HSBC's origins in Asia and its long presence in the region's markets give it an enviable platform for its local currency bonds business. It capitalised on these strengths in 2005 and was voted best bookrunner of Asian currency bonds by the region's borrowers and best overall lead manager of Asian currency bonds by the investment banks. Adam Harper looks at the bank's record in Asia's patchwork of markets.
With $1.27tr of domestic currency bonds outstanding in the 10 countries of the Association of South East Asian Nations, the local currency market easily eclipses the market for bonds in dollars, euros and yen in Asia outside Japan.
Its sheer size and the increasing popularity of Hong Kong dollars and Singapore dollars for overseas issuers seeking easy, cost-effective swap-driven funding has made a presence in these markets at least fashionable, if not essential, for investment banks operating in the region.
Beyond these financial centres, however, rising global interest rates during 2005 made it a tough year in many Asian currency bond markets.
While houses such as BNP Paribas, Deutsche Bank and JP Morgan have established credible operations in the more liquid and internationalised marketplaces, only three banks can honestly claim a genuine, pan-regional presence in Asian currency fixed income: Citigroup, HSBC and Standard Chartered.
As ever in recent years, it was a tight contest between these three for pre-eminence in the Asian currency bonds categories of EuroWeek's polls, published in the Asian Review of the Year 2005 & Outlook 2006. But HSBC was the clear victor, winning both the award for best overall lead manager of Asian currency bonds in the Investment Banks' Poll and that for the best bookrunner of Asian currency bonds in the Investors' Poll.
HSBC's status in Asian currencies is the product of investing in the region's domestic markets since governments began in earnest to promote their development after the currency crisis of 1997-1998, says Stephen Williams, co-head of the Asian financing group at HSBC in Hong Kong.
"We were one of the first movers among foreign banks in local currency bonds after the Asian financial crisis, when it became apparent that the local currency markets would become increasingly important in providing long term funding to domestic banks and corporates," he says.
"Also, HSBC has been present in many of these countries for more than 100 years — you could say that Asia's local currencies are part of our DNA. In much of Asia, we are regarded as more of a local bank, rather than a foreign one."
Williams also points out that few rivals can match the breadth of HSBC's network in the region — perhaps not surprisingly for a bank which was established in 1865 to finance the growing trade between Europe, India and China.
Today, HSBC has debt finance executives conducting regular conversations with potential issuers in the markets of Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.
The bank's broad presence and international clout has helped to put it in contention when supranational agencies have opened Asian domestic markets to foreign issuance.
Although HSBC was beaten by arch-rival Citigroup to bring the first supranational issuer to the Thai market, it maintained its record in the cross-border arena by leading a Ps2.5bn ($45m) five year deal for the Asian Development Bank in November — the first bond issue from a foreign entity in the Philippine market.
HSBC is the dominant player in the Hong Kong dollar bond market and it was no surprise when "Hongkong Bank" was voted best bookrunner of Hong Kong dollar bonds. The bank was also a bookrunner for EuroWeek's best deal in Hong Kong dollars — Cheung Kong Bond Finance's HK$1bn ($129m) three year issue in July.
Although it did not come top in the EuroWeek poll, HSBC was also a bookrunner for what was regarded by many bankers as one of the outstanding bond issues of the year in any Asian currency — the S$700m ($416m) five and 10 year transaction for Hongkong Land, which bankers claimed was the largest ever Singapore dollar deal for a foreign rated issuer.
Although rising rates made it a difficult year in markets such as India, Indonesia and Taiwan, Williams believes that Asian currency markets have come a long way since 1997. "In terms of the structures and maturities you can achieve, along with investors' level of understanding, the sophistication of some of these markets is now not far away from the G3 [dollar, euro and yen] market," he says.
"If you go back a few years, banks couldn't have issued subordinated debt in most Asian domestic markets," continues Williams. "Now, not only can you issue subordinated bonds, but markets have become receptive to hybrid securities."