Bloomberg News

HSBC Sells First Notes Tied to Top Japan Bank in Over Four Years

January 31, 2013

HSBC Holdings Plc (HSBA) sold the first structured notes tied to the credit of Japan’s largest bank in more than four years, after Moody’s Investors Service raised its outlook on the nation’s lenders.

HSBC’s Middle East branch sold $10 million dollars of notes linked to the debt of Bank of Tokyo-Mitsubishi UFJ Ltd. on Jan. 16, the first offering tied to the lender since July 2008 according to Bloomberg data. The bank is a unit of Mitsubishi UFJ Financial Group Inc. (8306), the largest Japanese lender.

Moody’s raised its outlook for Japan’s banking industry to stable from negative in November in its first upgrade since 2008, citing stronger capital buffers. The cost of insuring bonds of Bank of Tokyo-Mitsubishi UFJ dropped to 92.6 basis points as of Jan. 31 from 158.3 at the end of 2011, according to data provider CMA.

Issuers of credit-linked notes use the securities to hedge against possible credit events and pay the buyers for accepting the risks as long as the underlying assets don’t default. Moody’s assigns Aa3, its fourth-highest rating, to the bank’s long-term debt.

The five-year Bank of Tokyo-Mitsubishi UFJ notes pay quarterly coupons at 2 percent plus 3-month dollar London interbank offered rates, which were at 0.298 percent as of Jan. 31, according to Bloomberg data.

HSBC also sold $10 million of notes tied to the debt of Sumitomo Mitsui Banking Corp., a unit of Sumitomo Mitsui Financial Group Inc. (8316), the second-largest Japanese lender by market value, Bloomberg data show. The securities pay a 2.05 percent premium to 3-month dollar Libor.

Adam Harper, a Hong Kong-based spokesman for HSBC, declined to comment on the reasons for issuance of the notes.

To contact the reporter on this story: Jun Yang in Hong Kong at jyang180@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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