The following deals, the banks that worked on them and their clients will be honoured at an awards dinner at the Four Seasons hotel in Hong Kong on February 17. If you would like to book a table at the event, please contact Stephanie Cheung on +852 2122 5225 or [email protected].
DEAL OF THE YEAR, BEST IPO
AIA Group’s $20.5 billion IPO
Bookrunners: Citi, Deutsche Bank, Goldman Sachs, Morgan Stanley, Barclays Capital, Bank of America Merrill Lynch, CIMB, Credit Suisse, ICBC International, J.P. Morgan, UBS
Legal advisers: Freshfields, Debevoise & Plimpton, King & Wood, Linklaters, Sullivan & Cromwell
It will probably not come as a huge surprise that our short-list for the best IPO this year comprised AIA and Agricultural Bank of China. The two $20 billion plus listings both had to overcome numerous negative issues – think AIA’s links to its financially troubled parent and the failed sale of the Pan-Asian life insurer to Prudential earlier in the year, or the quality of ABC’s assets and its public image as a poorer cousin of China’s other state-owned banks. Also, both were completed in record time, requiring a great deal of flexibility from the banks involved, were well executed and made money for investors in the months after the IPO, making each of them worthy of recognition.
In the end we chose to give the IPO award to AIA, while naming ABC the best China deal, which puts it ahead not just of all the other China IPOs this year, but of all debt and M&A transactions as well.
What impressed us by the AIA IPO was its ability to achieve a slightly higher valuation than Prudential’s revised bid just five months earlier and the fact that it successfully turned its stalled growth in recent years into an intriguing – and sought-after -- turnaround story, even though its new CEO had barely taken office when the deal launched (the CFO was so new he didn’t even participate in the roadshow).
And while the total size was slightly smaller than that of ABC, all the $20.5 billion were listed on one exchange and excluding the retail and cornerstone tranches, the bookrunners had to sell $17 billion of AIA paper to international institutions, versus $6 billion of ABC stock.
By the clever use of a 20% upsize option in addition to the greenshoe – a first for a Hong Kong IPO – parent company AIG was able to maximise the proceeds, without spooking investors with too large a deal from the outset. The price range was also kept at an attractive level to draw in demand, leading to strong momentum from day one. By the time the order book had swelled to more than $130 billion, the top-end pricing and the exercise of the upsize option met no resistance.
With regard to our Deal of the Year award, that was a much easier decision. In a year when at least two-thirds of deal revenues are estimated to come from equity, thanks to record IPOs and volumes in almost every market, in our mind the best IPO of the year also deserves the accolade as the top transaction in the region.
BEST SECONDARY OFFERING
$1.2 billion sell-down in Ping An Insurance by Newbridge
Bookrunner: Morgan Stanley
Legal advisers: Cleary Gottlieb, Freshfields
This was neither the most talked-about nor the largest block trade in Hong Kong this year. Both those awards would have gone hands done to Vodafone’s sale of China Mobile, which was bid for so aggressively that nobody really expected it to clear. Several months later market participants continue to speculate how much the bookrunners may or may not have lost on the transaction. For Vodafone that was still a highly successful deal, but we have slightly different criteria when we pick the best secondary offering and have settled for a deal that initially looked almost as bold as China Mobile, but which followed through with flawless execution.
This was a clean-up trade by Newbridge following a similarly sized deal in May, and came on Ping An's first day of trading after a two-month suspension while awaiting approval for an acquisition. For the banks that had missed the first Ping An block, this was one they wanted to be on, for league table credits, if nothing else, and the bidding for the mandate was highly competitive.
Morgan Stanley was the most aggressive, offering a hard underwriting agreement for the entire deal within 10 minutes of receiving the RFP at a tight 2.1% discount to the day’s close. Given that the stock had gained 2.7% earlier in the day, the seller was understandably happy and awarded the deal to the US bank on a sole basis. The bank then turned around and offered the shares to investors at an even tighter discount between 1.2% and 2.1%.
