FinanceAsia continues setting out why we made the choices we did in our annual Achievement Awards this year.
Tomorrow, we'll explain what made the winners of our House Awards stand out.
We began the process earlier this week by setting out how we decided the two private banking awards. Yesterday, we looked at the best deal in each market, with the Country Awards.
Today, we focus on the Deal Awards in a wide range of categories, from early stage financing right through to the IPO. As one of a number of new categories introduced this year, we also honour the Best Belt and Road Deal.
Financial advisers:
Target: JP Morgan; Evercore Partners; Bank of America Merrill Lynch
Acquirer: CICC; Citi; DBS; Goldman Sachs; Morgan Stanley; UBS
Leveraged loan underwriters: Citi; Goldman Sachs
Legal advisers:
Target: Allen & Gledhill; Morgan Lewis & Bockius; Morrison & Foerster; Rajah & Tann
Acquirer: Clifford Chance; Davis Polk & Wardwell; JunHe LLP; Kirkland & Ellis; Skadden Arps Slate Meagher & Flom
Public relations:
Target: Teneo Strategy, Newgate Communications
Buyer: Brunswick
A consortium including private equity firms HOPU and Hillhouse Capital, property developer China Vanke, and the investment arm of Bank of China bid $16.1 billion in July for Singapore-listed Global Logistic Properties (GLP).
It ended up being the largest-ever private equity buyout of an Asian company, as well as the largest-ever M&A deal in Singapore and Southeast Asia, no doubt helped by also having GLP chief executive Ming Mei as part of the winning consortium.
Even so, the deal was never a foregone conclusion as competitive tension was maintained throughout the bidding process, with the seller, headed by majority shareholder GIC, drawing a wide range of interested buyers such as Warburg Pincus.
The strong interest was unsurprising given GLP is a proxy bet on the development of e-commerce in China. In tandem with the country’s growing online shopping habits, e-commerce companies from Alibaba to JD.com are hunting for more warehouses to store their goods and act as distribution hubs.
GLP owns and manages a global property portfolio covering 55 million square metres and China makes up 57% its net asset value.
A key reason why the winning consortium beat out fierce competition was because it offered fewer caveats to its offer, such as deal certainty even if say Cfius raised objections.
The capital structure – including $11.5 billion in equity – was carefully designed to provide the consortium maximum flexibility to run the business. The loan facility was arranged in tranches to provide different tenors to match cash flows.
As a result, the financing attracted strong interest from lenders and was widely syndicated.
BEST BELT AND ROAD DEAL (new category)
Pakistan Water and Power Development Authority $350 million term loan
Sole mandated lead arranger and original lender: Credit Suisse
Pakistan awarded two contracts worth PRs179 billion ($1.6 billion) to state-owned Wuhan-headquartered China Gezhouba Group for the construction of part of a hydropower project, one of the most challenging hydroelectric power projects ever undertaken.
The mega project is located on the River Indus, in remote and mountainous terrain upstream of Dasu town in the Kohistan district of Khyber Pakhtunkhwa.
Pakistan said the project will stabilise the country’s economy by providing low-cost hydroelectric electricity to develop a relatively backward and far-flung area.
Pakistan’s Water and Power Development Authority, the project owner, and China Gezhouba Group signed the agreements in March for carrying out main civil works in the first stage of the Dasu hydropower project.
The two parties expect to complete the first stage by 2021 and contribute more than 12 billion kilowatt hours of electricity per annum to the Pakistani national grid. The completion of the second and final stage would add another 9 billion units every year in a country that suffers energy shortages.
It is a true Belt and Road story in that Chinese engineering expertise is being brought to the table in a country in the grip of an energy crisis. According to China Gezhouba Group, the project will create 8,000 local jobs.
To support the development of the project, Credit Suisse extended in June a $350 million unsecured term loan to the Pakistan Water and Power Development Authority, a government-owned power generation entity in Pakistan. This was the first such corporate loan structured in Pakistan with partial guarantees from the International Development Association, part of the World Bank, and the Ministry of Finance Pakistan.
The loan was made against a high degree of political instability in Pakistan, which has a B sovereign credit rating from Standard & Poor's. The first $200 million tranche of the 10-year loan has been funded and the second tranche will be funded in June 2018.
BEST FINANCING (early stage to pre-IPO)
L Catteron’s $226 million re-pricing and recapitalisation facility for Ningbo Zhongzhe Mushang Holding
Financial Adviser and underwriter: Citigroup
L Catterton Asia, a consumer-focused private equity firm and part of global luxury goods group LVMH, acquired a majority of Ningbo Zhongzhe Mushang Holding in October 2016. The deal for the menswear fashion retailer in China marked a rare leveraged buyout in the Asian consumer retail sector.
