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HSBC to issue $4B in perpetual CoCo securities

HSBC Holdings Plc plans to issue perpetual subordinated contingent convertible securities worth $4.00 billion divided into two tranches.

The U.K.-based lender intends to issue at par perpetual subordinated contingent convertible securities worth $2.25 billion callable March 23, 2023, and every five years thereafter. The interest on these securities will be 6.25% from the date of issue until, and excluding, March 23, 2023. Thereafter, the interest will comprise the sum of the applicable midmarket swap rate on the relevant reset determination date and 3.453%, from, and including, each 2023 securities reset date to, but excluding, the next following 2023 securities reset date.

The second tranche of securities worth $1.75 billion is callable March 23, 2028, and every five years thereafter. The interest on the 2028 securities will be 6.50% from the issue date until, and excluding, March 23, 2028. Thereafter, the interest will comprise the sum of the applicable midmarket swap rate on the relevant reset determination date and 3.606%, from, and including, each 2028 securities reset date to, but excluding, the next following 2028 securities reset date.

The interest payment dates for both securities tranches are semiannual on March 23 and Sept. 23, starting Sept. 23, 2018.

An automatic conversion without delay of securities to ordinary shares will take place in the event of a capital adequacy trigger event, which is whenever the end-point common equity Tier 1 ratio is less than 7%. The conversion price has been fixed initially at $3.7881 and assuming that it remains unchanged, maximum ordinary shares to be issued on automatic conversion of the 2023 securities and 2028 securities are 593,965,312 ordinary shares and 461,973,020 ordinary shares, respectively.

The 2023 securities can amount to $2.48 billion if the overallotment option is exercised in full. Meanwhile, the 2028 securities can amount to $1.93 billion subject to the overallotment option being exercised in full.

The lender plans to issue the securities March 23, 2018, expected to be admitted to the official list and Global Exchange Market of the Irish Stock Exchange within 30 days of date of issue. The securities will be issued in denominations of $200,000 and in multiples of $1,000, thereof.

HSBC Securities (USA) Inc. is the sole structuring adviser and book-running manager on the two securities' issue.

ABN AMRO Securities (USA) LLC, BBVA Securities Inc., CIBC World Markets Corp., Commerz Markets LLC, Danske Markets Inc., Imperial Capital, LLC, ING Financial Markets LLC, Merrill Lynch Pierce Fenner & Smith Inc., Morgan Stanley & Co. LLC, Natixis Securities Americas LLC, Santander Investment Securities Inc. and UniCredit Capital Markets LLC are the securities managers on the two issuances.

The securities managers have agreed to severally and not jointly purchase the respective amounts of securities issued in the 2023 and 2028 tranches, respectively.

Further, the sole structuring adviser and book-running manager has the option to purchase additional 2023 and 2028 securities of up to $225 million and $175 million, respectively, at the public offering price on behalf of the securities managers, solely to cover any overallotments. The option is exercisable only once, in whole or part, before the date of issue.

The bank intends to use net proceeds from the sale for general corporate purposes and to strengthen its capital base in accordance with CRD IV requirements.

The net proceeds from the 2023 securities after deduction of commission to securities managers is expected to be around $2.23 billion, while those from the 2028 securities are expected to be around $1.73 billion.