But what had looked so aggressive from the start, quickly proved to be a very reasonable range as more than 100 investors piled in, covering the entire deal in less than an hour and allowing the price to be fixed at the very top for a 1.2% discount. This marked the tightest discount ever for a Hong Kong block above $1 billion and the tightest in 2010 for deals larger than $200 million. Adding to the positive outcome, the share price gained 5.4% the following day.
This was a bold move by Morgan Stanley, but it pulled it off through a combination of fortunate timing, market insight and good execution. In fact, the only box that didn’t get ticked here was the one where we ask ourselves whether a particular deal can be repeated by others. Perhaps it can, but in light of the China Mobile experience, it may take a while.
BEST EQUITY-LINKED DEAL
China Unicom's $1.8 billion convertible bond
Bookrunners: CICC, Goldman Sachs, Nomura
Legal advisers: Sullivan and Cromwell; Herbert Smith; Davis Polk
The China Unicom transaction stood out this year, not only because it was the largest CB ever in Asia ex-Japan, but because of the smooth execution and the fact that it was genuinely liked by everyone -- the issuer, the investors, analysts and even rival bankers. The deal was done to allow Unicom to issue 900 million new shares if the bonds are converted, which is roughly the same number of shares that it bought back from SK Telecom in 2009 at a much lower price.
Looking back on the deal, some CB specialists have suggested that the 0.75% coupon was unnecessarily high and that Unicom could have done better, but at the time, most of the comments were complimentary.
To criticise the coupon also misses the point. China Unicom had clear objectives with regard to the deal size and the conversion price and in order to achieve those, it was prepared to offer investors a small coupon. The company and the bookrunners may have been able to squeeze a bit more out of the investors, but by not doing that, they helped ensure the deal received healthy demand and reached that aftermarket sweet spot between 101 and 102 in the first five days after pricing.
The rarity of Asian CBs from investment grade names, coupled with plenty of stock borrow, created a lot of interest from both outright CB investors and hedge funds. Total orders topped $5 billion, allowing the conversion premium and coupon/yield to be pushed to the mid-point of the indicated ranges. The former was set at 35.5%, fulfilling Unicom’s aim for a conversion price above its HK$15.58 IPO price from 10 years ago, while the 0.75% yield was the lowest for an Asia-listed Chinese issuer since 2006. In all, this was a deal that demonstrated a clear understanding for what the market was willing to accept, resulting in a good outcome for both issuer and investors.
BEST MID-CAP EQUITY DEAL
Tiger Airways’ $178 million IPO
Bookrunners: Citi, DBS, Morgan Stanley
Legal advisers: Allen & Gledhill, Clifford Chance, Latham & Watkins, Drew & Napier, Stamford Law, WongPartnership, Minter Ellison
Being the first IPO to price globally in 2010, Singapore-based Tiger Airways came to market on the back of a very challenging 18 months for the global airline industry and its roadshow coincided with a growing realisation that Japan Airlines was heading for bankruptcy. As it were, the Singapore IPO was exceptionally well timed as low cost carriers tend to outperform early in the economic cycle and the company has continued to deliver for its shareholders throughout the year.
Extensive international marketing and investor education helped create interest early on. And by positioning Tiger as a unique high-growth story and using its top-class backers (Singapore Airlines, Temasek, a company controlled by the family behind Ryanair and US private equity fund Indigo) as leverage with investors, the bookrunners were able to create an accelerating momentum during the bookbuilding that forced investors to lift their price limits as the demand grew. The final price was fixed at the mid-point of the range at S$1.50 per share for a 4% premium versus its global peers and a 15% premium to AirAsia, even as most IPOs at the end of 2009 had priced at quite deep discounts. The order book reached S$1.3 billion ($990 million) with more than 50% of the institutional demand coming from long-only funds.
In our view, a big part of bringing successful listings in the mid-cap space is about identifying listing candidates that are at a stage in their development that a listing will be beneficial both to the company and to investors. And Tiger’s solid performance this year, both in terms of its operations and the share price – the stock was up as much as 50% in the late summer and by early December had settled in a range about 25% above the IPO price -- suggests the bookrunners hit it right with this one.
