HSBC launches new €25 million bond issue
Second capital raising exercise in less than two years
HSBC Bank Malta plc published a prospectus on Monday in connection with a new €25 million bond issue. The new bonds are for a 10-year period (with a maturity date of October 7, 2018) and carry a coupon of 5.9 per cent per annum. The bank reserves the right to increase the amount up to €30 million. Interest is payable semi-annually on April 7 and October 7 of each year with the first interest payment expected on April 7 next year.
A pre-placement stage is taking place tomorrow for minimum subscriptions of €15,000 (nominal) and in multiples of €100 thereafter. Meanwhile, subscriptions for the public offer open on Wednesday and close on September 30 or earlier in the event of over-subscription. Applications during the public offering are for a minimum of €2,500 (nominal) and in multiples of €100 thereafter. HSBC Bank Malta plc has submitted an application for the bonds to be admitted to the official list of the Malta Stock Exchange.
The net proceeds from the bond issue will be used by HSBC to meet part of its general financing requirements particularly to match its 10-year loans. Moreover, the funds constitute additional own funds (Tier II capital) in terms of the Banking Act. This will help HSBC to maintain its capital ratio above the group's benchmark of 10 per cent and regulatory requirement of 8 per cent. As at last December 31 of last year, the capital ratio was of 10.31 per cent and this is expected to rise to 10.47 per cent by the end of the year.
This is the second bond issue from HSBC Malta in less than two years following the €58 million raised in January 2007. At the time HSBC had also issued a 10-year bond but at a coupon of 4.6 per cent per annum.
HSBC is Malta's largest bank by market capitalisation and second largest in terms of total assets. It enjoys a strong brand image, adequate liquidity and a healthy capital position which contrasts favourably with many foreign banks in larger markets. The bank has continued to report encouraging balance sheet growth throughout this year despite the international credit crisis which has severely impacted many foreign banks and has only been minimally and indirectly affected by the credit crunch with no exposure to sub-prime paper and other asset-backed securities.
HSBC' s risk profile can arguably compare to that of the Government of Malta. A 10-year Malta Government Stock is currently yielding approximately 4.95 per cent per annum while the new HSBC bond has been priced at 5.9 per cent - almost a 1 per cent premium to government paper. The bank said that the new bond has been priced taking into consideration yields of similar 10-year bonds issued by international financial institutions. However, the bond is also comparable to a similar bond issued by the parent company (HSBC Holdings plc) also maturing in 2018. The international market is pricing this particular euro-denominated 6.25 per cent bond at 99.26 per cent (as at September 15) translating into a yield to maturity of 6.35 per cent.
During a briefing at the launch of this bond issue, HSBC Bank Malta's CEO Alan Richards said: "We believe this bond issue represents a good investment opportunity for the local market with an attractive rate of interest".
Many foreign analysts currently expect the European Central Bank to maintain rates on hold during the coming months and to reduce interest rates during the course of next year. In the light of these expectations, this bond issue is likely to be well received by the local market.
For further information on HSBC Bank Malta plc's bond issue, investors are asked to consult the prospectus.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd, "RFC", is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent.
Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved
www.rfstockbrokers.com
• Mr Rizzo is director of Rizzo, Farrugia & Co (Stockbrokers) Ltd.
A pre-placement stage is taking place tomorrow for minimum subscriptions of €15,000 (nominal) and in multiples of €100 thereafter. Meanwhile, subscriptions for the public offer open on Wednesday and close on September 30 or earlier in the event of over-subscription. Applications during the public offering are for a minimum of €2,500 (nominal) and in multiples of €100 thereafter. HSBC Bank Malta plc has submitted an application for the bonds to be admitted to the official list of the Malta Stock Exchange.
The net proceeds from the bond issue will be used by HSBC to meet part of its general financing requirements particularly to match its 10-year loans. Moreover, the funds constitute additional own funds (Tier II capital) in terms of the Banking Act. This will help HSBC to maintain its capital ratio above the group's benchmark of 10 per cent and regulatory requirement of 8 per cent. As at last December 31 of last year, the capital ratio was of 10.31 per cent and this is expected to rise to 10.47 per cent by the end of the year.
This is the second bond issue from HSBC Malta in less than two years following the €58 million raised in January 2007. At the time HSBC had also issued a 10-year bond but at a coupon of 4.6 per cent per annum.
HSBC is Malta's largest bank by market capitalisation and second largest in terms of total assets. It enjoys a strong brand image, adequate liquidity and a healthy capital position which contrasts favourably with many foreign banks in larger markets. The bank has continued to report encouraging balance sheet growth throughout this year despite the international credit crisis which has severely impacted many foreign banks and has only been minimally and indirectly affected by the credit crunch with no exposure to sub-prime paper and other asset-backed securities.
HSBC' s risk profile can arguably compare to that of the Government of Malta. A 10-year Malta Government Stock is currently yielding approximately 4.95 per cent per annum while the new HSBC bond has been priced at 5.9 per cent - almost a 1 per cent premium to government paper. The bank said that the new bond has been priced taking into consideration yields of similar 10-year bonds issued by international financial institutions. However, the bond is also comparable to a similar bond issued by the parent company (HSBC Holdings plc) also maturing in 2018. The international market is pricing this particular euro-denominated 6.25 per cent bond at 99.26 per cent (as at September 15) translating into a yield to maturity of 6.35 per cent.
During a briefing at the launch of this bond issue, HSBC Bank Malta's CEO Alan Richards said: "We believe this bond issue represents a good investment opportunity for the local market with an attractive rate of interest".
Many foreign analysts currently expect the European Central Bank to maintain rates on hold during the coming months and to reduce interest rates during the course of next year. In the light of these expectations, this bond issue is likely to be well received by the local market.
For further information on HSBC Bank Malta plc's bond issue, investors are asked to consult the prospectus.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd, "RFC", is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent.
Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved
www.rfstockbrokers.com
• Mr Rizzo is director of Rizzo, Farrugia & Co (Stockbrokers) Ltd.