The bankers were upset that another deal by an issuer from the property sector might cause indigestion and compromise the Country Garden deal. But they were also upset at HSBC because it is one of the banks mandated on the Country Garden offering, along with Bank of China, Citi, Deutsche Bank, JPMorgan, Morgan Stanley and UBS.
ôThis is unprecedented,ö says one syndicate banker. ôNever have I seen this happen before, where one bank is working on two deals. There is potential for a conflict of interest.ö
However, neither Country Garden nor Agile seem to have a problem with this. Some sources say that HSBC offered to pull out of the Country Garden deal, but that the issuer û after careful consultation with its lawyers - was intent on keeping them on. Agile was also keen to keep the global bank on board.
Meanwhile, an investor in Europe speaking to FinanceAsia said a conflict of interest would be highly improbable. ôIn Europe, banks work on deals from the same sector simultaneously all the time. I canÆt imagine there would be a conflict of interest, especially as a big house like HSBC has strict compliance guidelines that they cannot breach. And since the issuers both seem fine about the situation, I donÆt see where the problem is. ö
That said, the announcement of the Agile deal is far from ideal and HSBC may have harmed the pricing of both deals as a result. Some bankers are saying that the Agile announcement is the reason why spreads on Chinese property bonds have widened substantially over the last two sessions. Others disagree. ôThe market was slightly softer following Country GardenÆs announcement but the deterioration over the last two days canÆt be blamed only on Agile,ö counters the investor. ôThe market turned as a result of a flood of bad news including further write-downs by Citi and the resignation of its chairman Chuck Prince, downward re-ratings of monolines (or bond insurers) and on-going subprime issues.ö
Furthermore, those investors who spoke to FinanceAsia were really not surprised by AgileÆs announcement. ôEveryone knows China property companies are lining up to come to market, so itÆs not as if this came out of the blue,ö says a Singapore-based investor.
Nonetheless, it clearly added fuel to the fire by confirming that the China property pipeline could be longer than expected.
So why did HSBC make the announcement on Friday, instead of waiting for Country Garden to get out of the woods?
ôI can understand the dilemma. HSBC is clearly under pressure to get the deal done before the market deteriorates further,ö says the London-based investor. ôThe market is only open for the next three to four weeks before the holiday season. So if they donÆt get it done now, theyÆll probably have to wait until the New Year, at which point the markets may be closed entirely.ö
And it seems the deals won't be going head-to-head. The roadshows don't cross over, and the Country Garden deal should be done and dusted by the time Agile announces price talk.
ôHSBC did what they had to do by privately advising their clients that they would have deals in the market at around the same time,ö says a syndicate banker not involved in the deals. ôThe bank could also have given the heads-up to the bookrunners with whom they were working, although that is a less important issue,ö he added.
ôBut there are many reasons why the bookrunners would criticise HSBC to this degree at this particular time. Maybe the Country Garden deal is struggling, in which case this would be an excellent excuse to pull the deal - they may have bitten off a bit more than they can chew!ö
Indeed, one investor who spoke to FinanceAsia has doubts about whether either deal will get through. ôThe calendar before year-end is building up, and people are developing massive indigestion. I donÆt think weÆre ready for either of these deals.ö