Swelled by the success of its previous Vodafone exchangeable last September, Hutchison Whampoa has kicked off the year with a near perfect copy of last year's deal. A three-year, $2.5 billion exchangeable with a $500 million greenshoe is being sold to global investors. The conversion price is set at 310 pence, which equates to a 38% premium to last Friday's close. (Coincidentally, the previous deal was also launched on a Monday.)
The final exchange premium will not be known until books close tonight in London but it is likely to be similar to the present premium as the lead managers, Goldman Sachs and Merrill Lynch, have employed an Accelerated Bookbuild to maintain price stability of the underlying Vodafone share price. Goldman Sachs has the role of stabilization agent to maintain the underlying price of the Vodafone shares in the face of inevitable hedge fund short selling.
The deal is being launched with a price of 99%-99.5% of par value and it carries a coupon of 2%. The bonds will offer a yield of between 2.17% and 2.35%. The deal is non-call for its three-year life.
The deal's undoubted success shows the attractiveness of a security issued by Hutchison and backed by Vodafone stock. The timing of the deal, on the first day that all the market is back from various Christmas holidays, shows how much confidence there is in Hutchison and Vodafone. This deal could not have happened last week. And probably no other similar deal could have been launched today.
One interesting aspect of the deal is the involvement of Goldman Sachs. Goldman has long been seen as the house bank of Hutchison and eyebrows were raised when it was not involved in the first deal last September. How it managed to get into the deal this time is not immediately clear, but the bankers at Merrill Lynch are understandably not too excited about having to share the fees. "Goldman Sachs would have done whatever they could to have got in on this deal," lamented one Merrill Lynch banker.
The structure of the deal means that, although Hutchison has committed 57% of its holdings in Vodafone to back the two exchangeable bonds, it still retains ownership and voting rights on its entire 3.5% stake in Vodafone.
It is still entirely unclear why Hutchison has done this deal. It has over $30 billion in cash in its already mighty coffers and surely does not need any more. Constant speculation about what Hutchison is going to do with all its money will presumably only increase in volume once this deal has been launched. Further details and final pricing should emerge tomorrow (Tuesday).