Less than a year later L Catteron was able to execute a $226 million re-pricing and recapitalization facility and widened the investor base.
The transaction allowed L Catteron to refinance the existing leveraged buyout facility while raising new money for a special dividend to the shareholders.
For the company this meant a reduction in financing costs and also readied the firm for a potential initial public offering.
BEST PRIVATE EQUITY DEAL
Warburg Pincus-backed Vincom Retail's $740 million IPO
Financial advisers:
Joint global co-ordinators: Citigroup, Credit Suisse, Deutsche Bank
Domestic lead manager: Saigon Securities
Legal advisers:
Vincom Retail and Warburg Pincus: Latham & Watkins
Warburg Pincus reduced its stake in Vincom Retail via an IPO in November.
The deal raised $740 million for existing shareholders and ranks as the country's largest ever initial public offering.
The stock rose by the limit in its debut on the Ho Chi Minh City Stock Exchange.
Vincom Retail is the largest shopping mall operator in Vietnam with over 40 malls in operation or under development at the end of June 2016 which represents over 50% of the total retail by floor area in Vietnam.
Warburg Pincus dropped its share holding from 15.2% to 4.9%. The private equity group also retained a board seat post IPO.
The fact the fund retained some shares was a key comfort factor for fund managers who are typically very wary of deals where private equity investors sell out entirely.
In Vincom Retail's case, they are also likely to view its ongoing presence as a safeguard against any decline in corporate governance standards.
The private equity firm and its co-investors could triple their money after the fund led a $200 million investment round in 2013 and ploughed in a further $100 million one year later.
The IPO valued the mall developer at $3.4 billion.
Warburg Pincus typically holds its investments from five to seven years, so it sold out more or less on schedule.
BEST EQUITY DEAL
Shanghai Port's $1 billion exchangeable bond into Postal Savings Bank of China
Sole bookrunner: Deutsche Bank
In what was seen as a near-impossible mission, Shanghai International Port Group pulled off in July a $1 billion exchangeable bond into Postal Savings Bank of China, thereby managing to monetise almost half of its cornerstone investment in the lender’s initial public offering a year earlier.
Investment banks that advised SIPG faced a tough task after the state-backed port operator asked for proposal to clear up part of its $2 billion investment in PSBC, which was described as a dead stake because the extremely thin liquidity of the stock in the secondary market made it almost impossible to execute any trade of size.
To make matters more challenging SIPG had bought PSBC’s shares at HK$4.76 each at the time of the IPO but the share price had since slipped to HK$4.66 at the time of the transaction. That effectively ruled out the possibility of a direct block sale of shares since that would have incurred an immediate loss, even before factoring in a deal discount typically needed for block trades.
Sole bookrunner Deutsche Bank managed to find a solution for SIPG by selling the shares through an exchangeable bond structure, which was priced at a premium to the prevailing share price and allowed the issuer to potentially make a profit if the stock reached the strike price.
But there were also difficulties for an exchangeable bond issue. For one, PSBC’s low liquidity limited the amount of stock-borrow facility available in the market – a crucial element needed to entice arbitragers in equity-linked transactions.
Adding to the challenge was SIPG request to offer only a partial dividend pass-through of amount exceeding 15 HK cents per share, implying that bondholders would lose out against ordinary shareholders when it came to dividend payments.
The issuer managed to overcome all these difficulties by providing a stock-borrow facility itself – the first ever time that a Chinese state-owned enterprise has done so.
The deal was also carefully structured with two tranches of different maturities to give more flexibility to bondholders. It was a rare bond rated independently by international rating agencies before hitting the market.
All in all, the SIPG/PSBC exchangeable bond is FinanceAsia’s Best Equity Deal of the year because it was a ground-breaking attempt to monetise an illiquid stake through an equity-linked instrument – an approach likely to be replicated by other issuers in the future.
BEST IPO
China Literature's $1.1 billion Hong Kong IPO
Joint sponsors: Morgan Stanley; Bank of America Merrill Lynch; Credit Suisse
Joint global coordinators: JPMorgan; CICC
Joint bookrunners: China Securities International; China Renaissance; China Merchant Securities; CMB International; BOC International; HSBC
Legal advisers:
Issuer: Skadden Arps Slate Meagher & Flom
Tencent: Davis Polk & Wardwell
Public relations: Porda Havas
China Literature’s $1.1 billion floatation marked the height of Hong Kong’s IPO renaissance this year.
