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Investors want clarity as HSBC dithers on cash call |
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From Reuters Dealtalk
By Daisy Ku and Michael Flaherty
LONDON/HONG KONG - A rights issue of more than $10 billion is one option for HSBC (HSBA.L)(0005.HK) to remove uncertainty about its capital and leave it able to take advantage of Asian deals, and investors may prefer the bank to act now.
The world's biggest bank outside China could still sidestep a fundraising and opt to pay its dividend in shares or scrap its payout -- but several investors told Reuters they would support a rights issue and want management to act quickly.
"HSBC is being battered by the worries of a potential rights issue or a cut in dividend. The sooner they do the (rights issue), the better for the shares," said Tat Auyeung, a Hong Kong-based managing director of Apex Capital Management.
The dilemma facing HSBC is that it may be able to ride out the storm, but a delay may make any cashcall more dilutive and investors may prefer to stump up now.
"It's a massive thing at the moment because investors in the UK are totting up all the rights issues they are looking at and all the ones they could see and calculating that the supply of new cash for companies raising money could run out by the middle of the year," said Simon Maughan, analyst at MF Global.
A London-based equity capital markets banker said: "If HSBC comes to the conclusion that they need the capital, they better come to the market sooner rather than later."
HSBC reports its 2008 results on Mar. 2, and that is seen as the most likely delivery date for a rights issue of between $8 billion and $20 billion.
DIVIDEND CUT OR CASHCALL?
HSBC has traditionally been one of the best-capitalised banks in the world and has not raised capital, while its rivals have scrambled for cash as the credit crisis has deepened.
That has eroded HSBC's competitive advantage.
Its Tier 1 capital was 8.9 percent at end-September, above the European average and near the top of its targeted range of 7.5 percent to 9 percent.
Deutsche Bank analysts reckon that could fall to about 6 percent within two years, based on it having to write off as much as $45 billion on bad loans and a potential hit of $24 billion from writedowns on assets.
"I think it's quite possible and plausible that they would feel they need to raise some capital now as things economically, globally, have definitely got worse a lot faster than anybody anticipated," said Jane Coffey, head of equities at Royal London Asset Management, one of HSBC's top 25 investors.
"It would be prudent therefore to adjust your capital," she said, adding she would support an issue if it put forward a good case for needing it.
HSBC declined to comment ahead of its results.
Investors said a dividend cut or a rights issue is at least partly priced into the bank's share price.
HSBC's London-listed shares have lost one-third since mid-December, when the rights issue speculation intensified, just underperforming the broader European bank index, after strongly outperforming throughout 2008.
"If you are being beaten up for it anyway, maybe it makes sense to just go ahead and do it," one banker said, in regard to the damaging speculation about a fundraising.
"The size sounds somewhat daunting, but I suspect there will be enough investors out there who want it," said a Hong Kong-based fund manager who holds HSBC shares.
"If you are going to hold the financial institutions, in this market, I think HSBC is the one of choice".
Morgan Stanley analysts forecast HSBC should raise $20 billion, and said it could need $30 billion.
CLSA analysts reckon it will need $15 billion and to cut dividends.
Maughan said a mandatory scrip dividend issue could preserve enough cash for the bank, however.
HSBC could save about $7 billion by paying all its annual dividend in shares. It offers a scrip option, which typically is taken up by about a third of investors, although the take-up was down to 23 percent in 2005
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