FinanceAsia is pleased to announce the winners of our Japan Achievement Awards for 2015/2016.
In another very active year for cross-border mergers, as well as high-profile deals in ECM and DCM, we have looked for those institutions and deal makers that have led the way in skillful cross-border deal-making.
The wide range of deals on offer show that Japan remains at the centre of global commerce and all indications are that the number of cross-border transactions and placements will continue to increase amid the ever-turbulent global economy.
Our focus, as ever, has been on excellence in the international arena as financial firms look to meet the needs of companies looking to merge, domestic investors seek funding internationally and foreign investors show their eagerness to tap the deep pools of Japanese liquidity at ever-lower costs.
Our deal awards covered those deals that closed in the year from April 1, 2015 to March 31, 2016. Bookrunner and financial adviser listings were compiled using primary documentation, market sources and with assistance from Dealogic as well as other data providers. The House awards include all activities for the period.
Our congratulations to the winners (our write-ups to be available here in a few days) and we look forward to meeting everyone for a reception in Tokyo on June 2.
House Awards
BEST BANK
With the advent of negative interest rates and a seemingly unstoppable rise in the value of the yen, these are stressful times for Japan’s major banks. Within the group, we see industry leader MUFG as the best prepared based on its strong domestic position and long-term overseas strategy that will reduce its dependence on a shrinking home market. Therefore it again wins our award for Japan’s Best Bank.
Less so for MUFG, which again takes the award for the country’s Best Bank based on its past performance and strong prospects for dealing with these issues in the future.
Bolstered by its overseas holdings in Morgan Stanley, California’s Union Bank and Thailand’s Bank of Ayudhya (Krungsri), MUFG posted an 18% rise in profits in the nine months ending in December, the only one of the Big Three to show a gain. Competitors SMFG and Mizuho both saw declines in net income, down 3.2% and 7% respectively.
It has not been all smooth sailing for MUFG over the past year. Its share price peaked at just over ¥820 in mid-November and has since fallen to ¥584. Analysts remain upbeat, however, with Nomura maintaining a target price of ¥1,100.
With the surprise announcement by the Bank of Japan in January of negative rates for some deposits held at the central bank, MUFG and other bank stocks went on a tumble. Adding to the downward pressure was MUFG’s subsequent announcement that earnings for the first nine months of the financial year to December 31 were down 8%.
So MUFG’s share price hit a floor just below ¥440 in February before analysts started to reckon that the sell-off in the sector was overdone.
Shrinking loan rates, thin margins and weak loan demand have dogged Japan’s banks for years although negative rates has brought new uncertainties with the prospect that banks could start to lose money on depositor balances. While the prospect is probably more a theoretical than a practical worry (the negative rate applies only on additional deposits and the base level still earns a positive rate) it offers fresh cause for concern.
In response to the lack of economic growth at home, MUFG has continued to beat a path overseas, buying a 20% stake in Philippine regional lender Security Bank for $773 million. That comes after its 2013 purchase of Bank of Ayudhya (Krungsri), its acquisition of a 20% stake in Vietnamese state-owned commercial bank VietinBank in 2012, and its takeover of Union Bank in 2008.
As a result, MUFG’s global banking business accounted for 27% of the group’s net operating profit in the first half of the 2015-2016 financial year, up 4 percentage points from a year earlier.
And there could be more foreign acquisitions to come. The new head of the Bank of Tokyo-Mitsubishi, MUFG’s main banking subsidiary, said earlier this month that he would be looking to the US and Asia for targets, including Indonesia.
Fitch also offered a vote of confidence in an April 20 report that gave the bank an A rating that reflected “the banking group's strong and very sound domestic franchises, solid liquidity profiles in yen, sound asset quality and adequate capital, which Fitch expects will continue improving through consistent retained earnings.”
To help shore up its capital position, MUFG in February raised over ¥1 trillion $9.4 billion) in TLAC-eligible debt through three deals. Among them, was a $5 billion senior TLAC note offering, which it said was the largest ever dollar bond offering by a Japanese issuer.
Moody’s was a bit more cautious, saying in a March report that the overseas portfolio “is showing early signs of deterioration but continues to expand under the bank’s growth strategy.” It said this could cut into overseas profits.
MUFG has also been no slouch in putting its cash hoards to good use. It was bookrunner in the $75 billion in acquisition financing in the AB InBev takeover of SABMiller. It was said to be the largest commercial loan in the history of the global loan market.
It has also taken part in some other big global deals, including $40 billion in loans for the still pending Dell acquisition of EMC, and was mandated lead arranger for $31.5 billion in acquisition financing in the Teva Pharmaceutical purchase of the generics business of Allergan, showing that Japanese banks don’t need to do only Japan-related deals.