As a subsidiary of Tencent, the high-flying Chinese technology giant behind popular social messenger WeChat, the electronic book platform naturally caught the attention of investors despite the fact it had only begun turning a profit last year.
Riding hot on the heels of ZhongAn Online P&C Insurance’s successful listing, China Literature extended the IPO frenzy among retail investors by locking in over HK$520 billion ($66.6 billion)-worth of orders, nearly a third of Hong Kong’s monetary base. The impact was consequently felt more widely, with the city’s interbank lending rate surging by the most in a decade as a result of the substantial decrease in market liquidity.
Demand for the institutional tranche was equally rampant, leaving it heavily oversubscribed. According to sources familiar with the company, some institutional investors even asked for allocations more than two months ahead of the official deal launch.
China Literature’s shares more than doubled in price at one point on their debut and ended 86% higher, making it the best-performing IPO of size since 2007, when Alibaba.com, Hong Kong’s strongest-ever performing IPO, rose by 192% on its first trading day.
Most importantly, the success of the China Literature listing overturned the perception that Hong Kong’s IPO market was distorted and inefficient. It was the first billion-dollar IPO in many years without a cornerstone tranche, implying it was a truly transparent deal priced entirely by market forces, and has restarted the debate over whether large Chinese technology companies should list in Hong Kong or the US, a topic that for a time was seldom discussed due to the extent to which Hong Kong had lost its shine.
BEST M&A DEAL
ChemChina’s acquisition of Syngenta for $43 billion
Financial advisers:
Target: Goldman Sachs; JP Morgan; UBS
Acquirer: Bank of China; China Citic Bank; China Construction Bank; CICC; Credit Suisse; HSBC; Morgan Stanley
Legal advisers:
Target: Baer & Karrer; Blake Cassels & Graydon; Davis Polk & Wardwell
Acquirer: Clifford Chance; Fangda Partners; Homburger; King & Wood Mallesons; Osler Hoskin & Harcourt; Simpson Thacher & Bartlett
Public relations: Brunswick
China National Chemical Corporation’s (ChemChina) $43 billion takeover of Syngenta is the largest-ever offshore acquisition by a Chinese company.
The acquisition of the Swiss firm, with its 28,000 employees in over 90 countries, turns state-owned ChemChina into a truly global player in agricultural chemicals and pesticides.
It also underlines chairman Ren Jianxin’s credentials as a dealmaker who has fervently acted upon Beijing’s exhortations for its companies to go overseas, build market share, and gain technological expertise.
Gaining access to Syngenta’s advanced seed and crop protection products and technologies should be instrumental to the Chinese authorities’ efforts to modernise agricultural practices and improve the security of the country’s food supplies.
Syngenta is the world’s largest producer of crop protection chemicals. ChemChina, although the largest chemical company in China by revenue, is a much smaller player in agrochemicals.
The deal gives Syngenta an enterprise value with dividends of $47 billion and an implied 2016 Ebitda of 16.3 times. It is largely debt funded, raising ChemChina's debt leverage and refinancing risk. But this is partly offset by improvements to the company's business profile, its plan to pay down debt, and by strong government support.
Based on its 2016 financials, ChemChina’s revenue will increase by about 30% and its Ebitda by more than 50%. The acquisition will also enable ChemChina to leverage off its registration expertise and distribution networks in China, expanding the market for Syngenta’s seeds and crop protection products.
The exceedingly complex deal was launched on February 3, 2016 and involved a lengthy process to gain regulatory approvals in multiple jurisdictions including the US, European Union, and Switzerland. The fact ChemChina is a state-owned enterprise made the potential acquisition a particularly sensitive one. But the deal was finally approved in April 2017 by both EU and US anti-trust regulators – subject to the sale of certain European and US assets by ADAMA, a subsidiary of ChemChina. This divestiture had a limited financial impact on ChemChina.
On May 10, ChemChina said its public tender offer for Syngenta was successful and on October 26 Syngenta’s application for delisting in Switzerland was approved.
BEST INVESTMENT-GRADE BOND
PT Paiton Energy $2 billion 13-year and 20-year amortising notes
Joint global co-ordinators: Barclays; HSBC
Joint bookrunners: Citi; DBS; Deutsche Bank
Joint lead manager: SMBC Nikko
Co-managers: Mizuho Securities; Morgan Stanley
Issuer counsel: Skadden, Arps, Slate, Meagher & Flom
This was one of the easiest awards to judge in 2017 given what a landmark the deal was not only for Indonesia but also for Asia as a whole.
