HSBC 2015 Annual Report Download - page 440

Notes on the Financial Statements (continued)
35 – Share capital / 36 – Notes on the statement of cash flows
HSBC HOLDINGS PLC
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period. The dollar preference shares carry no rights to conversion into ordinary shares of HSBC Holdings. Holders of the dollar
preference shares will only be entitled to attend and vote at general meetings of shareholders of HSBC Holdings if the dividend
payable on the dollar preference shares has not been paid in full for four consecutive dividend payment dates. In such
circumstances, holders of the dollar preference shares will be entitled to vote on all matters put to general meetings until
such time as HSBC Holdings has paid a full dividend on the dollar preference shares. HSBC Holdings may redeem the dollar
preference shares in whole at any time on or after 16 December 2010, subject to prior notification to the PRA.
HSBC Holdings non-cumulative preference share of £0.01
The one non-cumulative sterling preference share of £0.01 in issue (‘sterling preference share’) has been in issue since
29 December 2010 and is held by a subsidiary of HSBC Holdings. Dividends on the sterling preference share are paid quarterly
at the sole and absolute discretion of the Board. The sterling preference share carries no rights of conversion into ordinary
shares of HSBC Holdings and no rights to attend and vote at general meetings of shareholders of HSBC Holdings. HSBC Holdings
may redeem it in whole at any time at the option of the Company.
Other equity instruments
HSBC has included three types of additional tier 1 capital securities in its tier 1 capital. The two types of additional tier 1
securities presented in this Note are accounted for as equity because HSBC does not have an obligation to transfer cash or a
variable number of its own ordinary shares to holders under any circumstances outside its control. See Note 30 for additional
tier 1 securities accounted for as liabilities.
Other equity instruments which have been included in the regulatory capital base of HSBC comprise additional tier 1 capital
securities and additional tier 1 contingent convertible securities.
Additional tier 1 capital securities
Additional tier 1 capital securities are perpetual subordinated securities on which coupon payments may be deferred at the
discretion of HSBC Holdings. While any coupon payments are unpaid or deferred, HSBC Holdings will not declare, pay dividends
or make distributions or similar periodic payments in respect of, or repurchase, redeem or otherwise acquire any securities of
lower or equal rank. Such securities do not generally carry voting rights but rank higher than ordinary shares for coupon
payments and in the event of a winding-up. These securities do not meet the identifying criteria in full for recognition as tier 1
capital under CRD IV but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.
At HSBC Holdings’ discretion, and subject to certain conditions being satisfied, the capital securities may be exchanged on any
coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and ranking pari passu with the
dollar and sterling preference shares in issue. The preference shares would be issued at a nominal value of $0.01 per share and
a premium of $24.99 per share, with both such amounts being subscribed and fully paid. These securities may be called and
redeemed by HSBC subject to prior notification to the PRA.
HSBC’s additional tier 1 capital securities in issue which are accounted for in equity
First call
date
2015
$m
2014
$m
$2,200m 8.125% perpetual subordinated capital securities Apr 2013 2,133 2,133
$3,800m 8.00% perpetual subordinated capital securities, Series 2 Dec 2015 3,718 3,718
At 31 December 5,851 5,851
Additional tier 1 capital – contingent convertible securities
During 2015, HSBC continued to issue contingent convertible securities that are included in HSBC’s capital base as fully CRD IV
compliant additional tier 1 capital securities on an end point basis. The net proceeds of the issuances will be used for general
corporate purposes and to further strengthen the capital base pursuant to requirements under CRD IV. These securities bear a
fixed rate of interest until their initial call dates. After the initial call dates, in the event they are not redeemed, the securities
will bear interest at rates which are fixed periodically in advance for five-year periods based on prevailing market rates.
Interest on the contingent convertible securities will be due and payable only at the sole discretion of HSBC, and HSBC has
sole and absolute discretion at all times and for any reason to cancel (in whole or in part) any interest payment that would
otherwise be payable on any interest payment date. There are limitations on the payment of distributions if such payments
are prohibited under UK banking regulations, or other requirements, if HSBC Holdings has insufficient reserves available for
distribution or if HSBC fails to satisfy the solvency condition as defined in the securities’ terms.
The contingent convertible securities are undated and are repayable, at the option of HSBC, in whole at the initial call date, or
on any fifth anniversary after the initial call date. In addition, the securities are repayable at the option of HSBC in whole for
certain regulatory or tax reasons. Any repayments require the prior consent of the PRA. These securities rank pari passu with
HSBC’s dollar and sterling preference shares and are therefore ahead of ordinary shares. The contingent convertible securities
will be converted into fully paid ordinary shares of HSBC at a pre-determined price should HSBC’s consolidated end point CET1
ratio fall below 7.0%. Therefore, in accordance with the terms of the securities, if the end point CET1 ratio breaches the 7.0%
trigger the securities will convert into ordinary shares at fixed contractual conversion prices in the issuance currencies of the