 |
|
|
Best Global sovereign advisor: HSBC |
|
|
Also nominated: Barclays Capital and Lazard |
HSBC has advised governments across a range of fields in the past 12 months as the burgeoning European sovereign debt crisis has required radical solutions. For the second year running, it wins Euromoney’s award for best sovereign adviser. Aside from its extensive credentials in bringing governments directly to the capital markets, HSBC has worked on new approaches for them to source project finance for infrastructure development, amid limits on their own access to debt finance and constraints on bank lending. It is doing similar work for local governments.
With between €1.5 trillion and €2 trillion of infrastructure investments taking place in Europe in the period up to 2020, it is critical that sufficient and appropriate funding be found for these projects, particularly as infrastructure spend is an important contributor to GDP growth.
With Basle III reducing the availability of long-term bank financing and the sheer size of the funding requirement, HSBC has been engaged with the European Commission’s DG EcFin, the European Investment Bank and other stakeholders to provide advice on the structuring of a capital markets solution for infrastructure funding. Its work has contributed to the development of the Europe 2020 Project Bond initiative, announced by commissioner Olli Rehn at the end of February this year.
HSBC was appointed in March 2011 as adviser to AEAFCL, the French local authority association, to establish an agency that can access the capital markets, with proceeds being on-lent to 35,000 local authorities in France. This project was initiated in response to the demise of Dexia and to the likely reduced appetite for local authority bank lending because of the bank capitalization requirements of Basle III.
Jurriaan De Munck, managing director, government advisory, at HSBC, says: “If you look at the work we have done on project bonds and local authority financing solutions one of the key themes that comes through is the impact on availability of bank funding as a result of new regulation. We have our own large balance sheet to manage so we have a very clear view on that.
“In addition, a key theme for governments is addressing financial-sector vulnerabilities and we have good insights there. We understand banks’ concerns around their own assets and their funding and liquidity issues and that helps us to provide practical solutions.”
 |
“A key theme for governments is addressing financial-sector vulnerabilities and we have good insights there” |
He adds: “We have a global remit and can draw on experiences from other parts of the world that have experienced fiscal difficulties and can also give feedback on what investors around the world may think on critical issues such as debt reprofiling.”
Spencer Lake, co-head of global markets, points to HSBC’s advice to Asian sovereigns on how to use the capital markets to address key strategic risks, such as foreign-currency indebtedness and inflation. It has conducted three liability management exercises for the Philippines this year; led inflation-linked debt for Thailand and is working with several Asian countries on establishing infrastructure funds to address their big capital spending needs.
Lake says: “One of the lessons from Asia is that the time to extend the maturity of your debt is in anticipation of difficulties down the road when your bonds are still trading at par. That is advice we have given in the past in Europe. Unfortunately the time for that appears to have passed for some European sovereigns as the rating agencies up the rhetoric around reprofiling as a default.”
HSBC is now closely involved in the efforts of many governments to cope with the consequences of their own failure to better manage maturity risk and exposure to the capital markets. In September 2010, HSBC was appointed as co-financial adviser to the Privatization Committee of the Hellenic Republic in relation to analysing strategic options for the Greek banking system.
Privatization advice is traditionally the province of leading M&A firms. For example, Lazard and Rothschild have been prominent. The inclusion of HSBC in such work is testament to the value governments now put on advice coming from banks with direct participation in the capital markets and in lending. HSBC has a couple of mandates from the Spanish fund for orderly restructuring of banks to find solutions for savings banks and it continues to work with Ireland’s National Asset Management Agency on the transfer of impaired assets out of the banks.
HSBC’s expertise is not restricted to the financial sector. It acted as sole financial adviser to the French government on the undertaking from the Kuwait Investment Authority to subscribe to a capital increase in Areva, the French nuclear group, for €600 million, alongside an increase by the French state of €300 million in December 2010.
De Munck says: “Clearly, there is sensitivity around nuclear and our mandate was to consider partial privatization as a means to bolster capital for Areva’s large investment programme. Our relationships with sovereign wealth funds helped achieve that result through a private placement, which was a good outcome.”
