ICBCÆs $21.9 billion dual A-share and H-share IPO
Lead managers: CICC, ICEA, Merrill Lynch, Credit Suisse and Deutsche Bank for H-share tranche; CICC, CITIC Securities, Guotai Junan Securities and Shenyin & Wanguo Securities for A-share issue
Legal counsel: Herbert Smith, Freshfields Bruckhaus Deringer, Davis Polk & Wardwell, Shearman & Sterling, King & Wood, Haiwen & Partners
Like last yearÆs decision to pick China Construction BankÆs IPO as the deal of the year, this was one that needed no debate. Not only was it the largest ever IPO globally û surpassing NTT DoCoMoÆs primary share issue in 1998 by more than $3 billion û it also attracted an unprecedented $500 billion worth of investor demand, achieved a higher valuation that the other two ôBig Fourö Chinese banks before it and overcame numerous regulatory hurdles to finally complete the first simultaneous listing in Hong Kong and Mainland China.
The fact that this was accomplished in only seven months from the time the mandates were given out makes it an even greater feat, even though ICBC was to some extent able to build on the work done by the other Mainland banks that had listed in Hong Kong before it. Among other issues the bookrunners had to deal with was a very narrow window for completing the first half results audit, which was no minor task given that ICBC has 18,000 branches.
ChinaÆs largest bank hasnÆt disappointed in the aftermarket either, with the H share rising 14.6% on the first day of trading in late October and then continuing to add to this for an accumulated 34% gain six weeks after the debut.
The price was set at the top end of the range for a modest discount to its Hong Kong-listed peers. However, at 2.23 times its estimated 2006 book value the valuation was above that of both CCB and Bank of China at the time of their IPOs. Only China Merchants Bank had achieved a higher valuation at 2.39 times book, which was largely seen as an effect of it being a privately-owned lender. While obviously significantly smaller than ICBC, CMB is also widely regarded as one of ChinaÆs best managed and most profitable commercial banks.
To ensure sufficient demand, the ICBC offer was anchored by commitments to buy $3.5 billion worth of H shares from 15 corporate investors. The $3.78 billion pre-IPO investment by Goldman Sachs and partners Allianz and American Express was also intended to instill confidence among investors, although that investment was put in place before the lead managers were mandated.
The marketing was focused on the bankÆs dominant market position in key business areas, its first-mover advantage in risk management and IT and its sustainable financial performance and attractive risk adjusted return, which the lead managers argued sets it apart from its peers.
However, once the books were opened, the deal almost sold itself with the entire $16 billion H share issue fully covered within 30 minutes. Over 1,500 institutional investors submitted orders, including every single one of the 98 investors who had one-on-one meetings with the management. The institutional tranche ended up more than 40 times covered, having attracted $343 billion worth of demand, which is more than the other H-share bank IPOs combined and 1.5 times Hong KongÆs GDP.
Given its size, ICBC was one of the few Hong Kong IPOs this year to have a POWL tranche and this ended up accounting for about 11% of the demand, although the final allocation was cut to just 3.6%. The geographic allocation was well diversified with a slight bias towards the US.
The successful listing is an acknowledgement of the restructuring and clean-up process that ICBC began as far back as 1999 and the bank has undoubtedly lifted the benchmark set by CCB and BOC yet another notch. By doing so it has left a tough act to follow for Agricultural Bank of China - the final of the ôBig Fourö banks to potentially seek an overseas listing.
Most Innovative Deal
The $975 million leveraged MBO of Asia Aluminum and $580 million private placement financing package
Financial adviser and sole finance arranger: Merrill Lynch
Legal counsel: Linklaters, Freshfields Bruckhaus Deringer, Sidley Austin, Skadden Arps, Slate Meagher & Flom, Slaughter and May, Davis Polk & Wardwell, Conyers Dill & Pearman
The aim of this deal, which fits nicely into an increasing trend of investment banks using their own balance sheets to meet their clientsÆ objectives, was to buy out the minorities in both the listed unit and one subsidiary in order to maximise the managementÆs exposure to a future Ebitda ramp-up that hadnÆt yet been reflected in the share price.
To achieve that, the transaction had to overcome the difficulty of the chairman needing to raise $500 million against a market cap of only $350 million and the fact that ChinaÆs number one producer of aluminium extrusion products already had $450 million worth of high-yield debt on its books.
It was also faced with the potential of a small number of minority shareholders blocking the privatisation as had happened with a separate bid to take fellow-Hong Kong listed Henderson Investment private one month earlier. However, Merrill Lynch was able to identify the potential threat at an early stage and secure irrevocable guarantees from seven high-quality institutions with more than 55% of the independent vote to ensure success. Such guarantees are rare as they mean the investors have to give up their flexibility to trade the shares during the privatisation process when the share price typically goes up, and to achieve this in return for only a slight increase in the offer price can be considered something of a coup.
The final offer price represented a premium of about 99.4% over the 30-day average pre-announcement price, which marked the highest premium for a privatisation of a Hong Kong main board company in five years. However, this eye-catching premium was possible partly because the company published a pre-announcement document referring to a potential privatisation as soon as the plans started to leak, which meant they could set the reference price before too much of the privatisation premium had been absorbed into the share price.
The funding was raised through a wrap-around financing solution that left the existing high-yield bonds û and its restrictive covenants - untouched. Two Merrill Lynch-captive funds were brought on board early to anchor the $580 million senior payable-in-kind notes with detachable warrants and following an accelerated due diligence exercise for a small group of investors, a handful of hedge funds agreed to participate in the ômezzanineö financing that is deeply subordinated to the existing bonds.
