New Stanchart USD CoCo Issue : Perp NC5 High 6%

11 years ago

Edz is out today so you will have to listen to my rant instead.

Issuer: Standard Chartered PLC (the “Issuer”)
Instrument: US$[●] Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities
Tenor: Perpetual-NC5
IPT: High 6s per cent.
Settlement:[●] April 2015 (T+[5])
Ranking: Senior to ordinary shareholders, subordinated to any Senior
Creditors, including Tier 2 creditors, pari passu with existing preference shares
Exp. Issue Rating: Ba1 / BB / BBB (Moody’s / S&P / Fitch)
Denom/Offering: US$200k x US$1k / RegS/144A
Size: US$ Benchmark

The recent HSBC USD 2.25 bio CoCo went mad after its issue a few days ago, with its coupon coming in 3/8% lower than first indicated. Current market price 102.125/102.25 with offers coming in now that Stanchart is about to hit the street.

Differences between this perp and HSBC :

ratings Ba1/BB/BBB (junk) vs Baa3/BBB (invt grade)
5 years vs 10 years, or until perpetuity
coupon high 6 vs 6.375% (current yield ard 6%)
listing in HKSE vs Irish Stock Exchange
conversion price is 30% discount vs GBP 2.7 for HSBC which is roughly 53% discount (*note that Stanchart share price is up 14.5% ytd)
governing law English vs New York (except Subordination and consent to UK statutory “bail in” power governed by English law – i guess that means English law

Similarities

both banks are in the GSIB (Global Systemically Important Banks list i.e. Too Big To Fail)
http://en.wikipedia.org/wiki/List_of_systemically_important_banks
HSBC has a min CET1 ratio of 9.5% vs SCB at 8%
Conversion Trigger Event for both is at CET1 Ratio of less than 7%

Comments

Another comparable would be the UBS 7.125% NC 5 AT1 (BB/BB+) issued in Feb which is trading at mid 6.1% or thereabouts.

At high 6%, this bond would be priced to sell and we shall see demand pour forth in the grab-the-safe-high-yields game.

Regardless of analyst estimates that banks like HSBC could need another $190 bio worth of bail-in-able debt, I think this CoCo fad will last for a while.