BEST SMALL-CAP DEAL
MakeMyTrip.com’s $78 million US IPO
Bookrunner: Morgan Stanley
Legal adviser: Latham & Watkins, Shearman & Sterling, Amarchand Mangaldas, S&R Associates
One might have thought that an IPO that soars 89% on day one would spark criticism from the banking community for being priced too cheaply. But, in fact, throughout the awards pitch season we heard nothing but praise for this deal and bankers said it was hard to fault Morgan Stanley for the eye-catching debut, which appears to have been caused primarily by the scarcity of stock. Indeed, this IPO was frequently mentioned as one that the banks would have liked to be on – and not just in a small-cap context.
The largest online travel agency in India with a 48% market share, MakeMyTrip.com gained a lot of traction among US investors who were already familiar with its Chinese peer, Ctrip.com, which has seen its share price multiply 12 times since listing on Nasdaq at the end of 2004. MakeMyTrip.com, which despite its market position has posted losses in the past three years, also chose to list on Nasdaq, making it the first US listing of an Indian issuer in four years. Further scarcity was created by the fact that the company offered only 15% of its share capital through the IPO.
By the end of the nine-day roadshow, the deal had accumulated more than $1 billion of institutional demand from more than 190 investors. The company didn’t make use of the possibility to fix the price at up to 20% above the indicated range, supposedly because of objections from some key investors, but even at the top of the range at $14, it came at an impressive valuation of 32 times next year’s earnings. This compares with 24 times for Ctrip at the time. So, it is hard to argue that it was cheap.
The stock peaked 189% above the IPO price after about a month of trading and while it has given up a significant portion of those gains following its second-quarter earnings, this only means that it has returned to more realistic valuations (75% above the IPO price) that can be backed up by business performance rather than a supply/demand imbalance with regard to its shares.
BEST M&A DEAL
KNOC’s $2.8 billion acquisition of Dana Petroleum
Adviser to KNOC: Bank of America Merrill Lynch
Advisers to Dana: Morgan Stanley, Royal Bank of Canada, Royal Bank of Scotland
Legal advisers: Allen & Overy, Linklaters
The takeover by Korea National Oil Corporation (KNOC), a state-run oil company, of Dana Petroleum was a textbook case of hostile M&A. BoA Merrill took KNOC the idea to acquire Dana, a London-listed oil and gas exploration and production company, and the Korean company first approached the Dana board in June with an offer of £17 ($27) a share. At that stage KNOC was hoping to do a friendly deal and agreed to increase its offer to £18 per share to win over Dana.
But the Dana board still did not agree. At £18 per share, KNOC’s offer represented a 59% premium to Dana’s share price. Dana’s institutional shareholders got wind of this and started approaching BoA Merrill, saying they were willing sellers. KNOC now made the bold decision to launch an unsolicited offer. One key implication of that was that KNOC could not do due diligence on Dana.
The offer included a dawn raid for a 29% stake, following which KNOC launched an open offer that cornered another 35% of the shares outstanding, giving it a 64% stake in Dana by September.
For an Asian acquirer, and a government-controlled company in particular, to go hostile in western jurisdictions is bold. Our highest M&A deal award last year also recognised this. But the acquirer last year was Chinese and had the luxury of knowing that the sheer size and muscle of China make it a formidable country to cross. Korea, on the other hand, had to digest the potential fallout of a government company being seen as an aggressor.
Critics point to the negative press in Korea about KNOC’s decision to go hostile. But these are M&A awards. And given how well the deal used M&A tactics, coupled with the successful outcome and the various firsts to its credit, this takeover stands out in 2010. And it is likely to give other acquirers cause for thought, at least, if not action.
BEST CROSS-BORDER M&A DEAL
Li Ka-shing’s $9.1 billion acquisition of the UK distribution assets of Electricite de France
Adviser to Cheung Kong Infrastructure and Hongkong Electric: Royal Bank of Scotland
Advisers to EDF: Barclays Capital, BNP Paribas, Deutsche Bank
Legal advisers: DLA Piper, Herbert Smith
When this deal was announced, we expected it to be cited during awards season by other banks as a big miss. Mandates from Li Ka-shing are highly coveted and the fact that Goldman Sachs has almost a stranglehold on advisory business from the Hong Kong tycoon, who is known as one of Asia’s most astute asset traders, is a source of angst for many competitors. Instead, this turned out to be a deal that caused so much noise that we had a hard time separating fact from fiction.
