Obvious contenders for the mandate are Barclays, DBS, Morgan Stanley and Royal Bank of Scotland (RBS) - however many of the region's leading investment banks are also very inclined to look at the deal as well. RBS is somewhat of a dark horse in this respect since it is not a significant player in the Asian debt capital markets (ex-Japan ex-Australia).
In its biggest single investment ever, the Singapore port operator, the worldÆs second largest port operator behind Hutch purchased a 20% stake in Hutchison WhampoaÆs (HWL) portfolio of ports - Hutchison Port Holdings and Hutchison Ports Investments Sarl - for a total cash consideration of $4.4 billion.
The deal gives PSA a 20% stake in all HWLÆs 42 global port assets. The purchase increases PSAÆs stake in Hong Kong International Terminals to just over 30% and it also acquires interest in Yantian, GuangdongÆs primary deep-water port, and the second phase of ShanghaiÆs Yangshan project.
The $4.4 billion acquisition financing is expected to be funded through a combination of a term loan and bond offering.
Morgan Stanley represented PSA on the purchase and later, along with RBS, provided a $1.8 billion bridging loan. Usually underwriting a bridge loan gives the respective banks an advantage over other firms in booking any subsequent bond take-out facility. This makes Morgan Stanley a frontrunner to get the mandate, with some bankers suggesting that Morgan Stanley may even sole lead manage the bond. However, the respective success of the loan facility has seen its underwriters clamouring for a share of the bond deal as well.
PSA mandated Barclays, DBS and RBS to underwrite a $2.6 billion term loan facility. And the response to the syndication has been nothing short of immense leading PSA to upsize the deal.
With syndication expected to be launched later this week, the facility has been increased to $3.4 billion to address the overwhelming demand; meaning that if the loan facility remains at its current size, PSA will need only $1 billion in additional funding from the debt market, not the $1.8 billion originally expected. The success of this deal means that the three underwriters now have additional leverage to pitch for the upcoming bond deal.
The next question PSA will have to address is how much it will want to borrow from the international debt markets to take out the bridge and close the financing.
The loan facility is divided into two tranches: a three-year and a seven-year tranche. The bond markets have the advantage of offering longer duration. That said, with the current volatility engulfing the global debt markets, PSA may opt to fund the majority through the loan market - which typically offers cheaper pricing than the bond markets.
ôThere will definitely be some size uncertainty with this bond deal,ö says one syndicate head. ôInitially it could have been upwards of $1.8 billion, but with the loan upsized and market spreads pushing out, it will be interesting to see where the final number ends up.ö
Furthermore, it remains to be seen whether S&PÆs recent downgrade of Temasek-owned PSA to double-A from triple-A will have any effect on the port operatorÆs borrowing targets. S&P made the move, citing that ôalthough it believes the acquisition is in line with the groupÆs strategy to maintain its global market position, the significant increase in debt has materially weakened the groupÆs financial profile.ö
In combination, Hutchison Port and PSA handle over 90 million twenty-foot equivalent units (TEUÆs), the mainstay of the shipping industry, a quarter of all cargo shipping worldwide.
The sale and purchase agreement was signed on April 21, 2006 and the transaction was completed in mid-May.
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