The following deals, the banks that worked on them and their clients will be honoured at an awards dinner at the Grand Hyatt hotel in Hong Kong on February 5. If you would like to book a table at the event, please contact Amber Gordon at [email protected].
DEAL OF THE YEAR, BEST SECONDARY OFFERING
AIG’s $2 billion sell-down in AIA
Active joint global coordinators: Deutsche Bank, Goldman Sachs
Joint global coordinators: Citi, Morgan Stanley
Bookrunners: Bank of America Merrill Lynch, Barclays, HSBC, J.P. Morgan, UBS
Legal advisers: Debevoise & Plimpton, Linklaters
American International Group’s second sell-down in Hong Kong-listed AIA Group was widely expected, but the US insurer still managed to catch the market off guard by selling less than one-third of its remaining stake. The move completely changed the supply/demand dynamic in the market and created a scarcity of shares that helped push up the price, hence maximising the amount of proceeds for AIG.
The deal didn’t price at the top of the range, but having been bold enough to set the top end of the price range 1.7% above the day’s close, AIG was still able to sell the shares at a 0.8% premium to the latest market price – a first for a Hong Kong block trade and a significant achievement for a $2 billion transaction that accounted for more than 20 days of trading volume.
The deal, which was completed after the market closed two days after the expiry of AIG’s latest lock-up in early September, was heavily oversubscribed and attracted more than 200 investors. Those who didn’t get as many shares as they had anticipated continued to chase the stock in the market the next day, pushing the share price 6% above the HK$26.50 placement price. The gains continued for almost two months with AIA hitting a peak of HK$31.30 on November 2 before easing back slightly to around the HK$30 mark as investors started the eye the possibility of more supply after the expiry of AIG’s 90-day lockup in early December.
The deal faced tough competition for the Best Secondary Offering award from AIG’s first sell-down in AIA in March, which was equally well executed and three times as large. However, that deal was marketed over a full day while the stock was suspended, giving the bookrunners more time to get it right. It also priced at a 7% discount to the latest close.
We are also naming AIG’s September trade as our Deal of the Year in recognition of the fact that block trades have been the most active product in the equity capital markets this year. And as far as block trades go, AIG’s second sell-down in AIA set a benchmark that will be hard to beat.
BEST EQUITY DEAL
The $2.1 billion pre-IPO investment into Formula One by Waddell & Reed, Norges Bank and Blackrock
Adviser: UBS
CVC Capital Partners’ sale of part of its stake in Formula One to three high-profile investment firms was a clever and effective way of dealing with volatile markets and a highly uncertain outcome of a pending Singapore IPO that was expected to raise at least $2.5 billion.
Aside from allowing CVC to monetise part of its 63.4% stake — which it was very keen to do — the key intention with the initial placements was to establish a valuation benchmark for the IPO. This was a smart move given that there were no direct comparables for Formula One, the company that owns the commercial rights to the Grand Prix race series. UBS found three buyers with deep pockets and an appetite for this rather unique asset and when the investments became public towards the end of May, US-based Waddell & Reed had invested $1.1 billion into Formula One, Blackrock $196 million and Norges Bank Investment Management $300 million.
The placements reduced CVC’s stake to just over 42% and established an enterprise value of $9.1 billion for Formula One.
Contrary to a typical pre-IPO investment, the three firms got no return guarantees and no option to sell back their securities in case the IPO didn’t happen. The securities they bought also carried no voting rights — making it a pretty sweet deal for CVC.
About a month later, when Formula One’s IPO was already on hold due to the poor market environment, Waddell & Reed stepped in again and bought another $500 million worth of non-voting securities from CVC at the same terms, increasing its total investment to $1.6 billion and its Formula One stake to 20.9%. As this reduced CVC’s stake to just above 35% and left it with $2.1 billion of gross proceeds, it no longer had an immediate need for an IPO and not too surprisingly it decided to call off the Singapore listing plan.
The pre-IPO placements bought CVC a lot of flexibility and means that it can now launch the Formula One IPO from a position of strength at a time when the market is more favourable towards new listings.