RBS won the mandate by agreeing to lend balance sheet, said some. The advisory fees were miniscule, said others. It followed a well-defined process and so was nothing new, was also something we heard.
However, the mandate to work with the two Li Ka-shing entities, Cheung Kong Infrastructure and Hongkong Electric, was highly contested with nine banks in the beauty parade, we were reliably informed by sources. And RBS won the business on a sole basis, rather than as part of a consortium of lending banks. Further, we note that many of the banks which point fingers at RBS for lending balance sheet, are providing balance sheet on other deals – as the line up of banks working on the financing for Vedanta’s takeover of Cairn corroborates.
Li Ka-shing is known for paying fair fees for his deals. And even if he didn’t, many banks would have taken this mandate to strengthen their relationship with someone who annually gives out a lot of investment banking business.
Also, the fact that this deal followed a well-charted timeline and process, in no way detracts from the outcome. The final three bidders were within a narrow range, said sources, especially given how few large, cash-generating infrastructure assets are available. And the deal is unquestionably transformational for the buyers, to the extent that Hongkong Electric has flagged an intention to change its name to reflect the size of the UK business.
BEST DOMESTIC M&A DEAL
Guangzhou Auto’s $4 billion privatisation of Denway and relisting
Advisers to Guangzhou Auto: China International Capital Corp, J.P. Morgan, Morgan Stanley
Adviser to Denway’s board: BNP Paribas
Legal advisers: Freshfields, Woo Kwan Lee & Lo, King & Wood, Beijing Tianyin
While here at FinanceAsia we are not shy of singling out deals that we believe merit praise, the investment banking community is less often unstinting in its praise of deals done by their competitors. That’s why we took notice when one M&A banker called the Guangzhou Auto/Denway deal a “clever trade” and another said it was the trade they would have liked to have cooked up. And on close scrutiny the deal met all the criteria to win our award for best domestic M&A deal.
The deal satisfied a number of objectives. Guangzhou Automobile, China's largest car maker and a partner of Toyota, got a listing in Hong Kong and simultaneously privatised its 37.9%-owned affiliate Denway Motors, which has been trading in Hong Kong since 1993. Guangzhou Auto sold no new shares in connection with the listing, but paid Denway's existing shareholders with stock. In other words, no cash changed hands, and holders of Denway stock became shareholders of Guangzhou Auto.
The privatisation of Denway had to comply with fairly stringent Hong Kong regulations, which have proven a challenge for other privatisation attempts. However, a fair offer price coupled with targeted meetings with key investors to convince them to tender resulted in a successful outcome.
The deal was the first time a listing by introduction, in which no new shares are sold, and a privatisation were done simultaneously. The structure enabled Guangzhou Auto, which is 91.9%-owned by state-owned investment holding company Guangzhou Automobile Industry Group, to be listed as an H-share company, while Denway was listed as a red-chip.
Companies across the region are rethinking their listed status and/or the exchange on which they are listed. This deal was a timely reminder that creative structuring and thinking out of the box can be a way to address such issues.
BEST PRIVATE EQUITY DEAL
Khazanah’s acquisition of Fortis Healthcare’s stake in Parkway Holdings, including shares acquired from TPG
Advisers to Khazanah: CIMB, Deutsche Bank
Advisers to Fortis: Macquarie, Religare, Royal Bank of Scotland
Advisers to TPG: Goldman Sachs, Royal Bank of Scotland
Independent adviser to Parkway: Morgan Stanley
Legal advisers: Allen & Gledhill, Rajah & Tann, Stamford Law, WongPartnership
This was a year when financial sponsors made as many exits -- as they churned their portfolios -- as new investments. The Fortis Healthcare acquisition of TPG’s 23.9% stake in Parkway Holdings for $686 million, or S$3.56 per share, in March seemed to fall squarely in the former category. TPG had been shopping for a buyer. Fortis was an operator of hospitals in India seeking overseas expansion. It was an aggressive deal for Fortis, representing around half of its market capitalisation, but healthcare is an industry it knows well.