As a result of the transaction, the companyÆs existing debt to Ebitda ratio of seven times increased to more than 13 times, prompting Merrill Lynch to dub it AsiaÆs first ôtrue leveraged management buyout.ö
Best Secondary Offering
CNOOCÆs $1.98 billion top-up placement
Lead managers: Credit Suisse, Goldman Sachs and JPMorgan
Legal counsel: Herbert Smith, Linklaters, OÆMelveny & Myers, Sullivan & Cromwell, Commerce & Finance Law Office
While there were a number of interesting deals in this category this year, including the first post-restructuring equity follow-on by Hynix Semiconductor and a well-structured placement by Great Eagle Holdings, in the end the size and excellent timing of the CNOOC deal settled the score.
In terms of accelerated bookbuild offerings, the deal was the largest in Asia this year and the second largest ever by a Chinese issuer after PetroChinaÆs $2.7 billion follow-on in August 2005.
Launched in late April, it was timed to take advantage of positive first quarter operational data released two days earlier as well as record high oil prices, which enabled the price to be fixed at quite a tight discount even though the stock was already up 28% year-to-date and trading close to the all-time high achieved a week earlier. The book was opened in the Asian morning and covered within two hours, but the bookrunners kept it open to build a quality book with ôan optimal balanceö between long-only funds and quality absolute-return funds. On the day of the deal, one source described the order book as a list of ôwhoÆs who in the investor communityö. The final demand reached $10 billion, or five times the offering size.
The leads were also able to push the price to the high end of the offered range for a 5.4% discount to the Hong Kong close and a tight 3.6% versus the previous nightÆs US finish û the tightest discount ever achieved by a red-chip issuer.
While it accounted for only 6.1% of the market cap, the deal was significant because û being the first follow-on from the oil and gas producer since it listed in early 2001 - it represented 20.8% of the free-float and allowed leading institutions to establish significant positions in the stock.
The stock closed 1.6% above the placement price the following day returned to its pre-placement levels within four days before dipping with the rest of the global equity markets in May. Subsequently it has gone on to set new highs and is now up 33% on the year.
Best Equity-Linked Deal, Best Islamic Finance Deal
KhazanahÆs $750 million Islamic exchangeable into Telecom Malaysia
Lead managers: CIMB, HSBC Amanah and UBS
Legal counsel: Clifford Chance, Linklaters
In a year that was thin on the innovation front, this deal stands out as having spear-headed the introduction of a new asset class and does have the potential of becoming a benchmark for others to follow. It also helped deepen and broaden the Islamic capital markets overall and sets out a alternative investment route for the billions of petro-dollars that are streaming into Asian markets.
KepcoÆs dual-currency $1.07 billion CB was a close contender, but aside from its large size and flawless execution it felt less groundbreaking.
Being the worldÆs first Sharia-compliant exchangeable, the Khazanah issue pulled together a number of structures previously used in straight Sukuk bonds and two convertibles out of the Middle East. These were then coupled with various measures to account for the additional risk that comes with the fact that the issuer doesnÆt have control over the dividend cash flow of the underlying stock û in this case Telekom Malaysia - that is used to pay the coupons.
During the 18 months it took to pull the deal together, a lot of work went into making sure the underlying stock is also Sharia compliant and to provide investors with an exit route should this cease to be the case during the life of the bond.
The bookrunners also spent weeks educating Muslim investors, particularly in the Middle East, about the benefits of this new instrument that provides less yield than they are used to, while at the same time ensuring that they didnÆt lose any of the conventional CB investor base.
The success was obvious as the initial $500 million deal attracted more than $3.2 billion worth of demand, which allowed the issue to be increased to $750 million û the largest ever equity-linked deal out of Malaysia. About 20% of the demand came from the Middle East, but the clear preference to include as many of these investors as possible saw close to 30% of the deal allocated to this region û including 14% to Islamic investors. The bonds also achieved a tight yield of 5.07%, or 3 basis points over the US dollar five-year swap rate at the time of pricing, while the exchange premium was fixed at 19%.
Best Reit Deal
CapitaRetail China TrustÆs $160 million IPO
Lead managers: CICC, JPMorgan and UBS
Financial adviser: JPMorgan
Legal counsel: Allen & Gledhill, WongPartnership, Paul Hastings, Commerce & Finance Law Offices, King & Wood
When we awarded our first award for best Reit deal last year the Link Reit was the obvious choice. However, it seems fitting that the second award should go to a deal sponsored by CapitaLand, which in so many ways has helped define the Singapore Reit market since it backed the first such vehicle in 2002.
This year the property developer brought two new Reits to the market - Ascott Residence Trust, which invests in serviced apartments on a pan-Asia basis, and CapitaRetail China. The latter is the first Reit in Singapore, and only the second in Asia after GZI Reit in Hong Kong, to provide exposure to Chinese properties, making it a true benchmark for other PRC property owners who wish to release value through the Reit market.
CapitaRetail is different to GZI in that it uses a complex two-layer onshore and offshore structure to get around new Chinese rules introduced this year that prevents offshore holding companies from owning Chinese real estate directly. The clever structuring that was put in place by JPMorgan also results in ôbroadly similarö levels of tax as if it was based entirely offshore and shows that the new PRC directive wonÆt be the end of Chinese asset-backed Reits as initially feared by many market watchers.