Sure, the deals were privately negotiated and hence not directly comparable to most other equity deals that we write about. But it is the kind of solution that companies are typically happy to pay for and our belief is that as fees in the rest of the ECM market continue to shrink or get diluted on more hands, these types of deals will become more frequent. The pre-IPO placements into Formula One weren’t the only deals like this in the past year, but they were big and they achieved what they set out to do and more. UBS deserves every credit for making them happen.
BEST IPO
IHH Healthcare’s $2.1 billion IPO
Bookrunners: Bank of America Merrill Lynch, CIMB, Credit Suisse, DBS, Deutsche Bank, Goldman Sachs
Legal advisers: Akol Avukatlik Burosu; Albar & Partners; Allen & Gledhill; Allen & Overy; Jingtian & Gongcheng; Kadir Andri & Partners; King & Wood Mallesons Lawyers; Linklaters; Talwar Thakore & Associates; WongPartnership
IHH Healthcare stood out among the new listings this year because of the smooth execution and a well-handled process that included a well thought-ought cornerstone strategy and a coordinated marketing plan among the involved banks. The Khazanah-backed hospital operator also had scale — it is the second largest listed hospital operator in the world and twice the size of its closest Asian rival — priced at a premium to its regional peers and delivered a good outcome for both the issuer and investors.
Faced with a difficult global market backdrop and poor sentiment for new listings, the bookrunners were able to generate significant interest for the IPO by securing 22 carefully selected cornerstone investors that together took up 62% of the base deal, effectively creating a scarcity of stock for other investors.
The presence of the cornerstones also helped validate the valuation, which involved a lot of assumptions about future growth in the company’s three home markets in Malaysia, Singapore and Turkey.
IHH also broke new ground by being the first company to go for a dual listing in Malaysia and Singapore. The majority of the shares are listed in Kuala Lumpur, but proportionally there is more trading in Singapore, which shows that the decision to offer a portion of the deal to Singapore retail investors did have some merit.
To ensure there would be enough liquidity in the stock after listing, the cornerstones were allowed to sell up to 50 million shares in the first six months — an innovative structure that seems to have worked well. By early December the stock had gained close to 18% since the July listing.
BEST EQUITY-LINKED DEAL
Hong Kong Exchanges and Clearing’s $500 million CB
Bookrunners: Deutsche Bank, HSBC, UBS
Legal advisers: Clifford Chance, Linklaters
One can argue that this deal is too plain vanilla and not exciting enough to be named the best equity-linked transaction. But in a year with few deals and little proper innovation in the Asian public markets we feel that a CB that is well executed and delivers the desired funding for the issuer, while also providing investors with much sought-after high-quality paper, can be just as worthy a winner.
HKEx, which is the operator of the Hong Kong stock and futures exchanges, is a debut issuer in the capital markets but brought the largest deal of the year (after exercising the $100 million upsize option in full) and also achieved a higher conversion premium than any other issuer at 34.57%, which allowed it to meet its internal target of a HK$160 conversion price.
The unrated company was raising money towards its £1.4 billion ($2.2 billion) acquisition of the London Metal Exchange (LME), which was announced in June and at the time of the deal was still awaiting approval from the UK regulators. To give the company the utmost flexibility, the CB had a call feature that would allow the HKEx to redeem the bonds at a price of 101 if the LME acquisition wasn’t completed by April 23 next year.
Even though the deal didn’t launch until 9.30pm in the evening it was covered within an hour and in all it attracted more than 80 investors, which is testament to the scarcity of high-quality CBs in Asia. Investors also liked the fact the underlying stock is liquid and that it is easy to hedge. This kept the CB above par in the days after pricing, even though the share price was falling slightly.
BEST MID-CAP EQUITY DEAL
Multi Commodity Exchange of India’s $135 million IPO
Bookrunners: Citi, Edelweiss, Morgan Stanley
Legal advisers: Amarchand & Mangaldas & Suresh A Shroff & Co; J Sagar Associates; Jones Day
For the second year running, mid-cap companies have had a difficult time attracting the attention of institutional investors, who were staying away from all but the largest IPOs as they worried about the market risk related to long lead times between pricing and trading.