Hence, the decision in May by sovereign wealth fund Khazanah Nasional, which owned 23.3% of Parkway, to launch an offer at S$3.78 per share to increase its stake to 51.5% was unexpected. And it resulted in the deal ending up as a competitive M&A situation with both Fortis and Khazanah bidding for 100% ownership of Parkway.
This was a rare instance of an SWF going hostile. It is also not common for an SWF to own 100% of an operating asset. For Fortis it was a large deal in a new jurisdiction and required a full financing package to be put in place in compliance with Singapore Exchange guidelines.
The final outcome was that Khazanah increased its offer to S$3.95 per share, at which point Fortis decided to throw in the towel and tender its shares.
While the deal may have seemed to meander rather than follow a well-defined course, it did result in a satisfactory outcome for all three parties. TPG got the exit it had been seeking and earned a healthy return on its investment. Fortis did not become the pan-Southeast Asia operator of hospitals it had sought to become through the acquisition, but also earned a healthy ROI and greatly increased its international profile. And Khazanah used compelling M&A tactics to preserve the value of its investment.
Please go to the next page for more deal awards...
BEST INVESTMENT GRADE BOND
Reliance Holdings’ $1.5 billion dual-tranche bond
Lead Managers: Bank of America Merrill Lynch, Citi, HSBC, Royal Bank of Scotland
Legal advisers: Davis Polk, Shearman & Sterling
The largest ever bond launched by an Indian company attracted more than $11.5 billion of demand from 430 investors worldwide - one of the biggest subscriptions for an Asian corporate bond offering. But this was a landmark deal in other ways too. It was the first private Indian corporate investment grade issue since 1997 and the first US dollar-denominated 30-year bond by any Asian private company since 2003.
The dual-tranche structure, made up of $1 billion 10-year notes and $500 million 30-year bonds, meant that Reliance could tap a range of investors with different investment strategies. The long-dated tranche, in particular, generated substantial interest from pension funds and insurance companies eager to match long tenor assets to their liabilities and presented them with an opportunity to diversify into an investment grade Asian credit with a yield 240bp above US Treasuries. The greater cost relative to the 10-year tranche held the issuer back from selling more of it.
Reliance went on an exhaustive seven-day global roadshow to promote the firm’s credit quality, and US and UK investors were convinced. In all, the management team covered more than 150 investors in the major financial centres. A powerful part of Reliance’s message was to compare the company favourably with Latin American oil companies. Momentum was first generated by the lead managers in Asia, which enabled them to tighten the pricing from the initial guidance by the time they approached Europe and the US. The pricing and size of the order book was especially impressive given that the markets were suffering one of those volatile phases which was a feature of the year, right around the time of the launch in early October.
This was Reliance’s first foray into the offshore bond markets for 13 years, and it was a confident return. The lead mangers deserve credit for the thoroughness of their preparation and for their execution strategy.
BEST HIGH-YIELD BOND
Indosat’s $650 million 10-year notes and tender offer
Lead Managers: Citi, DBS, Deutsche Bank, HSBC, Royal Bank of Scotland
Legal advisers: Milbank Tweed, Sidley Austin, Assegaf Hamzah & Partners, Melli Darsa & Co
Indosat, the Indonesian telecommunications company, returned to the international bond market after a five-year absence. Its re-entrance was delayed by the European sovereign debt crisis in May, but when it did step back on the stage two months later, it received a standing ovation.
A final order book of $10.6 billion from more than 400 accounts was the largest ever recorded for any Indonesian bond deal, and so the issuer raised the size of the offering by $150 million. It could have done more. Perhaps wisely, Indosat showed restraint, and its reward was a significantly tighter price than the initial guidance. It was sold with a 7.45% yield, after early marketing indications of 7.75%.
This was aggressive pricing relative to Indonesian comparable credits and versus global telecoms companies with similar BB ratings. Yet, Indosat’s bonds traded at a 3.75 point premium in the secondary market the day after pricing.
