Late last month, RWE from Germany broke new ground by becoming the first European company to issue hybrid capital to Asian investors since Porsche in 2006. And bankers are predicting that more European companies will follow their banking cousins and become regular issuers of debt deals, specifically structured to appeal to Asian private banks.
According to Volker Heischkamp, treasurer of RWE in Essen, the deal was part of a general strategy to strengthen RWE’s capital structure that was decided in August last year and which has seen the company issue deals in sterling and Swiss francs. But the success of the Asian deal surprised RWE and could prompt other companies to follow in its lead.
“When we took off for Asia on the roadshow, we were not certain that we could do a deal, but when we issued it a week later, it was very well received,” said Heischkamp. “It went very smoothly.”
Key to the deal’s success was its hybrid structure. The $500 million offering has a 60.5-year maturity but with calls at 5.5 years, 10.5 years and any coupon date after that. However, it ranks as senior only to the issuer’s share capital, giving it a relatively high yield of 7%, a crucial attraction for yield-hungry Asian private banking clients.
“We could not have done it with a six handle,” admitted Heischkamp. “But investors were looking at the overall structure of the deal and they understood it. They were not just blinded by the coupon.”
One other perceived drawback they faced was that the German electricity and gas producer, while very well known in Europe, had little name recognition in Asia. Heischkamp agrees that he was surprised by the positive reaction to the deal, given Asian investors' paucity of knowledge of the company. But by keeping the order books open for two days (in Europe a similar deal would only have stayed open two hours), they gave the market time to digest RWE and its credit story.
In the end, the deal generated $2.2 billion of orders and 67% of the bonds were placed with Asian investors. Of the total demand, 71% came from private banks, with sources suggesting that European private banks came into the deal after the Asian banks had shown their support.
The deal was lead-managed by Citi, BNP Paribas and Nomura, as well as Bank of America Merrill Lynch, Credit Suisse and UBS. All these banks have strong private client businesses in Asia. “You need to have a platform of connectivity with the Asian private banking network to do a deal like this,” said Christian Karcher, managing director in the investment banking division at Nomura in Germany.
The lessons of this deal are that solid European names can sell highly structured deals into Asia if the yield on offer is right. But they need to take the time to meet the investor base, be willing to take some overnight risk on the transaction and appoint a banking group with ties to this disparate investor base.
Karcher believes that other European names will now follow RWE’s lead. “The deal exemplifies the significance of Asia for European issuers and this is being increasingly recognised by other European clients,” he said.
