HSBC Bank Middle East Limited - Consent Solicitation - Launch (LIBOR)

HSBC BANK MIDDLE EAST LIMITED (a company limited by shares incorporated in the Dubai International Financial Centre) (the "Issuer") to all holders (the "Holders") of the outstanding U.S.$83,000,000 Floating Rate Notes due 26 March 2024 (ISIN XS1958527316) (the "Securities")

06 APRIL 2023

Full announcement with full disclosures and disclaimers available via Euronext

"The Issuer has today given a notice of Holders' Meeting (the "Notice of the Meeting") in relation to the Securities for the purpose of soliciting consent from the Eligible Holders of the outstanding Securities to consent to the modification of the terms and conditions of the Securities (the "Conditions") by way of variation and consequential or related amendments to the transaction documents by way of variation such that:

(i)

(a) for all Interest Periods commencing from and including the Interest Payment Date in September 2023 (expected to be on 26 September 2023), the floating rate of interest on the Securities is calculated using the Secured Overnight Financing Rate ("SOFR") as the reference rate, as opposed to being calculated using U.S. dollar London Interbank Offered Rate ("LIBOR") as the reference rate or by reference to quotations received from reference banks or other financial institutions;

(b) an adjustment rate of 0.26161 per cent. per annum is applied to the interest rate payable on the Securities in respect of all Interest Periods commencing from and including the Interest Payment Date in September 2023 (expected to be on 26 September 2023) to reflect the economic difference between the relevant tenor of U.S. dollar LIBOR and SOFR; and

(c) the margin applicable to the Securities remains unaltered; and

(ii) new fallbacks relating to SOFR are included, including if a Benchmark Transition Event occurs with respect to SOFR,

as proposed by the Issuer for approval by an extraordinary resolution of the Holders (the "Extraordinary Resolution"), all as further described in the consent solicitation memorandum dated 6 April 2023 (the "Consent Solicitation Memorandum") (such invitation, a "Consent Solicitation"). Capitalised terms used but not defined herein shall have the meanings set out in the Consent Solicitation Memorandum.

No consent fee will be payable in connection with the Consent Solicitation."

...

"BACKGROUND TO THE CONSENT SOLICITATION

In July 2017, the UK Financial Conduct Authority (the "FCA") announced that it would no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after the end of 2021 and explained they expected that some panel banks will cease contributing to LIBOR panels at such time.

On 5 March 2021, the FCA published a further announcement on the future cessation and loss of representativeness of LIBOR benchmarks (the "FCA LIBOR Announcement"). The FCA announced, amongst others, that three-month and six-month U.S. dollar LIBOR settings will cease to be provided or, subject to consultation by the FCA, will be provided but will be determined on a synthetic basis immediately after 30 June 2023. The FCA confirmed that if such settings are determined by reference to an alternative methodology, they will no longer be representative of the underlying market and economic reality they are intended to measure and that representativeness will not be restored.

Therefore, the continuation of U.S. dollar LIBOR on the current basis (or at all) cannot and will not be guaranteed after 30 June 2023, and regulators have urged market participants to take active steps to implement the transition to other near risk-free rates ahead of this deadline.

In the U.S., the Alternative Reference Rates Committee ("ARRC") was convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure a successful transition from U.S. dollar LIBOR to a more robust reference rate and to this end the ARRC has published a number of reports and guiding principles concerning its recommendations for spread-adjusted fallbacks for contracts referencing U.S. dollar LIBOR. The ARRC comprises a diverse set of private-sector entities, each with an important presence in markets affected by U.S. dollar LIBOR, and a wide array of official-sector entities, including banking regulators and other financial sector regulators, as ex-officio members.

Following extensive consultations and discussion of potential candidates, the ARRC has identified SOFR as the rate that represents best practice for use in certain new U.S. dollar derivatives and other financial contracts. The Federal Reserve began to publish SOFR in April 2018. The Federal Reserve has also begun publishing historical indicative Secured Overnight Financing Rates going back to 2014.

The FCA announced on 3 April 2023 (the "FCA's 2023 Announcement") that, to avoid disruption to legacy contracts that reference the 1-, 3- and 6-month U.S. dollar LIBOR settings and to help ensure an orderly wind-down, it will require the LIBOR benchmark administrator to publish these settings from 1 July 2023 under an unrepresentative "synthetic" methodology (hereinafter referred to as "U.S. dollar Synthetic LIBOR"), based on term risk-free rates, until the end of September 2024, for use in legacy contracts (except cleared derivatives) but not for use in new business. The FCA's 2023 Announcement states that the U.S. dollar Synthetic LIBOR rate will be calculated as the sum of the CME Group Benchmark Administration Limited's Term SOFR Reference Rate plus the ISDA fixed spread adjustment for the corresponding settings, i.e. for the 1-, 3- and 6-month U.S. dollar LIBOR settings respectively.

The Critical Benchmarks (References and Administrators' Liability) Act 2021 (the "Benchmarks Act") provides a framework for contractual continuity in contracts governed by the law of England and Wales where a synthetic LIBOR benchmark operates in respect of such contracts. On the assumption that U.S. dollar Synthetic LIBOR is published as described above in the FCA's 2023 Announcement, the contractual continuity provisions of the Benchmarks Act are expected to be triggered and references in the existing Conditions to 3-month U.S. dollar LIBOR would then be automatically read as references to 3-month U.S. dollar Synthetic LIBOR with respect to any interest determination that occurs on the Securities while U.S. dollar Synthetic LIBOR is being published."