The region’s last Reg S/144a project bond was executed two decades ago in 1997. But its huge infrastructure financing ambitions will require far greater involvement from Asian bond investors over the coming two decades.
This deal has set a template for others to follow. In addition to fully optimizing Paiton’s balance sheet, it also crucially freed up equity, which the project’s original sponsors can use to finance new projects elsewhere.
The effective dividend re-capitalization was one of the deal’s most innovative features. JBIC was re-paid early for the first time in its history.
Key to getting the size and tenor across the line was an investment grade rating, which was, in turn, greatly aided by Paiton’s long operating history and steady cash flows.
It was also contingent on the bond and loan markets working together: the second innovation. The syndicated loan enabled the bond’s amortization profile to be back-ended, reducing the kind of cash inflows long-term investors such as insurance funds dislike.
BEST HIGH-YIELD BOND
Vedanta’s any-and-all tender offering and $1 billion July 2022 bond
Joint bookrunners: Barclays; Citi, JP Morgan; Standard Chartered
Issuer’s counsel: for Indian Law, Khaitan & Co; for English and US Federal Law, Latham & Watkins
This award was one of the most difficult to judge because competition was very stiff given the phenomenal year Asian high yield has had.
But in so many ways, Vedanta’s any-and-all tender offering and new issue was the transaction, which set the tone for the whole year.
The new issue component was sizeable, but well received with $3.1 billion of demand. It indicated that size would not handicap investors desire to chase yield.
With a B1/B+ rating, the deal also came from the lower end of the credit spectrum. Again investors desire for yield meant they were happy to push further down the curve.
Then there was the fact that the offering came from the commodities sector. Its positive reception in January opened the door for a raft of other issues particularly from Indonesia over the course of the year.
And finally, Vedanta completed a well-executed liability management exercise, which helped to extend and smooth out its maturity profile. It is the kind of deal, Asia is likely to see a lot more of if conditions hold steady.
BEST LOCAL CURRENCY BOND
Agricultural Development Bank of China’s Rmb16 billion ($2.42 billion) three-tranche bond sale
Joint underwriters: Bank of China; China Construction Bank; Agricultural Bank of China; Bank of Communications; ICBC; Standard Chartered Bank China; HSBC Bank China
The opening up of China’s domestic bond market is one of – if not the – most important development in the history of Asia’s capital markets.
The launch in summer 2017 of Bond Connect was also a significant milestone, which we have acknowledged with this award. For it was hard for other issuers to compete with the symbolism of Chinese policy lender, Agricultural Development Bank of China (ADBC), which became the first to sell bonds through Bond Connect on July 3.
This sister programme to Stock Connect between Hong Kong and bourses in Shanghai and Shenzhen enables foreign investors to buy and sell bonds in China’s interbank bond market for the first time without setting up an offshore account.
ADBC initially planned to sell Rmb15 billion ($2.2 billion), but later added another Rmb1 billion due to strong demand from offshore accounts. Overall the one-year, three-year and five-year deal was 10 times oversubscribed, with offshore investors allocated 13%.
BEST ESG DEAL
ICBC Luxembourg $2.15 billion equivalent dual-currency, triple tranche green bond
Joint Global Co-ordinators: Bank of America Merrill Lynch; Credit Agricole CIB; HSBC; ICBC (Asia)
Joint bookrunners: BNP Paribas; Citi; ICBC International; ICBC Standard Bank; SEB; SG CIB; UBS
Second opinion provider: CICERO
External review opinion provider: Zhongcai Green Financing
Legal advisers: Junhe; Linklaters; King & Wood Mallesons; Allen & Overy
As a frequent issuer in the international bond market, ICBC needs little introduction. But its debut green bond, in September, set an international standard for other Chinese borrowers to follow.
This was important given the huge issuance volume expected from the country, which wants to set a clear global lead in green financing.
ICBC Luxembourg’s deal was the first that was aligned with both ICMA’s Green Bond Principles and the People’s Bank of China’s Green Bond Categories.
Sean Kidney, CEO of the Climate Bonds Initiative, said the deal was significant from a harmonization perspective and would help to push international standards within China.
The triple-tranche deal was also worthy from a liquidity point of view, as it embraced an €1.1 billion three-year FRN, a $450 million three-year FRN and a $400 million five-year fixed-rate note.
The deal was also billed as China’s first Belt and Road climate bond.
This article has been updated to correct the description of the Best Private Equity Deal.