The Reit held seven shopping malls at the time of listing, but to make it more attractive to investors it also has a well-defined acquisition pipeline, which suggests the potential for capital growth will be significant.
The China exposure together with CapitaLandÆs highly respected name (the group holds just over a quarter of the trust) proved a potent combination and the institutional offer ended up more than 100 times covered with ôeverybodyö who tends to invest in real estate said to have submitted orders, including Reit specialists out of Europe and Australia. The pricing at the top of the range valued the Reit at a 15% premium to NAV and translated into a 2007 dividend yield of 5.4%, which was slightly above the S-Reit average of 5.1%.
The interest has continued in the secondary market with the unit price up 59% on its December 8 debut and further slight gains since then.
Best Mid-cap Equity Deal
WNS Holdings $255 million IPO
Lead managers: Deutsche Bank, DSP Merrill Lynch, Morgan Stanley
In a year such as 2006 where equity markets have boomed across the region a number of mid-cap companies have completed high quality equity offerings which have performed well in aftermarkets as well. However, when we tried to assess which of these deals have actually played a pioneering role the picture was clearer. The WNS Holdings $255 million IPO in July was keenly awaited by a number of other business process outsourcing (BPO) companies. Its outcome was critical to the future plans for companies like FirstSource (erstwhile ICICI OneSource) and Genpact. The latter could be the largest IPO ever from India.
As the first India-based BPO to list on the NYSE, WNS was the test case and it was critical to package the investment thesis to investors correctly.
At the time of filing stock markets in India were just recovering from the May meltdown and it was not clear how much of a spillover the adverse sentiment in India would have on global investors.
The transaction was filed at a range of $18-20, representing a multiple of 20-21 times on calendar 2007 earnings. The order book was nearly 10 times oversubscribed. On the opening day of trading the shares traded up to $24.50.
Warburg Pincus remains the largest single investor in WNS, its stake diluted to 54% from the 65% it originally held. If WNS continues to deliver the private equity firm's exit could be higher than its blockbuster Bharti investment.
The company garnered $74 million of the proceeds, with the rest part of the selldown. But more than the cash in its coffers, what WNS has gained through its successful listing is enhanced visibility and credibility in the US û on the back of which it hopes to garner further BPO business. A win-win model for all.
Best Small-cap Equity Deal
ComputimeÆs $67 million IPO
Lead manager: JPMorgan
Legal counsel: Richards Butler, Skadden Arps, Dorsey & Whitney, King & Wood, Conyers Dill & Pearman
This was one of those small but perfectly formed IPOs. ComputimeÆs IPO moreover came in between two very large Hong Kong listings û the September offer for China Merchants Bank and the ICBC deal in October. In spite of this the $67 million deal for the Hong Kong firm û which is a maker of electronic controls and automation devices û was 682x subscribed on the Hong Kong retail tranche and 33x on the international tranche. After the clawback, half of the stock went to retail investors, and half to institutions.
Part of the reason for JPMorganÆs success in marketing this offer, was precisely that it didnÆt market it like a typical small-cap deal. A vigorous PR and local advertising campaign was used to raise awareness among local retail investors, and a comprehensive global roadshow helped to attract top tier accounts such as Fidelity, JF Asset Management, Schroders, Invesco and Legg Mason to the book. It was also helped that Value Partners was brought in at the outset as an anchor investor, buying 15.7% of the deal (post-greenshoe), and agreeing to a six month lock-up.
The sponsorship of JPMorgan, which doesnÆt normally focus on small-cap IPOs, was in itself a stamp of approval for a companyÆs whose prospects the US firm are clearly very bullish on.
The shares, which were all primary, priced at the top end of the range at HK$2.28 per share. The stock also performed extremely well on listing û although not so well as to leave the offer open to the accusation of having been underpriced. The deal rose 14.5% on day one, and was up 24.1% one week later, and 23.3% a month after the IPO. The resulting success of the IPO û which satisfied both the companyÆs management and the investor community û has positioned Computime well to further access the capital markets as it seeks to expand.
Best Public Offer Without Listing
Infosys Technologies $272 million POWL tranche
Lead manager: Nomura
The Japanese Public Offer Without Listing, or POWL, has become a familiar part of the Asian capital markets. However, during the course of 2006 û with liquidity often ample, and deals massively oversubscribed û its usefulness to syndicate managers has sometimes been marginal. That was not the case when Infosys launched its $1.6 billion sponsored ADR in November.
The deal marked the largest ever ADR offering from India, and saw Indian investors voluntarily selling their common shares into ADRs at a cash premium. However, what had not been anticipated was the enthusiasm with which they did so û to the extent that this deal was six times the size of InfosysÆ first sponsored ADR sale in 2003.
On the demand size of the equation, what proved key to ensuring this dealÆs success was the POWL. With a much bigger deal than many predicted, the POWL was allocated five million shares, or close to 17% of the deal. Bankers say that the enthusiastic Japanese buying of Infosys stock was instrumental in the syndication process, making this the POWL that had the greatest impact on a transaction this year.
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Best M&A Deal and Best Cross-border M&A Deal
Cathay PacificÆs HK$8.2 billion acquisition of Dragonair and HK$4 billion purchase of additional 10% stake in Air China
Advisor to Cathay Pacific and Swire: ABN AMRO
Advisor to Air China and CNAC: Merrill Lynch, China International Capital
Advisor to CITIC: Morgan Stanley
Advisor to board of Air China: BNP Paribas Corporate Finance
Independent financial advisor to independent directors and shareholders of Cathay: ING Bank N.V.