Numerous listing candidates were forced to call of their IPO plans and those that did make it to the market tended to be heavily anchored at launch. For Chinese companies, much of the anchor and cornerstone demand has come from corporate and so-called friends and family accounts.
Against that backdrop MCX stands out as a shining star. The Indian company, which operates the country's largest trading platform for commodities futures, was 54 times covered excluding the 15% anchor tranche and it was all real demand. The institutional tranche was 47.5 times covered, and the retail tranche attracted 24.1 times as much demand as there were shares. This allowed the price to be fixed at the top of the range.
Part of the enthusiasm stemmed from MCX’s dominating market share, its good return ratios, scalable business model and strong growth outlook. The company also re-opened the Indian IPO market after seven months of no issuance. But the bookrunners also helped generate demand through their tailored investor education and marketing and by identifying and addressing potential investor concerns early.
In all, a highly successful IPO that was bought by investors who were genuinely keen to own a piece of the company. And they have been awarded by strong share price gains. As of early December the stock was up about 50% since the listing in early March.
BEST SMALL-CAP EQUITY DEAL
Hopewell Highway Infrastructure’s $61 million offshore renminbi placement
Bookrunner: BOC International
Advisers: Freshfields; Woo Kwan Lee & Lo
Hopewell Highway Infrastructure (HHI), which builds and operates expressways, tunnels and bridges in China’s Pearl River Delta region, in October became the first Hong Kong-listed company to complete a follow-on equity offering denominated in offshore renminbi and the first company to adopt a dual-counter regime. The latter means that investors can now trade its shares both in Hong Kong dollars and offshore renminbi.
The CEO of the Hong Kong Exchanges and Clearing believes the dual-counter system is the key to the development of liquid equity trading in offshore renminbi, although it is unlikely to take off in earnest until Beijing allows Chinese individuals to invest in Hong Kong. For now, investors are more likely to buy-and-hold these equities as an alternative to having offshore renminbi deposits at a bank.
But for the market to develop, existing issuers need to sell shares denominated in the Chinese currency and HHI’s move has set a valid benchmark. In June 2010, the same company was also the first to issue corporate bonds in offshore renminbi (commonly referred to as dim sum bonds). That market has since taken off massively.
And deeming from this one deal, there is interest among investors for equity as well. The HHI offering was upsized by more than 70% and priced at the mid-point of the range at Rmb3.22 for a 6.9% discount to the latest close. The base deal was fully covered in half an hour and ended about 20 times subscribed. More than 30 investors participated in the transaction despite its small size and interestingly, about 15% to 20% of the demand came from Europe.
HHI’s share price has been trending higher since the issue, but turnover has been tapering off in the offshore renminbi counter. Still, the company has opened the door to an entirely new market and, for that, it gets our award for Best Small-cap Equity Deal this year.
BEST M&A DEAL
Heineken’s S$5.6 billion acquisition of Asia Pacific Breweries
Advisers: Citi, Credit Suisse, Goldman Sachs, J.P. Morgan, UBS
Advisers to the losing bidders: HSBC, Morgan Stanley
Legal advisers: Duane Morris & Selvam; Stamford; Weerawong, Chinnavat & Peangpanor; WongPartnership
This summer’s battle for Asia Pacific Breweries (APB) was a rare highlight during a year that lacked much of an obvious M&A theme.
On the face of it, Fraser and Neave’s (F&N) sale of its 39.7% effective stake in the brewery to Heineken, its partner in the joint venture since 1930, ought to have had few of the hallmarks of a winning deal.
But Thai billionaire Charoen Sirivadhanabhakdi changed all that in mid-July. The owner of Thai Beverage muddied the waters when he led a consortium that bought 22% of F&N and a direct 8.6% stake in APB at $45 a share, which valued the brewery at S$11.6 billion and represented a 53% premium to its share price at the time.
Confusing matters further, Heineken’s Japanese rival Kirin had previously also made a move on F&N, having bought 15% in 2010. When the Thai group moved in, Heineken was finally spurred into defending its interests — and eventually ended up paying S$53 a share for F&N’s holdings in APB, valuing the brewer at a handsome S$13.6 billion.
