Working with the right partner in a changing environment
Companies have repeatedly made it clear that they want to consolidate their bank wallet share, so as to simplify their operational processes and net cost synergies. This strategy preceded COVID-19 but it has gathered momentum since the pandemic. “CFOs have been rationalising their banking relationships. With people working from home, organisations want to coordinate their requirements with fewer banks,” says Uppal. Galvin says HSBC’s reputation– namely its strong balance sheet, global network, commitment to local markets and product depth – have helped the bank win sizeable mandates from leading multinational corporations. By providing corporates with access to issuer services solutions along with CMB, HSBC is able to act as a one stop shop. With corporates consolidating banking relationships, this is a powerful proposition which positions the bank as a strong market player.
Simultaneously, corporates are looking to escrow products as a risk management tool during this extraordinarily volatile period. Providers with strong credit risk ratings and balance sheet strength make for an appealing counterparty. It is also imperative that providers are able to react to change quickly and tailor their solutions accordingly. Field says escrows are now being used in less conventional transactions beyond the standard M&A. For example, Field adds a number of companies have been utilising escrows to procure PPE from new suppliers during COVID-19. Furthermore, HSBC Issuer Services recently started providing escrows to support a number of high profile sporting events. “The first event we supported in 2019 was the first of its kind and it perfectly underscored the versatility of the escrow product. We continue to work closely with our Corporate Banking clients to identify new ways in which escrow solutions can support their transactional requirements.” comments Fenocchi.
The use of escrows in practice
Case study 1
An HSBC global banking (GB) client located in Mauritius (Party A) was selling its two subsidiaries in India to an Indian company (Party B). Party A issued convertible notes to a Mauritius based entity (Party C). Parties A and C entered into an escrow agreement in Mauritius whereby sale proceeds from the Indian company sold to Party B were credited. An escrow was required to ensure that once funds were received, they were utilised to pay for the cancellation of the convertible note.
The escrow was set up for 90 days with the funds being released to Party C as per the escrow agreement. HSBC Issuer Services in India acted as the remittance agent (a specialised function in India) for the CMB client. Meanwhile, the HSBC Issuer Services team in Mauritius served as escrow agent on the transaction. This deal was highly complex involving multiple buyers and sellers and payment flows across both India and Mauritius. HSBC GB, CMB and ISV all collaborated in the deal process to support the client and deliver seamless execution during this complex cross-border transaction.
Case study 2
HSBC helped support a significant cross border deal involving a buyer - who was a major Commercial Banking client located in China and a seller that was a listed US entity and major Global Banking multinational corporation customer. The seller split into two independent publicly listed companies and spun off its non-US assets into a Singaporean-based new company, into which the buyer would make an equity investment post-partition. Singapore was chosen by the clients as an ideal escrow location because of its neutrality. As part of this deal, HSBC provided a Holdback Escrow and Purchase Price Escrow. The transaction involved close collaboration between Issuer Services, Commercial Banking and Global Banking to ensure that the escrow was established within three weeks of the mandate date.
Case study 3
A digital publishing company and Commercial Banking client was acquiring a UK publishing company in a GBP110 million transaction. The consideration was held in a cash confirmation escrow between the buyer and its financial advisers to support it with compliance with the UK’s takeover code. Again, this is a good example of the excellent support ISV provides to Commercial Banking clients during public M&A transactions.
To find out more about HSBC Issuer Services:
Americas – firstname.lastname@example.org
Middle East – email@example.com