Best Bond Deal, Best Investment Grade Bond Deal
People's Republic of China Eu1 billion Eurobond
BNP Paribas, Deutsche Bank, UBS
When China launched a 10-year Euro-denominated transaction in late October, it was out to prove a point and it did so in spectacular style. It is primarily for this reason that we have awarded China best bond deal and best investment grade bond deal.
There were a number of well-executed corporate deals this year and indeed Telekom Malaysia's $500 million deal of mid September is the runner up in this category. However, no other deal has the huge symbolism attached to China's deal, which underlines the country's growing leverage on the world economic stage.
Although this deal represents a borrowing by China, it could be argued that it says a lot more about the implications of US borrowing and its weakening currency. To some observers this deal, in its own small way, delivers a powerful political and economic message to the US about the shifting balance of power.
From an economic perspective, there are those who argue that China chose euros to show the US it does not have to continue funding the latter's budget deficit by holding its Treasury bonds as reserves. Politically, China's move has also been interpreted as a snub to the US capital markets in a year when many Chinese nationals have found it difficult to get visas, or conduct business in the US because of its immigration policy relating to the "war on terror."
From a capital markets perspective, the deal may mark a key inflexion point for Asian borrowers, which have long struggled with euros and principally stuck to dollars. Typically Asian euro deals price at a premium to dollars and transaction sizes are constrained by limited investor appetite.
But in this instance, the order book was huge, pricing aggressive and the investor base diversified across the whole of Continental Europe. There are those who say that other Asian borrowers will not be able to replicate this success and that China's deal is a one-off. Others add that the distribution statistics are not what they seem, with much paper placed on the leads' own trading books in various "exotic" European locations.
Yet real or not, the statistics look impressive and that is exactly what China wanted. Its deal generated an order book of Eu4.2 billion and participation by 220 accounts, 84 of which were said to be new to the credit. The lead managers even claimed there was more demand from Ireland than China.
Lead bankers argue that the China deal shows how the dynamics of the European investor base are changing as individual country managers gradually broaden their scope from their own national debt, to supranational debt, other European sovereign debt, European corporate debt and now Asian sovereign debt.
They also say the euro deal priced about 2bp through China's dollar curve and has continued to hold up in secondary market trading. In 2003, the sovereign's dollar bond was widely panned for being far too aggressive and one of the worst bond deals of the year.
In 2004, the government has not only learnt to adopt a slightly more accommodating approach to the international bond markets, but also provided the markets with a deal, which symbolizes one of the key themes of the year - the weakening of the US dollar and rising strength of the euro.
There was in fact a dollar tranche to this bond deal, which raised $500 million in five-years. However, it was pushed into a decidely secondary role.
Best Non-investment Grade Bond Deal
Islamic Republic of Pakistan $500 million Eurobond
ABN AMRO, Deutsche Bank, JPMorgan
It has been a strange and not particularly easy year for the region's non-investment grade borrowers as investors have been extremely skittish. Deals that priced early in the year, widened soon afterwards. Deals that priced later in the year tightened soon afterwards. Those that tried to come in the middle often found they couldn't come at all.
Ironically, one of the most stable deals of the year has come from one of the region's historically most unstable countries, Pakistan.
Like the Republic of Indonesia, which priced a sovereign bond around the same time, the Pakistan sovereign secured tight pricing. Unlike the Republic of Indonesia's deal, Pakistan's five-year offering has continued to trade above par and provide investors with a decent return.
This has been no small feat given Pakistan's bad track record in the international bond markets. It has also been all the more impressive for being achieved against the backdrop of the "war on terror" being fought on its own doorstop.
At the time all involved applauded the roadshow skills of the Finance Minister Shaukat Aziz, who has since gone on to become Prime Minister. Indeed, many bankers hoped the success of the bond issue would provide an additional spur to the country's economic reform programme.
It was the country's economic achievements, which underpinned pricing through many of the B2/B- rated company's direct comparables. Principally there was the Republic of the Philippines, which then had a Ba2/BB rating, some three notches to four notches higher.
Pakistan priced its bond at par on a coupon of 6.75% to yield 370bp over Treasuries, or 335bp over Libor. The Philippines was trading 43bp wider.
So too, Pakistan priced through comparable corporate credits such as Indonesia's PT Indosat, rated B+/B2. At the time of pricing, Indosat had a 2010 bond outstanding at 7.44%.
Investors applauded Pakistan for cutting its budget deficit and bringing down its debt servicing costs from 63% of fiscal revenue in 1999 to 36% in 2003. Where the Philippines credit has been propelled by downward ratings momentum all year, Pakistan has enjoyed upwards momentum.
The sovereign's bond deal signaled investors' renewed faith in the country and so far it has been rewarded. Today, the Pakistan deal is trading at 102.56% to yield 6.04% or 233bp over Libor.
