third
party has provided funding for
legal action in a commercial
arbitration case in Singapore,
and could bolster the country’s
ambition to become a regionaldispute resolution hub.
The liquidators hope
the move will allow them
to further investigate if
wrongdoing contributed to
Trikomsel’s default on S$215m(US$155m) of Singapore-
listed bonds in 2015 and help
complete the liquidation of the
two subsidiaries.
Although the majority of
bondholders accepted a debt-
for-equity exchange offer in
June last year, they retained
their rights to bring claims
against third parties otherthan the issuer or Trikomsel’s
directors or employees.
Australia-based IMF Bentham
provides commercial litigation
funding in cases it believes
offer grounds for recoveries. Itset up an office in Singapore
last year after the city state
enacted regulations in March
2017 that allow third-party
funding for international
commercial arbitration.
Firms such as IMF Bentham
provide funding in return
for a portion of any claims
recovered, which varies fromcase to case but averages
roughly 30%.
Trikomsel, which defaulted
on S$115m of 5.25% 2016s
and S$100m of 7.875% 2017s,
and Trikomsel Singapore were
units of Indonesia’s Trikomsel
Oke. They ultimately loaned
proceeds of the Singapore
dollar bonds to the parent.
Although the debt has
been converted into shares,
the liquidation of the two
Singapore units is not yet
complete, for reasons that have
not been made public.
The KordaMentha court
application suggests that more
work needs to be done and
that funding appears to be a
major issue. The requested
funding is expected to entail
two phases: an investigative
stage and a litigation stage
to pursue claims, should the
investigations disclose grounds
to do so.News
“Outside the international arbitration context,
for now, third-party funding is still generally
prohibited in Singapore. It is, however, envisaged
that the Singapore government may extend
third-party funding to other categories of legal
proceedings in the future.”