Certainly, the expectation of strong support by Qatar Telecom, Indosat’s parent, would have reassured investors. Indonesia’s improving sovereign credit was also a supportive backdrop. A global roadshow in May included more than 50 one-on-one meetings and travelled to London and the east and west coasts of the US.
The transaction was executed in conjunction with tender offers to holders of Indosat’s existing 2010 and 2012 issues, as well as a consent solicitation to shorten the optional redemption notice period on the 2010 bonds. So, as whole, the deal was a liability management exercise, which enabled Indosat to lengthen its debt maturity profile and reduce its short-term financing risk. The consent solicitation received 79.4% approval, and 71.5% and 51% respectively of the 2010 and 2012 bonds were tendered. Those were impressive results, not least because both issues are illiquid and widely dispersed. The transaction in general was a rewarding one for that trinity of issuer, investors and bankers.
BEST SOVEREIGN BOND, BEST PHILIPPINE DEAL
Republic of the Philippines’ Ps44.1 billion ($1 billion) peso global bond
Bookrunners: Citi, Credit Suisse, Deutsche Bank, HSBC, J.P. Morgan, Goldman Sachs
Legal advisors: Cleary Gottlieb, Romulo
Few deals have shaped a country or its capital markets the way the Republic of the Philippines’ peso global did. The concept of selling a local currency-denominated bond to global investors had long been pitched by bankers but had never gained traction in Asia.
Detractors pointed out that such a bond could hurt liquidity in the onshore market. But the Philippines persevered and took the leap of faith required to go ahead with the debut deal. Its boldness was abundantly rewarded as the bonds priced inside its domestic curve, despite a sharp rally ahead of the deal launch, and succeeded in raising $1 billion equivalent – about five times the usual size of its domestic bond auctions.
Crucially, the bond enabled the sovereign to reduce its US dollar debt and diversify its investor base. The peso global also set a new benchmark for the Philippines and the 5% yield was the lowest ever paid by the Philippines for a US dollar or peso bond.
The bond was timed beautifully, launching amid resurgent appetite for appreciating Asian currencies. With US Treasury yields hovering at all-time lows, emerging market funds were scouring the globe for yield and a chance to get exposure to Asian currencies. The deal was also flawlessly executed, gathering an astounding order book of $13.5 billion through a bookbuilding process that lasted 16 hours.
It was the deal that every bank on the street wanted to be on, and further cemented the Philippines’ reputation as an astute borrower. It also rewarded investors -- including some that were new to the sovereign -- as the bonds rallied strongly in the secondary market.
The peso global was ground-breaking and paved the way for other Philippine corporations and banks to issue local currency bonds to offshore investors. Shortly after the Philippines issued its peso global, Philippine oil refiner Petron Corp came to market with its debut peso-denominated Reg-S bond targeted at offshore investors.
BEST LOCAL CURRENCY BOND
McDonald’s Rmb200 million dim sum bond
Lead manager: Standard Chartered
Legal advisers: Simmons & Simmons
McDonald’s is one of the most iconic symbols of globalisation and, as such, the perfect issuer to open China’s offshore bond market for multinational companies. The launch of the so-called dim sum bond market in Hong Kong gives foreign businesses a new fund-raising option for their Chinese operations and will create a pool of renminbi assets that investors outside China can buy and trade. And they were quick to get their hands on McDonald’s debut Rmb200 million three-year deal, with the books closing five-times oversubscribed after just two hours.
It is still very early days and this small deal was a symbolic one, but the potential of the offshore renminbi bond market is huge. Some rival bankers tried to pick holes in the way Standard Chartered executed the deal, but it was a trade they all wanted to be on. And who cares about perfect execution when your primary goal is to be the first multinational to issue a renminbi bond in Hong Kong? McDonald’s and Standard Chartered won that race and, for the significance of that fact alone, they win this one as well.
