HSBC coco Perpetual bond
In an interest rate rising environment, we want to buy bonds that are high yield (yield > 6%) or bonds with coupon reset feature.
The bond mentioned below has both criterias. But it comes with additional risk.
HSBC coco 5.625% Perpetual
Price: 96.50
Yield to call: 6.88%
Call date: 17Jan2020
If no call, coupon will be reset to US 5 years swap rate + 3.626%
US 5 years swap rate today: 1.800
Moody's: Baa3
Fitch: BBB
When capital tier 1 ratio drops below 7%, the bond will be converted to HSBC shares at GBP2.70.
This bond although is a perpetual, it has coupon reset feature, hence it will not be affected by interest rate hike.
Even during 2008 financial crisis, capital tier 1 ratio of HSBC did not drop below event trigger level of 7%.
Currently capital tier 1 ratio of HSBC is at 16.30%. Hence there is a lot of buffer to 7.00%.
HSBC is one of the largest banking and financial services organisations in the world. As at 30 September 2016, they had total assets of USD2,557 billion and total shareholders' equity of USD188 billion.
The bond mentioned below has both criterias. But it comes with additional risk.
HSBC coco 5.625% Perpetual
Price: 96.50
Yield to call: 6.88%
Call date: 17Jan2020
If no call, coupon will be reset to US 5 years swap rate + 3.626%
US 5 years swap rate today: 1.800
Moody's: Baa3
Fitch: BBB
When capital tier 1 ratio drops below 7%, the bond will be converted to HSBC shares at GBP2.70.
This bond although is a perpetual, it has coupon reset feature, hence it will not be affected by interest rate hike.
Even during 2008 financial crisis, capital tier 1 ratio of HSBC did not drop below event trigger level of 7%.
Currently capital tier 1 ratio of HSBC is at 16.30%. Hence there is a lot of buffer to 7.00%.
HSBC is one of the largest banking and financial services organisations in the world. As at 30 September 2016, they had total assets of USD2,557 billion and total shareholders' equity of USD188 billion.
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