Advisors to CNAC on privatisation: Merrill Lynch and Citigroup
On June 9, 2006 Cathay Pacific, Air China, CNAC, CITIC Pacific and Swire Pacific jointly announced an agreement to realign their shareholding structures allowing Cathay to consolidate ownership of Dragonair and create an airline grouping between Cathay, Air China and Dragonair. In September 2006 Cathay Pacific announced completion of the acquisition of Dragonair.
Pursuant to the transaction Air China acquired a 10.2% stake in Cathay from Swire and CITIC. Cathay increased its shareholding in Air China to 20% (this was subsequently diluted to 17.3% after Air ChinaÆs A share issuance). Dragonair shareholders received cash and Cathay shares in a deal which estimated the equity value of Dragonair at HK$10 billion. Air China also made a privatisation offer for CNAC which is expected to be completed by mid-January.
The deal, which is rumoured to have been almost a decade at the conceptual stage and took three years to close once it was embarked upon, gives Cathay the most extensive Mainland China network of any non-Chinese air carrier and effectively fills a significant gap in CathayÆs network. It also reinforces both Beijing and Hong KongÆs positions as hubs in the region. The complexity of the deal can be gauged from the fact that five listed companies were involved; reconciling the interests of all these parties was critical to the deal and took almost three years of negotiation.
Swire continues to be the dominant shareholder in a strengthened Cathay. CITIC Pacific has realised value through liquidating part of its investment but remains invested in the combined Cathay Pacific-Dragonair. Cathay PacificÆs shares gained almost 7% the day of the announcement corroborating investors buy-in to the strategic rationale of the transaction.
This transaction has reshaped the dynamics of the airline industry in Asia. Indeed, the model is being keenly studied by other airlines across this and other regions. We also believe that this transaction has highlighted all the ingredients of path-breaking M&A. It has corroborated that M&A deals require patience and tenacity, because a deal which has sound business and financial logic will eventually be successful. That it is possible to align the interests of parties with different objectives if certain basic principles are adhered to; and political dimensions are duly considered.
Any description of this deal would be incomplete were we not to mention the role Richard Orders, ABN's vice chairman played. Orders brought into play the strong relationships he has built over a number of years and transactions with the Swire group. A consummate M&A banker, Orders added that final ingredient, critical to success û the trusted financial advisor who commands respect across the board from all involved parties and thus who could help the deal progress every time it encountered some turbulence.
Best Domestic M&A Deal
Venture Corporation 100% buyout of GES International for S$980 million ($635 million)
Advisor to Venture: ABN AMRO
Advisor to GES: Credit Suisse
Legal counsel: Allen & Gledhill
The pitch we received for the Venture Corporation takeover of GES International highlighted a compelling and, to our mind, inescapable fact. The strategic and financial rationale for the deal has more than been rewarded by shareholders. Venture's shares have risen so much since the deal that the market capitalisation of the company has increased by more than the companyÆs outlay on the acquisition.
Venture is SingaporeÆs largest electronics company. It has shown strong organic growth with revenues having increased by a CAGR of 37.2% and net profit by 42.3% during the 1995-2000 period. In general, concerns over VentureÆs future and whether it would be able to sustain such a high rate of organic growth had led analysts to become bearish on the companyÆs prospects. VentureÆs other acquisitions had been too small to really make a meaningful impact on its future.
GES is the largest manufacturer of point of sales systems in the world. During the 2003-05 period it registered a CAGR of 18% in revenues and 33% in net profit. GES had higher EBITDA margins than Venture and the transaction was immediately earnings accretive without even taking into account potential synergy benefits.
The deal had to be optimally structured as the major GES shareholder held only 24% and Venture did not want to enter into a bidding war. Further, Venture needed certainty it would be able to privatise GES as it did not want to have to operate two listed companies. Finally, all objectives were met.
Since the deal was announced a number of brokerage firms have upgraded Venture to a buy and its share price has increased 46% by S$1,227 million since the acquisition was announced which has paid for the deal, in a sense.
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Best High Yield Bond Deal
C&M Communications $650 million bond
Lead managers: Citigroup and Goldman Sachs
Legal counsel: Simpson Thatcher Bartlett, Clifford Chance, Kim & Chang, Yoong & Yang, Maples & Calder
There is a Chinese curse which says, "May you live in interesting times". And like it or not, 2006 has been a very interesting year for the Asian high yield debt market.
This year's high yield market has been has been beleaguered by volatility and widening spreads. Indeed, the default of Ocean Grand and a substantial growth in the private placement market have taken a lot of the optimism from the sector after a promising 2005.
However, one deal that stood out as a model of strategic execution and consistency in secondary performance in a market marred by downturns and closed issuance windows was the upsized dual tranche $650 million deal for South Korean cable TV company, C&M Communications via Citigroup and Goldman Sachs
Like the Philippines, the C&M trade was timed to perfection. Pricing at the end of January it was able to take advantage of the relative glut in liquidity with it closing some 11 times oversubscribed despite concluding its book build early.
Demand was so strong for the offering that the leads were able to upsize the transaction from $550 million to $650 million, representing the largest Korean non-investment grade bond in the international debt markets since 2005 and the second largest Korean high yield deal ever.
The deal was split into a $450 million 10-year non-call five-year fixed rate tranche and a $200 million five-year bullet FRN.
