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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