Pakistan is a rare borrower with an uneven trackrecord. In 2004, its bond deal has been a success on every single criteria and for this reason we consider it the stand-out non-investment grade deal of the year.
Best Local Currency Bond Deal, Best Local Currency Securitization Deal
Hong Kong Link HK$6 billion toll road securitization
HSBC, Citigroup
The sheer scale and ambition of Hong Kong's toll road securitization make it impossible to ignore for this award. The HK$6 billion ($770 million) deal was Asia's first ever publicly offered securitization and, as such, it came with all the razzmatazz of a blockbuster Hong Kong IPO: billboard ads, television commercials, a website. It even had its own logo.
Indeed, securitization has never had so much attention. By raising awareness among potential investors and originators across the region, the Hong Kong Link 2004 deal has without doubt played a significant role in advancing the industry. Nobody would have previously thought that retail investors were a legitimate target for asset-backed originators, but Hong Kong's retail investors, already comfortable with buying IPOs through their local brokers, apparently had no trouble with the concept of buying a future-flow securitization through the same outlet: there were enough applications to sell the deal three times over.
It was the assets themselves that lent this deal to a public offer: Hong Kong's toll roads are a highly visible part of the Territory's infrastructure. Other assets would not enjoy the same degree of acceptance and, indeed, the Hong Kong Mortgage Corporation's public offer later in the year was not as popular.
But there was more to this deal than a showy public offer. It was also Asia's first ever toll road securitization, so introduced a new asset class to the region, and was the first securitization deal from the Hong Kong government, so introduced a new originator. And it was the biggest local currency deal of the year by far.
Despite all the plaudits, rival securitization bankers tend to sneer at the deal. They wonder what it proved.
The government's straight bond deal a few weeks later achieved funding that was 50bp cheaper, they say, so it clearly wasn't about borrowing. Even in the developed US ABS market retail investors are still coy about buying securitization paper, so what chance is there of kick-starting a retail investor base in Hong Kong, which has barely produced a non-government securitization since the crisis?
And regardless of the structure, many Asian investors simply saw the deal as safe Hong Kong government paper with a nice yield pick up, so it probably didn't diversify the government's funding sources a lot.
Perhaps there are grains of truth to all this, but the criticisms are almost non-existent among non-rival securitization professionals, such as those at rating agencies and monoline insurers. To them, it was a spectacular deal that has done their industry a huge service and, regardless of what rival bankers say, it was the mandate everyone wished they had got in 2004.
Best Cross-border Securitization Deal
Eu550 million Korea First Bank RMBS
BNP, Calyon, Royal Bank of Scotland
Korea First Bank's Eu550 million ($730 million) residential mortgage backed deal staggered the capital markets at the end of November with the tightest pricing ever achieved for an Asian securitization. Indeed, pricing was so aggressive it even eclipsed the fact the deal was the biggest securitization of the year and the first euro deal announced in 2004.
Put all these factors together and this is the runaway deal of 2004, especially in such a lean year. Indeed, one of the striking characteristics of the Asian securitization industry in 2004 has been the development of domestic markets over the cross-border market. Indeed, there were few cross-border deals at all.
However, that is not to say there was no competition at all - KFB's first deal of the year, a $500 million RMBS offer in February, provided stiff competition. After all, it was this deal that in effect re-opened Korea's asset-backed market after the credit card companies collapsed in 2002. It was also the first residential mortgage deal from a Korean bank and put down a lot of the groundwork for the second deal.
KFB's second deal raised money on extremely favourable terms boosted by its monoline wrap from Ambac that pulled the credit rating up to triple-A. Rumours that HSBC is keen to purchase the bank also fuelled momentum.
The deal came at just 21bp over three-month Euribor and has an average life of 2.9 years, whereas the earlier deal priced at 38bp over Libor and has an average life of 1.8 years. To be sure, spreads had been tightening all year but the pricing on this deal was nevertheless a surprise to most bankers in the market.
Best Structured Product Deal
Straits Lion SGD CDO 1
Goldman Sachs
Straits Lion Asset Management is one of a new breed of Asian CDO managers that came to prominence in 2004. Like other asset managers in the city, it has catered to investors in Singapore by putting together deals that bundle Asian credits. But its deal in August was one of the first, and the biggest, that packaged Asian credits into an Asian-currency CDO.
The Straits Lion SGD CDO 1 tapped into the region's growing demand for CDO assets and saved local buyers the expense of swapping back into, in this instance, Singapore dollars. The S$2.58 billion ($1.5 billion) synthetic CDO, which was sold to an unspecified group of investors, was the first managed deal to be offered into the Singapore market.
It is a credit to the resilience of this young market, to the reputation of Straits Lion as a manager and to Goldman Sachs as the bankers on the deal, that it was successfully sold (at 210bp) even as spreads on credit default swaps were slumping towards all-time lows. In short, this was a novel, well-executed deal at the forefront of a huge new market.