The fixed rate tranche went on to price at par with a semi-annual coupon of 8.1%, representing a re-offer spread of 374.1bp over 10-year US Treasuries. The FRN also priced at par with a semi-annual coupon of 250bp over Libor.
The 10-year deal is callable on February 1 2011 at 104.05%, in 2012 at 102.7%, 2013 at 101.35% and at par for the two remaining call periods.
WhatÆs more even though the deal priced inside of revised guidance at arguably aggressive levels, both tranches have maintained a solid trading performance all year, despite the dips in the market. Indeed, almost immediately the deal traded up and has, for the most part, stayed there throughout.
Despite its success, the deal presents major challenges for the leads. C&M lacks any established track record with international investors as it is an unlisted company and in the eyes of some market observers lacked a certain measure of transparency.
Investors were also concerned with C&M's leverage given that debt/EBITDA is currently running just north of five times. However, specialists add that C&M's adjusted debt/Ebitda could potentially be reduced to around 4% by year end.
One of the central challenges for the leads was the education of overseas investors on the company's regulatory and competitive position within the cable TV (CATV) market in South Korea. The leads positioned C&M as a company with a strong operating profile thanks to its dominant market share in the cable TV space.
The deal also offered a unique structure in its own right, with the notes issued via a bankruptcy remote SPV in the Cayman Islands to provide tax efficiency. Additionally, to impart additional security to investors, C&M and each of its service providers provided a guarantee to the trustee for the SPVÆs obligations, with each service providerÆs guarantee capped at 130% of its obligation in line with Korean Law.
Best Sovereign Bond
Republic of the Philippines $2.1 billion eurobond
Lead managers: Citigroup, Credit Suisse First Boston, Deutsche Bank and UBS
Legal counsel: Romulo, Mabanta, Buenaventura, Sayoc & De Los Angeles, Allen & Overy, Cleary Gottlieb
This year, the editors of FinanceAsia opted to drop the Best Investment Grade Bond Deal and replace it with the Best Sovereign Bond deal. The reasoning behind this decision was twofold. First, we simply could not find an investment grade bond that stood out enough to merit the award. Second, we realised that many Asian sovereign deals have a non-investment grade rating, but we didnÆt believe that it was pertinent to consider them for the best high yield bond award, which we felt should reward the achievement of a deal completed for a high-yield corporate.
In keeping with this new methodology, we have decided to award the Republic of the PhilippinesÆ January $2.1 billion dual currency eurobond. The deal was led by Citigroup, Credit Suisse First Boston, Deutsche Bank and UBS and was completed with flawless execution that saw the deal stride effortlessly from mandate to pricing in under 48-hours.
It marks the fourth consecutive year that the Republic of the Philippines was the first Asian sovereign to tap the Asian debt capital markets after the New Year. This timing was instrumental in allowing the ROP to take advantage of the abundant liquidity available in January when investors are at their most fresh following the holiday break. Without a doubt, the deal set the early tone for issuance this year and established a genuine benchmark for itself and its peers.
The deal was split into a $1.5 billion 25-year offering and an Ç500 million 10-year tranche. Together, they represented the largest deal from Asia since Hutchison Whampoa's multi-tranche fundraising in the autumn of 2003.
In terms of overall size it was a record breaker for the country and redefined both of the sovereignÆs dollar and euro yield curves. Furthermore, the deal represented the largest order-book amassed by the Philippines. Both tranches were heavily oversubscribed, with the dollar tranche closing eight times oversubscribed with a total of 400 accounts and the euro tranche about seven times oversubscribed with a total of 230 allocated paper. In total, the final order book closed just south of $15 billion.
The dollar-denominated tranche was priced at 98.641% on a coupon of 7.75% to yield at 7.785%, or 333.5bp over US Treasuries; pricing flat to the Philippines' own outstanding 2030 deal. Even more remarkable is that the deal priced significantly inside of the Philippines September 2016 deal, which was priced to yield at 8.25% barely four months earlier.
The euro tranche priced at 99.112% on a 6.25% coupon to yield at 6.375%, equivalent to 309.6bp over US Treasuries or 294bp over mid-swaps. This tranche was the first ever 10-year euro offering for the Philippines and represents the lowest coupon ever for an ROP deal at this maturity.
However, the deals strong metrics notwithstanding, what really makes this transaction standout, was its ability to solidify the Philippines sovereign and its Treasurer Omar CruzÆ reputation as a savvy player on the international capital markets and helped to prove that its performance in 2005 was no one off.
Indeed, the deal all but proved that the Philippines' revival period has come to an end and that it had fully arrived as a paramount borrower of the region.
Best Bank Capital Deal
Public BankÆs $200 million hybrid tier 1 offer
Lead manager: Barclays Capital
Legal counsel: Kadir Andri & Partners, Allen & Overy
With the implementation of the Basel II accords set to take hold across the region next year, bank capital deals were an important aspect of the Asian debt capital markets in 2006.
The market saw new deals emerge from a number of jurisdictions, such as the Philippines and India, which relaxed guidelines on the issuance of foreign currency debt and hybrid instruments.
In fact, this sector was very competitive this year because of the emergence of these new deals. UTIÆs $150 million 15-year non-call 10-year offering, the first bank capital deal to close after the relaxation of Indian guidelines; ICICIÆs $340 million perpetual non-call 10-year deal, the first Indian tier-1 deal; and MetrobankÆs $125 million hybrid tier 1 offering, the first domestic bank to gain approval from the Banco Sentral ng Pilipinas (BSP) to issue hybrid capital. All were serious contenders for this yearÆs award.