The journey to this conclusion involved plenty of old-fashioned, strategic M&A advice on all sides. In a year that was largely characterised by relatively mundane reorganisations and the shuffling of financial and energy resources, this deal stood out as the year’s best — and most entertaining — M&A deal.
BEST CROSS-BORDER M&A DEAL
Sany Heavy Industry and Citic PE Advisors' €500 million purchase of Putzmeister
Advisers: Bank of America Merrill Lynch, Morgan Stanley
Legal advisers: Shearman & Sterling, Jingtian Gongcheng
When we look at cross-border M&A deals, we try to identify marriages that will genuinely build businesses for Asia’s future global champions. Sany and Chinese private equity company Citic PE Advisors’ acquisition of Putzmeister for slightly more than €500 million ($660 million) fits that bill perfectly. This transaction marked the first time that a large and well-known German mittelstand company (which refers to the nation’s legion of family owned small and medium-sized firms) had agreed to sell to a Chinese partner — a trend that has long been expected.
The merger created a global market leader for concrete pumps, which may not be sexy, but is a genuine business. And it was representative of the types of mergers cash-rich Asian companies can expect to achieve. Putzmeister got a big pocket to help it further its growth prospects and Sany got technological know-how. The bankers on this deal were savvy – there were certainly other buyers sniffing around Putzmeister, but Sany got the deal across the line, making this one of the more envied transactions in M&A this year.
BEST DOMESTIC M&A DEAL
SK Telecom's $3.1 billion acquisition of 20% of Hynix
Advisers: Bank of America Merrill Lynch, Credit Suisse, Macquarie, Shinhan Investment, Woori Investment & Securities
Legal advisers: Bae, Kim & Lee; Kim & Chang; Shin & Kim
High-profile Korean M&A deals are not for the faint-hearted, and SK Telecom’s acquisition of Hynix certainly had the potential to be typical for the genre. The highly cyclical nature of the semiconductor industry can make valuations contentious and the sellers in this case were a group of Korean banks that were reluctant to sell at a low price, despite a downturn.
However, their options were running out. Hynix had a complicated organisational structure and the sellers were wary about revealing the company’s technology and intellectual property to a host of suitors, all of which made its business difficult to fully understand and limited the potential list of buyers. Indeed, three Korean bidders had tried and failed to strike a deal, going back to the start of 2009.
SKT, in its favour, was a good strategic fit with Hynix and a deal between the two companies made a lot of sense. Even so, it was not all smooth running. Rival bidder STX dropped out of the competitive process when it failed to raise funding, which led to a media fracas about SKT’s role as sole bidder.
Even the sale was structured in a complex and controversial way. The plan was for SKT to buy the 20% controlling stake in Hynix for $3.1 billion through the simultaneous acquisition of an existing 6.1% stake and participation in a 13.9% new share sale, resulting in a level of dilution that angered some shareholders.
But the deal overcame all of these obstacles and has created a company that is stronger and better positioned to compete on the world stage. After so many failed attempts, that marks a real success.
BEST INVESTMENT GRADE BOND
Temasek’s $1.7 billion bond
Advisers: Citi, Deutsche Bank, Goldman Sachs, UBS
Legal advisers: Allen & Gledhill, Davis Polk & Wardwell, Latham & Watkins
This year was a record year for investment grade bonds and Temasek Holdings’ $1.7 billion dual-tranche bond stood out. Temasek is typically a savvy and demanding borrower and the state investment agency’s 10.5- and 30-year bonds succeeded in re-pricing its secondary curve and achieving a record low 30-year coupon for a non-US issuer. The deal also established a 30-year benchmark for other Singapore corporate borrowers to follow.
Temasek represented a rare corporate borrower with a triple-A rating. It had last issued sterling bonds in 2010 and US dollar bonds in 2009. Those outstanding issues were relatively illiquid and closely held by investors, which meant the pricing on those bonds was not truly reflective of its value. So after Temasek issued its $1.7 billion bond, the outstanding issues tightened 10bp to 20bp rather than widening, as is usually the case when new supply is added to the market. The new issue effectively corrected the mispricing of the old bonds, which were trading inefficiently due to high illiquidity.