Best Vanilla Loan
PT Astra International $170 million and Rp600 billion syndicated revolving credit facility
ABN AMRO, BNP Paribas, Citigroup, HSBC, Standard Chartered, SMBC
This was a deal that re-opened the offshore loan market for Indonesian corporate borrowers and its impact will no doubt be felt well into 2005 as other Indonesian corporates follow Astra's lead. This was the first pure offshore syndicated loan from an Indonesian corporate since the financial crisis and despite some concerns about Indonesian credit issues was an outstanding success.
Banks drew great comfort from conversations with management - including Astra's CFO, John Slack - as well as from the overall direction of the car distribution business, which was performing well thanks to booming consumption in Indonesia.
The fact that the company is part of the highly creditworthy Jardine Matheson Group (via Cycle & Carriage) gave banks a high degree of comfort. But somewhat uniquely lenders joining the transaction assumed both political and commercial risk, unlike on previous Indonesian deals where the political risk was hedged.
The facility was structured as a dual tranche loan in which there was both a US dollar and Indonesian rupiah tranche - although only the dollar component was syndicated. The loan has a maturity of three years and a margin of 250bp over Libor. The dollar component of the loan was increased from $120 million to $170 million, reflecting the oversubscription. A total of 16 banks participated in the syndication.
Best Structured Loan
Trans Thai-Malaysia $524 million term facility
Barclays Capital
There are some deals that take a long time to happen and require much innovation to get done. TTM, or Trans Thai-Malaysia perfectly fits into that category.
The TTM project was first spawned in 1978 after the Thai and Malaysian governments signed an agreement on a disputed, gas-rich territory in the Gulf of Thailand. However, it was not until 1990 that the area would be developed and not until 1998 that a corporatized entity would emerge to construct, own and operate a pipeline and gas separation plant that would deliver natural and processed gas to both countries.
The company was then put under the joint-ownership of PTT and Petronas, and first began discussion with Barclays Capital about financing in 2001. Around 23 years had passed since the project's inception and another three would pass before the financing got anywhere near completion.
The financing required Barclays to arrange a project financing on commercial terms - with funds being used to construct an a series of gas pipelines (onshore and offshore) and a gas separation plant.
What was achieved was a remarkable blend of the loan markets with the derivatives business. Around $524 million of debt was raised - ie 70% of the project's cost, in line with a classic project financing. The loan was structured with a 20 -year maturity and uniquely had quasi-exposures to long term Malaysian and Thai sovereign risk.
As such, a hybrid corporate/ project finance structure was arrived at. There were no direct guarantees but comfort was gained from other contractual arrangements with the sponsors, such as the project being completed on budget and schedule, and long-term off-take arrangements with PTT and Petronas.
The loan was split into two facilities. Facility A was a classic syndicated loan in which 14 banks participated. This $267 million tranche had an average life of 7.7 years and a margin of 0.80%. Meanwhile Facility B had an average life of 15.5 years and an interest margin of 1.50%.
What made the structure interesting was that facility B ($257 million) was distributed to a series of fixed income investors that wished to gain long-term exposure to Thai and Malaysia sovereign risk through a credit derivative.
It was only by cleverly blending these two investor bases (loan and credit derivatives) that the arranger was able to satisfy the client's unique requirements in the field of maturity, size and competitive pricing. This was innovation on a grand scale, and like a great wine, well worth the wait.
Best Project Finance Deal
Guangdong Dapeng $897 million LNG Project
Lead sponsors: BP, CNOOC
Financial adviser: ABN AMRO
Lenders: ICBC, Agricultural Bank of China, China Construction Bank, China Development Bank, Bank of China.
Legal adviser to the lenders: Paul, Hastings, Janofsky & Walker LLP
Legal adviser to the consortium: Jones Day Reavis & Pogue
The Guangdong LNG project financing marks a new milestone in the development of mainland bank led project finance deals. The construction of the LNG terminal and pipeline has been entirely financed by five mainland banks on a fully non-recourse basis for up to 18 years, the longest tenor of any such deal to date.
Pricing was certainly in the generous range and it is clearly a government-mandated project, with has strong overall support from the authorities. However it also embraces much commercial wisdom in its structure.
The supply and purchase agreement has set a benchmark for others in terms of pricing and flexibility. Local currency debt has been used to match local currency revenues and no extra support has been deemed necessary from any of the sponsors - ECAs of the Chinese government - which attests to the projects necessity and thus its bankability.
In this way it also provides a template for financing the future gasification of China. For those living in southern China and Hong Kong, the deal thus paves the way for cleaner burning fuel to come into China, reducing the cloak of pollution that chokes the area. For this reason alone many might argue the deal deserves to win the award.