However, we decided that the innovative $200 million Reg-S hybrid tier-1 offering from MalaysiaÆs Public Bank deserved the accolade this year.
The reasoning for this choice is that we were very impressed with the dealÆs innovative structure. Indeed, the Public Bank deal offers a structure to the hybrid tier-1 space not previously used in Asia, in that the deal is structured more towards its debt aspects than other tier-1 deals, which primarily focus on equity characteristics. In effect the deal more resembles a tier-2 deal, but still ranks one notch lower on the subordination ladder.
A more traditional hybrid tier-1 structure that is used in the Asian market is typically issued through an offshore special purpose vehicle (SPV). This new deal, however, is issued directly from Public Bank and doesnÆt utilise any SPV.
The second and arguably the most important structural difference with the new deal is that it has a 30-year principal stock settlement.
What that means is that although the deal is callable after 10-years, and is callable each coupon date thereafter, if the bonds are still outstanding after 30-years, the issuer is then obliged to redeem the securities through cash that must be raised from the sale of equity.
This structure effectively gives the investor a redemption date. The significance however, is for the regulator, the equity replaces the debt on the balance sheet and the tier-1 capital stays the same, but creates a better form of permanent capital, which is one of the requirements of the guidelines.
Best Local Currency Bond
Bank for Investment and Development of Vietnam VnD2.2 trillion lower tier 2 bond
Joint lead managers: HSBC and BIDV
Credit rating adviser: HSBC
Legal counsel: Johnson Stokes & Master
The potential of Vietnam to capture investor interest was recognised last year by FinanceAsia in its December cover story. And it proved to be a good call, since Vietnam has become a very hot theme this year. The emergence of the local debt markets is a core part of this story, and therefore it seems only fitting that this yearÆs best local currency bond should emerge from Vietnam.
State-owned bank, Bank for Investment and Development of Vietnam (BIDV) was seeking to improve it capital adequacy ratio and lead manager HSBC managed to succeed beyond its expectations. With an initial target size of VnD1.5 trillion, this tier 2 bond saw demand of VnD4 trillion and eventually raised VnD2.2 trillion ($141 million). This took BIDVÆs capital adequacy ratio from 6.8% to beyond 8% û a move which was viewed as essential ahead of its planned IPO in 2007.
The deal also had a developmental influence. Outside of the sovereign, BIDV became the first entity in Vietnam to receive a credit rating, and has encouraged others in the country to look to do the same. The deal also introduced a bookbuild pricing process, and hence pioneered market-driven pricing in the local market. This move could only occur because this bond was not underwritten and as a result had to get special approval from the Ministry of Finance. The bond therefore became a test case for subsequent changes in the regulations that now allow bonds to undergo a bookbuild and not simply underwritten.
In another area of regulatory innovation, this was the first time a local bank had used callable tier 2 bank capital û with HSBC having to work closely with the central bank on key areas such as the use of call options and deferrable coupons. With the growing need for bank capital, this was a key breakthrough. Finally, the documentation also broke new ground with the use of eurobond style disclosure through the offering circular.
Best Loan/ Best Structured Loan
KKRÆs $360 million acquisition finance for FlextronicsÆ Software Development Systems
Joint lead arrangers: Citigroup and Merrill Lynch
Legal Counsel: Simpson Thacher & Bartlett
When we canvassed loan market professionals for their views on the outstanding loans of the year, there were few who quibbled with this transaction: KKRÆs first leveraged buyout (LBO) deal in India. On the contrary, when we were assessing the contenders for the Plain Vanilla loan category, we found it almost impossible to rouse much enthusiasm from anyone û indeed, that is why we elected not to give an award for the vanilla loan category this year.
KKRÆs acquisition financing represented a landmark and was the largest LBO ever done in India. The deal saw KKR acquire control of FlextronicsÆ Software Development Systems unit û a unit whose operations are based in India, and which offer R&D solutions to communications companies worldwide. The loan totalled $360 million, and was split into four tranches, including a $35 million revolving credit denominated in Indian rupees and a $305 million term loan.
The structure saw KKR acquire 85% of the business, with Flextronics retaining 15%. Joint lead arrangers Citigroup and Merrill Lynch worked with the borrower to facilitate the leveraged financing under demanding conditions and to meet ambitious goals. What resulted was a structure that maximised leverage û achieving a ratio of 5.7x net debt to EBITDA. The loan was heavily oversubscribed and was closed in subunderwriting. This was no mean achievement considering lenders got no security over the Indian assets, or any upstream guarantees from the Indian operating company. Indeed, the innovative structure ought to lay the groundwork for future LBOs from India. Critical to the structure was the repatriation of cashflows from India via share repurchases, with the result that dividend taxes were minimised.
The LBO market in India û with its wealth of mid-cap companies û could well be one of the buyout worldÆs greatest opportunities. This loan has shown what is possible; it also allowed KKR to announce its recent entry to Asia with fanfare.
Best Project Finance Deal
Reliance Petroleum
Bookrunners: ABN AMRO, BNP Paribas, Banc of America, Bank of Tokyo-Mitsubishi UFJ, Calyon, Citigroup, DBS, DZ Bank, HSBC, ICICI Bank, Mizuho Corporate Bank, Standard Chartered Bank, State Bank of India and Sumitomo Mitsui Banking Corporation
Legal counsel: Linklaters, Milbank Tweed Hadley & McCloy
Reliance Industries is used to having firsts attached to its name. But even for IndiaÆs only private sector Fortune 500 company, the project financing it closed this year for its group companyÆs refinery project, Reliance Petroleum was noteworthy.
