The logo of HSBC Holdings

June 18 (Bloomberg) — HSBC Holdings Plc. Europe’s largest bank, sold $3.4 billion of undated bonds in the biggest issue of its kind for almost two years, re-opening a market that’s been shut since December.

HSBC’s bonds, which have no maturity date and are callable after 5 1/2 years, will pay a coupon of 8 percent, according to a person with knowledge of the transaction, who declined to be identified because the details are private. That’s at the lower end of the marketing range of 8 percent to 8.125 percent.

The deal is the biggest U.S. dollar-denominated perpetual note since Credit Suisse Group AG issued $3.5 billion of 11 percent securities in October 2008, according to data compiled by Bloomberg. The last bank to sell perpetual bonds was Paris-based lender BNP Paribas SA in December 2009.

“This shows the market is open for high-quality issuers but even they are going to have to pay up,” said Tim Condon. chief Asia economist at ING Groep NV in Singapore. “In this environment the closer you are to a really creditworthy government bond, the better.”

HSBC is rated Aa2 by Moody’s Investors Service, the third-highest grade, and one level lower at AA- by Standard & Poor’s.

No bank has sold a perpetual bond in dollars with a coupon lower than 7 percent since March 2009, Bloomberg data show. The highest coupon paid by a dollar perpetual note that’s currently outstanding is the 14.95 percent interest of Mizuho Financial Group Inc.’s $850 million of bonds sold in February 2009.

Capital Requirements

Perpetual bonds are typically sold by banks, which generally retain the right to call them after five years. They rank as Tier 1 capital and help lenders fulfil their capital requirements.

HSBC’s sale was the first dollar perpetual bond issue this year, compared with more than $8.3 billion in the same period of 2009, Bloomberg data show. Banks including Zions Bancorporation have sold dollar perpetual preferred stock since January, which is stock with no fixed maturity date.

The issue from London-based HSBC followed conventional bond sales from banks including Bank of America Corp. and JPMorgan Chase & Co. the two largest U.S. banks by assets. Bank of America’s $3 billion offering was its first benchmark issue of dollar-denominated 10-year notes in a year, according to data compiled by Bloomberg. New York-based JPMorgan boosted its sale by 25 percent to $1.25 billion.

Deutsche Bank AG. Germany’s biggest bank, issued 1 billion euros of so-called lower Tier 2 bonds that were priced to yield 210 basis points, or 2.1 percentage points, over swaps yesterday, according to a banker involved in the deal.

Bond Sales Rise

Bank bond sales are increasing. Lenders sold $38 billion of bonds this month globally, more than double the $14.4 billion issued in the same period of May, according to data compiled by Bloomberg.

“In the last 24 hours, we’ve seen banks in the U.S. and Europe issue over $8 billion of securities, spanning senior, lower Tier two and preferred,” said Krishna Hegde. Asia credit strategist at Barclays Capital in Singapore. “These large transactions with broad-based investor participation are likely to have a positive spillover.”

Funds from the sale will be used “in the ordinary course of business,” Hong Kong-based HSBC spokeswoman Vinh Tran said. “This was an issue targeted at U.S. investors and part of our capital planning.”

Citigroup Inc. Morgan Stanley, UBS AG and Wells Fargo & Co. helped HSBC to manage its sale, which was reported earlier today by the International Financing Review. The notes are expected to be rated A3, the fourth-lowest investment-grade, by Moody’s Investors Service.

To contact the reporter on this story: Katrina Nicholas in Singapore at knicholas2@bloomberg.net

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net