HSBC 2011 Annual Report Download - page 391

389
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Step-up perpetual preferred securities
(a) Guaranteed by HSBC Holdings
The six issues of non-cumulative step-up perpetual preferred securities were made by Jersey limited partnerships
and are guaranteed, on a subordinated basis, by HSBC Holdings. The proceeds of the issues were on-lent to
HSBC Holdings by the limited partnerships by issue of subordinated notes. The preferred securities qualify as
tier 1 hybrid capital for HSBC. The preferred securities, together with the guarantee, are intended to provide
investors with rights to income and capital distributions and distributions upon liquidation of HSBC Holdings
that are equivalent to the rights that they would have had if they had purchased non-cumulative perpetual
preference shares of HSBC Holdings.
The preferred securities are perpetual, but redeemable in 2013, 2030, 2014, 2016, 2012 and 2015, respectively,
at the option of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up
and become floating rate or, for the sterling issue, for each successive five-year period the sum of the then five-
year benchmark UK gilt plus a margin. There are limitations on the payment of distributions if prohibited under
UK banking regulations or other requirements, if a payment would cause a breach of HSBC’s capital adequacy
requirements, or if HSBC Holdings has insufficient distributable reserves (as defined).
HSBC Holdings has covenanted that if it is prevented under certain circumstances from paying distributions on
the preferred securities in full, it will not pay dividends or other distributions in respect of its ordinary shares, or
effect repurchase or redemption of its ordinary shares, until after a distribution has been paid in full.
If (i) HSBC’s total capital ratio falls below the regulatory minimum ratio required, or (ii) the Directors expect
that, in view of the deteriorating financial condition of HSBC Holdings, the former will occur in the near term,
then the preferred securities will be substituted by preference shares of HSBC Holdings having economic terms
which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.
(b) Guaranteed by HSBC Bank
The two issues of non-cumulative step-up perpetual preferred securities were made by Jersey limited
partnerships and are guaranteed, on a subordinated basis, by HSBC Bank. The proceeds of the issues were on-
lent to HSBC Bank by the limited partnerships by issue of subordinated notes. The preferred securities qualify as
tier 1 hybrid capital for HSBC and for HSBC Bank on a solo and consolidated basis and, together with the
guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon
liquidation of HSBC Bank that are equivalent to the rights they would have had if they had purchased non-
cumulative perpetual preference shares of HSBC Bank.
The two issues of preferred securities are perpetual, but redeemable in 2031 and 2020, respectively, at the option
of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become
floating rate. The same limitations on the payment of distributions apply to HSBC Bank as to HSBC Holdings,
as described above. HSBC Bank has provided a similar covenant to that provided by HSBC Holdings, also as
described above.
If (i) any of the two issues of preferred securities are outstanding in November 2048 or April 2049, respectively,
or (ii) the total capital ratio of HSBC Bank on a solo and consolidated basis falls below the regulatory minimum
ratio required, or (iii) in view of the deteriorating financial condition of HSBC Bank, the Directors expect (ii) to
occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Bank
having economic terms which are in all material respects equivalent to those of the preferred securities and the
guarantee taken together.