Reliance Petroleum is constructing a refinery complex in Gujarat with a capacity of 580,000 barrels per day and a 0.9 mtpa polypropylene complex. The estimated cost of the project is $6 billion. As part of the means of financing, Reliance Petroleum raised a $1.5 billion loan from a consortium of banks, representing the largest foreign currency loan raised in India, the largest limited recourse financing in Asia (excluding China) since the Asian financial crisis and the first international project finance transaction in India since the Enron-sponsored Dabhol Power Company.
The loan turned out to be the most widely syndicated loan ever in India. The 52 participant banks read like a whoÆs who of the banking industry. There were 14 banks appointed bookrunners, another 17 sub-underwriters and 21 joined as participants. The demand for the paper was so strong that finally the loan was upsized to $2 billion structured as a $1.5 billion facility and a new $500 million facility. The $1.5 billion facility comprised two tranches: a $950 million shorter tranche and a $550 million longer tranche with a blended average life of 6.6 years and a door-to-door maturity of 10 years. This maturity is the longest tenor for a syndicated loan facility in India.
Best Securitisation/ Best Structured Product
Standard CharteredÆs $1.5 billion Start III CLO
Lead managers: Lehman Brothers and Standard Chartered
Legal counsel: Linklaters, Clifford Chance
In early December a landmark CLO was launched that leads the way for Basel II balance sheet deals in Asia. Lehman Brothers and Standard Chartered priced a groundbreaking $1.5 billion synthetic collateralised loan obligation (CLO) that references a portfolio of Standard Chartered loans.
This is the third deal in the Start series of CLOs but is the first to accurately match the geographic spread and risk profile of StanChartÆs corporate loan book, which is to say that it features mostly unrated, unlisted, Asian borrowers.
The portfolio comprised 520 loans to 374 companies, with roughly 60% from Northeast Asia, 10% from South Asia, 10% from Southeast Asia and 20% from the Middle East, which is almost identical to the actual spread of StanChartÆs corporate loan portfolio. Almost two-thirds of the borrowers are unlisted. A key component of the structure was that the borrowers selected were material to the credit direction of StanChartÆs own loan portfolio û and this was an important alignment of investorsÆ interests with that of the bank.
The CLO was divided into five rated tranches, all with a 3.5 year scheduled final maturity, and priced at the tight end of expectations. The $56.25 million triple-A rated (Fitch, MoodyÆs and Standard & PoorÆs) Class-A tranche priced at 28bp over Libor. The $41.25 million Class-B tranche (AA/Aa1/AAA) priced at 39bp. The $22.5 million Class-C tranche (A-/A1/A+) priced at 70bp. The $37.5 million Class-D tranche (BBB/Baa1/BBB+) priced at 175bp and the $30 million Class-E tranche (BB/Ba1/BB+) priced at 390bp.
There were also two unrated tranches: $1.2 billion worth of super senior notes and a $93.75 million equity piece, which is key to getting balance sheet relief under the Basel II capital adequacy rules. Under Basel I, banks could keep hold of the equity portion and still gain protection, even though they hadnÆt actually transferred the most risky loans. Under Basel II, banks will need to offload the lot, which is no mean feat.
Although the underwriters did not disclose the pricing on the equity piece it is reckoned to yield in the region of 17% over Libor and was sold to hedge funds.
This represents a further tightening of the pricing the underwriters achieved on the second Start CLO and sets the standard for Asian Basel II-driven balance sheet deals.
Go to next page for our Country Deals of the Year...
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Country Deal Awards
Each year we also announce the defining deal to come from each country. Our selection could be an equity offering, M&A deal, or a bond.
Best China Deal
ICBCÆs $21.9 billion dual A-share and H-share IPO
Lead managers: CICC, ICEA, Merrill Lynch, Credit Suisse and Deutsche Bank for H-share tranche; CICC, CITIC Securities, Guotai Junan Securities and Shenyin & Wanguo Securities for A-share issue
Legal counsel: Herbert Smith, Freshfields Bruckhaus Deringer, Davis Polk & Wardwell, Shearman & Sterling, King & Wood, Haiwen & Partners
Need any more be saidà The defining deal of the year, both from China and the region. (See Deal of the Year).
Best Hong Kong Deal
Cathay PacificÆs HK$8.2 billion acquisition of Dragonair and HK$4 billion purchase of additional 10% stake in Air China
Advisor to Cathay Pacific and Swire: ABN AMRO
Advisor to Air China and CNAC: Merrill Lynch, China International Capital
Advisor to CITIC: Morgan Stanley
Advisor to board of Air China: BNP Paribas Corporate Finance
Independent financial advisor to independent directors and shareholders of Cathay: ING
Advisors to CNAC on privatisation: Merrill Lynch and Citigroup
Legal counsel: Linklaters, Freshfields Bruckhaus Deringer, Slaughter and May, Baker & McKenzie, Johnson Stoke & Master
Cathay Pacific, Air China, CNAC, CITIC Pacific and Swire Pacific realigned their shareholding structures allowing Cathay to consolidate ownership of Dragonair and create an airline grouping between Cathay, Air China and Dragonair. The deal which took three years to close has reshaped the dynamics of the airline industry in Asia.