Its jumbo bond was timed amid insatiable demand for investment grade credits and the 30-year bond achieved a coupon of 3.375% — the lowest for a non-US issuer for a 30-year tenor. The tight pricing was driven by a solid order book of $7.6 billion, with most of the bonds allocated to fund managers, insurers and pension funds. Strong investor demand for the long-dated tranche resulted in an inverted curve, with the 30-year bonds pricing at Treasuries plus 95bp and the 10.5-year bonds at Treasuries plus 100bp.
BEST HIGH-YIELD BOND
Studio City's $825 million bond
Advisers: Deutsche Bank, ANZ, Bank of America Merrill Lynch, BOC International, Citi, Credit Agricole, UBS
Legal advisers: Appleby; Ashurst; Clifford Chance; Henrique Saldanha – Avogados & Notarios; Manuela Antonio Law Office; Maples & Calder; Shearman & Sterling; Skadden Arps; White & Case
Studio City is a financing entity with 100% ownership of the project company for a 32-acre gaming resort development in Macau, which when completed will have up to 500 gaming tables, a luxury hotel and an entertainment studio. The project is 60% owned by Melco Crown Entertainment and the rest by a joint venture between Silver Point Capital Fund and Oaktree Capital Fund.
It wasn’t exactly the easiest of deals to sell. Studio City was raising the funds to build a casino that would not start generating cash flows until 2016, which meant the issue was structured as a project bond with no recourse to Melco Crown. Asian investors did not like the deal. They were also unwilling to load up on more risk as the deal launched in November, and sentiment towards new issues had soured amid underperformance from recent Chinese property high-yield bonds.
So the leads brought it to the US, where investors were more familiar with the gaming sector. It wasn’t an easy process in the US either — the leads were forced to revise final pricing for the eight-year non-call-three bond wider to 8.5%, 25bp wide of the initial guidance of 8.25%. The deal ended up closing about two times covered and was heavily allocated to US investors, which took 70% of the deal. However, the bonds have since traded up, rewarding investors that had the conviction to participate. It also caught an elusive window for high-yield issuance, closing just as Global A&T Electronics, which had also held roadshows at around the same time, was forced to postpone its high-yield deal.
Studio City’s bond pulled through in spite of tough markets, yet traded well in secondary markets and stood out as the biggest high-yield bond from a single-B issuer in 2012.
BEST SOVEREIGN BOND
Mongolia's $1.5 billion sovereign bond
Advisers: Bank of America Merrill Lynch, Deutsche Bank, HSBC, J.P. Morgan
Legal advisers: Allen & Overy, Shearman & Sterling
There aren’t a lot of sovereign dollar bonds in Asia, and Mongolia’s $1.5 billion dual-tranche bond offered investors the chance to diversify. It was a debut issue for the country and the fact that it managed to raise $1.5 billion in one fell swoop was an impressive outcome. Also impressive was the fact that its 10-year bonds priced at a yield of 5.125%, just slightly back of Sri Lanka, which has a $60 billion economy and is a far more seasoned borrower, having issued its debut bond back in 2007.
It also grabbed attention as Mongolia attracted $15 billion in orders from international investors — twice the size of its GDP. While this may be an indication of just how frothy bond markets are, the exuberant demand helped a frontier credit like Mongolia achieve tight pricing for a chunky size. Despite the tight pricing, immediately after the bonds priced, they traded up in the secondary market, an indication that they were held in the hands of buy and hold investors. The deal saw strong participation from fund managers, which were allocated 82% of the five-year tranche and 85% of the 10-year tranche.
While Mongolia’s bond prices were volatile the week after it priced amid reports that the Mongolian People’s Revolutionary Party might pull out of the coalition government, from the standpoint of the sovereign, the timing was right and the deal was flawlessly executed. The sovereign also achieved cost savings by accessing capital markets directly as opposed to through a guarantee structure.