BEST ISLAMIC FINANCING
The government of Malaysia’s $1.25 billion global sukuk
Joint lead managers and bookrunners: Barclays Capital, CIMB, HSBC
Legal advisers: Allen & Overy, Clifford Chance, Hisham Sobri & Kadi, Zaid Ibrahim & Co
The $1.25 billion five-year sukuk, or Islamic bond, provided the opportunity for the sovereign to showcase Malaysia’s strong credit story, establish an international funding benchmark for the country and further entrench Malaysia’s leadership position in the global Islamic finance arena. To date, it is the largest-ever US dollar-denominated global sovereign sukuk, so it was the one to be on if you want to lead in this space.
This deal, which marked Malaysia’s successful and much-anticipated re-entry into the international capital markets after an eight-year absence, drew an overwhelming response both from the Middle East and international investors. Indeed, the orderbook built to nearly $6 billion, or 4.8 times the size on offer, in just six hours in May, amid choppy markets.
The strong demand allowed the deal to be priced at US Treasuries plus 180bp, which made it only the second bond to be issued by an emerging market country in the past five years to yield below 4% (Russia was the first, earlier in 2010).
As Malaysia strives to lead in the Islamic financing arena, this deal had to come off smoothly. It did, and the banks that handled the transaction are unquestionably cornering this market.
BEST TRADE FINANCE SOLUTION
GlaxoSmithKline’s $300 million non-recourse receivables services programme
Sole financier: Standard Chartered
In a year when funding has been hard to access for many companies and working capital is of paramount importance, Standard Chartered’s non-recourse receivables services programme for GlaxoSmithKline (GSK) was regarded by the client as one of the most successful working capital initiatives it has ever undertaken. The programme was initially launched with great success in Taiwan, which convinced GSK to roll out the tailored solution in Singapore and Hong Kong as well. When fully implemented, the programme will release considerable amounts of working capital for GSK to reinvest, thereby supporting its growth strategy.
The scalable solution will be rolled out in other markets in the region next year, possibly including Korea, Thailand, the Philippines, Malaysia and Indonesia. Working capital is of critical importance to players in the pharmaceutical industry, which require maximum investment in R&D if they are to maintain healthy product pipelines and secure greater market share.
The programme itself consists of a combination of internal credit limits for buyers and credit insurance limits. The solution came about through close cooperation between the bank and the client’s global relationship teams, together with the respective local teams. Standard Chartered was the only bank able to meet GSK’s requirements within the limited timeframe, and was alert to the sensitivity of the company’s relationships with both its pharmaceutical and consumer healthcare clients, the two businesses under which the programme is managed. The bank was then able to specifically address GSK’s need for an absolute off balance sheet/without recourse solution and for 100% receivables value, leveraging off its own market strength and knowledge of the region.
BEST CASH MANAGEMENT SOLUTION
Deutsche Bank’s receivables and payables solution for Deutsche Post DHL
Deutsche Bank was the only bank without a previous relationship with DP-DHL invited to respond to the RFP. Its innovative and highly-tailored solution was designed to address the client’s complex structure in India, which comprises five main legal entities, each with a large number of bank accounts. This meant cash was idling away in multiple bank accounts for some entities, while other entities had to borrow to fund activities.
Deutsche Bank’s cash management solution standardised and simplified DP-DHL’s domestic collections and disbursements throughout India, improved the accounts receivables management and reconciliation process, and concentrated cash at legal entity level. It also minimised the number of bank accounts, optimised cash concentration and reduced borrowing costs through a liquidity management solution. In addition, the bank helped provide the technological know-how to integrate the banking solution with each entity’s ERP or back-end system.
The solution’s real-time cheque-printing at client premises with mobile authorisation exemplifies Deutsche Bank’s technology platform and the flexibility of the solution. Additionally, the bank issued the client with pre-signed demand drafts in favour of pre-approved beneficiaries and in situations where payment turnaround time is crucial. This has helped DP-DHL save up to 24 hours in turnaround time and reduce unnecessary charges. Deutsche Bank was also the only bank willing to offer demand draft printing at the client’s premises.
The solution successfully addressed the client’s lack of standardised information with regard to remitters. The bank can now identify each customer/remote service centre with a unique reference service number. This enabled the bank to credit DP-DHL with exact payee information and send parameterised email notification to sales staff -- a service which has been extended to a host-to-host system for real-time bank statement files.