Best India Deal
Dr ReddyÆs acquisition of Betapharm for $570 million
Buyside advisor: Rothschild
Sellside advisors : Bear Stearns and Sal Oppenheim
Legal counsel: Clifford Chance, Freshfields
In February Dr ReddyÆs paid more than its annual sales to acquire 80% of Betapharm of Germany. We concede that it may have been sheer luck that this was the first large, cross-border, outbound acquisition of 2006 but this did herald a trend of Indian companies going global in droves. Further, it categorically established that first generation Indian entrepreneurs were confident enough of their businesses that they would place large bets.
Best Indonesia Deal
Republic of Indonesia $2 billion bond
Lead managers: Barclays Capital, JPMorgan and UBS
Legal counsel: Cleary Gottlieb Steen & Hamilton; Ali Budiardjo, Nugroho, Reksodiputro; Davis Polk & Wardwell
The Republic of IndonesiaÆs $2 billion fundraising was one of AsiaÆs largest international debt sales this year. The deal was split into two tranches: a new $1 billion 11-year fixed rate offering and a $1 billion 29-year re-opening of its existing $600 million 8.5% October 2035 fixed rate deal completed last year; and really marked a resurgence for Indonesia as a successful borrower in the international debt markets. In the past IndonesiaÆs offshore issues have suffered from overly-aggressive pricing and generally poor timing. However, this time out Indonesia impressed and was able to price inside of its existing curve.
Best Korea Deal
Hynix SemiconductorÆs $1.5 billion equity offering
Lead managers: Merrill Lynch (global coordinator), Credit Suisse, Deutsche Bank, Woori Investment and Securities, Daewoo Securities, Good Morning Shinhan Securities and Hyundai Securities
This deal marked a milestone for Korea and also for Hynix itself. One of the companies felled by the Asian crisis, Hynix was restructured by its bank creditors. This deal saw the creditors sell down some of their stake, but even more importantly saw the firm raise new equity capital. The ability to do the latter highlighted the firmÆs full recuperation in the eyes of investors û and showed how far both Hynix and Korea have come since the Asian crisis.
Best Malaysia Deal
BHCB $1.8 billion takeover of Southern Bank
Buyside advisors: Commerce International Merchant Bankers Bhd and JPMorgan
Sellside advisor: Goldman Sachs
Legal advisors: Allen & Overy
In mid-March, after months of heated negotiations, CIMB GroupÆs Bumiputra-Commerce Holdings Bhd. (BCHB) took over Southern Bank Bhd. with its M$6.7 billion ($1.8 billion) bid. BCHB paid M$4.30 per Southern Bank share and M$2.56 per warrant in a deal valued at roughly 1.92 times book value. The acquisition, which bolstered BCHB Group's consumer banking, was a smart move made ahead of industry-wide liberalisation slated for 2007 which will allow foreign banks to establish a greater presence locally.
Best Philippines Deal
Banco de OroÆs $115 million secondary placement through GDRs
Lead Managers: Macquarie
This the first GDR by a Philippine company since 1999 helped boost liquidity in Banco de OroÆs shares and broadened its investor base, resulting in a re-rating of the bank to reflect its strong results. By contributing to a 250% increase in the market cap, the GDR positioned Banco de Oro for its subsequently successful bid for Equitable PCI Bank, eliminating previous arguments that it was too small to acquire its bigger rival.
Best Pakistan Deal
MCB Bank $150 million GDR
Bookrunner: Merrill Lynch
Financial advisor to MCB Bank: KASB Securities
Legal counsel: Haidermota & Co, Mohsin Tayebaly & Co, Allen & Overy, Linklaters
MCB Bank reopened PakistanÆs equity markets, attracting $700 million of demand for its $150 million GDR issue in October. MCB became the first Pakistani company to list on the London Stock Exchange.
Best Singapore Deal
Venture Corporation S$980 million ($570 million) acquisition of GES International
Advisor to Venture: ABN AMRO
Advisor to GES: Credit Suisse
Legal counsel: Allen & Gledhill
Venture CorporationÆs acquisition of GES International was rewarded by shareholders who pushed the market capitalisation of Venture up by more then the outlay on the acquisition û a sure sign of a well packaged, well positioned and well received deal.
Best Taiwan Deal
Standard CharteredÆs $1.2 billion acquisition of Hsinchu Bank
Advisors to Standard Chartered: Morgan Stanley and UBS
Advisor to Hsinchu Bank: Credit Suisse
Legal counsel: LCS & Partners, Lee & Li, Slaughter and May, Linklaters
Fresh from the success of its Korea First Bank acquisition, Standard Chartered broke new ground in September with its acquisition of TaiwanÆs seventh largest private bank. The deal could be a catalyst for further takeovers in TaiwanÆs fragmented banking sector and marked the first time a foreign bank acquired control of a domestic bank.
Best Thailand Deal
Bangkok Dusit Medical ServicesÆ $124 million convertible bond
Lead Manager: Macquarie
The innovative structure of this dollar-denominated CB allowed the hospital operator to get around the double problem of currency restrictions that make it difficult to sell baht-denominated CBs to foreign investors and the fear among issuers of having dollar liabilities, which has stifled the CB market in Thailand ever since the financial crisis. By fixing the interest and principal payments in baht, but paying them to investors in an equivalent amount of US dollars, Bangkok Dusit has shown a way forward for other Thai issuers and there are already talk that this first deal since the crisis is about to get copied.
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