BEST LOCAL CURRENCY BOND
Genting's S$1.8 billion perpetual
Advisers: DBS, HSBC, CIMB, Deutsche Bank, J.P. Morgan
Asian local currency markets are deepening and widening and Genting Singapore’s S$1.8 billion perpetual reflects this theme and stood out as a landmark transaction. It was the biggest corporate hybrid in an Asian local currency market and it achieved both heft and high offshore participation from investors. The deal attracted a S$6 billion order book and offshore investor participation of 42% — a high level as the Genting name resonated with Malaysian investors and approval was sought to market the deal in Malaysia. This was impressive considering it was an inaugural bond for Genting Singapore — which runs Resorts World Sentosa Singapore.
When the deal priced back in March, there were few reference points for a perpetual of that size. The deal went through a price discovery process. Genting’s perpetual’s structure was tailored to provide ratings equity credit and accounting credit while at the same time retaining adequate protection for investors to optimise pricing. The perpetual bond, which was callable after five and a half years offered investor friendly features such as a coupon step up, dividend stopper and pusher.
There were certainly questions on its size, and whether it was too big, as the bonds softened in May, but the deal has stood the test of time and those bonds are now hovering around par. The deal also helped raise funds for Genting Singapore’s war chest — and any potential acquisitions could act as a catalyst for the stock.
BEST OFFSHORE RENMINBI OFFERING
Gemdale's Rmb1.2 billion offshore renminbi bond
Advisers: HSBC
Gemdale is the third-biggest property developer listed on China’s A-share market, but this Rmb1.2 billion dim sum deal was its debut international bond, so it wasn’t a name that investors were immediately familiar with. It was also the first international bond from an A-share company without a guarantee from an onshore entity. The structure was unique for a offshore renminbi bond and provided a template for other mainland borrowers to follow.
In the past, mainland companies have usually issued in offshore markets through Hong Kong subsidiaries to avoid the arduous process of getting approval from Chinese authorities for a guarantee.
To give investors comfort without a guarantee, Gemdale’s bond had a keepwell agreement and, more important, a legally binding letter of undertaking between the onshore parent and offshore guarantor. The company also sought a rating — both for itself and the bond issue, which added a bit more transparency. Its deal, which was rated Ba3/BB-, helped reopen the high-yield offshore renminbi market, which had been quiet for two months.
The deal attracted a Rmb4.7 billion order book from more than 111 investors. It offered investors a juicy yield of 9.15% and the bonds rose sharply in secondary, and were last quoted at 107, well above the par issue price — reflecting a deal that was too cheap, according to some. However, for a borrower that was testing a new structure on its debut in the offshore markets, the premium was not unreasonable.
BEST ISLAMIC FINANCE DEAL
Axiata Group’s Rmb1 billion sukuk
Advisers: CIMB, Bank of America Merrill Lynch, HSBC
Legal advisers: Allen & Overy, Adnan Sundra & Low, Clifford Chance, Zaid Ibrahim & Co
Axiata is not very well known to foreign investors, but its debut Islamic bond went smoothly despite some innovative features. In contrast to the far better known Khazanah, which was forced to pull its deal the previous September due to volatile markets, this got across the line without a hitch. Its underlying asset was airtime vouchers (representing an entitlement to a specified number of airtime minutes) from Celcom Axiata, a wholly owned subsidiary of Axiata Group. Celcom holds Axiata’s Malaysian wireless operations. The structure was unusual, as typically the underlying asset is a property.
Malaysian investors were only allocated 13% of the deal, with Hong Kong investors taking up 55%, Singapore 28% and the rest going to European investors and other investors, which suggests a bit of investor education was likely needed to explain Axiata’s credit story. Nonetheless, the Malaysian telco closed the Rmb1 billion two-year deal, pricing at 3.75%, at the tight end of the final 3.75% to 3.8% final guidance, and about 25bp inside initial guidance. According to a source, the company was targeting a Rmb500 million deal, but books were covered within an hour of opening and, given the strong demand of Rmb3.5 billion, the company raised the deal size up to Rmb1 billion.