MUFG unit Mitsubishi UFJ Trust and Banking also announced in February that it would buy Capital Analytics, the private equity administration business of US company Neuberger, which has about ¥14 trillion ($128 billion) in assets under administration.
Not to be left out in the buzz over fintech, MUFG this month rolled out NAO, its polyglot 58-cm robot clerk, to visitors at Narita Airport. Nao was first introduced on a trial basis last year.
BEST INVESTMENT BANK & BEST FOREIGN INVESTMENT BANK
One should never under-rate the value of leverage when it comes to finance, a point clearly not lost on Morgan Stanley as the firm continued to make very good use of its Japan joint-venture with MUFG, earning it our award for the best investment bank and best foreign investment bank.
At a time when many of the foreign players such as Barclays and Citibank’s retail business are retrenching, Morgan Stanley is increasing its investment banking headcount.
With a strong international position, the firm is also poised to challenge the established domestic players. Japanese domestic rivals rely heavily on their Japanese retail brokerage network and Morgan Stanley trying to narrow this gap with tighter relationship with MUFG in securities.
Front and centre was the US bank’s impressive performance among high-profile, complex, and sometimes politically charged M&A transactions. These included the ¥2.2 trillion ($17.9 billion) purchase of concession rights for the state-owned company that operates the two main airports in Osaka, with Morgan Stanley bringing in the expertise of French group Vinci to team up with domestic leasing and finance group Orix. The price was hefty but the market timing could hardly be better with an unprecedented boom in foreign tourism in Japan seen over the past few years.
Other important deals included helping insurer Meiji Yasuda in its $5.0 billion acquisition of retirement/insurance group StanCorp as it looked to strengthen its overseas presence, and representing annuities provider Symetra in its sale to Sumitomo Life for $3.8 billion.
On the ECM front, the firm was able to tap its international and domestic expertise in the landmark Japan Post IPO. Domestic investors in a deal need to know the appetite of international investors and vice versa, information that the firm could well provide. Morgan Stanley served as joint global coordinator and joint bookrunner in the international and domestic tranches for the ¥1.4 trillion ($12 billion at the time) triple flotation. Overall, the firm ranked No. 2 in the Japan ECM bookrunner tables for the review period with a 16.1% market share according to Dealogic.
It also demonstrated its ability to deliver within Japan on the DCM side, piling up debt (not its own), to top the league tables with a total of 255 deals and a 23.7% market share for Japan domestic deals. Among them were the ¥1.0 trillion ($9.4 billion) in TLAC-eligible notes for MUFG.
It acted as a lead manager on the four-tranche ¥250 billion debut of UNIQLO operator Fast Retailing, the largest debut bond offering in Japanese bond market history. Morgan Stanley was also sole bookrunner on the ¥200 billion hybrid note offering by Mitsubishi Corp., the first public hybrid offered by a corporate issuer in the Japanese market, and for a later ¥250 billion hybrid issue by Mitsubishi Estate.
With the challenges facing banks globally due to the slowdowns in big markets and the as-yet unknown impact of the Bank of Japan’s negative rates, MUFG may find that its 2008 $9 billion investment in the venerable Morgan Stanley, seen as a bailout for the Wall Street firm at the time, will have proven to be a smart move at diversification.”
BEST M&A HOUSE
Morgan Stanley has been at the sharp end of global M&A over the entire review period. It earns our Best M&A House award for Japan not just because of its strong showings in the league tables (a strong No. 2 position with a 24.9% share for closed deals and a jump to the No. 1 slot for announced deals with no less than 39.1%) but also because of the complexity of its mandates.
The firm also demonstrated that it was able to deal in a wide range of sectors and deal structure, ranging from the uniquely positioned privatisation of Osaka’s Kansai Airport to the tripartite deal in the chemicals sector for Polypore, in which it represented Asahi Kasei.
The biggest and potentially most complex deal was the¥2.2 trillion ($17.9 billion) purchase of the operating rights by a Japan-French partnership for Osaka’s Kansai International Airport and Osaka International Airport. Morgan Stanley was the sole advisor for Vinci , which had teamed up with Orix. The deal had its fair share of deal-related issues, such as how to value an asset when you only have one bidder. In addition there were political crosswinds with the government keen to successfully offload the airports as part of its privatisation of public infrastructure businesses.
Also complex was the two-part $3.2 billion deal around Asahi Kasei’s acquisition of U.S. battery component and filtration group Polypore, which saw the filtration business skimmed off by industrial giant 3M, leaving Asahi Kasei with the energy storage business that it was seeking.
Morgan Stanley’s deal roster showed that the insurance industry remains an annuity for M&A houses. It advised Meiji Yasuda Life Insurance in its $5.0 billion purchase of StanCorp, the U.S. insurance and retirement products group, and switched to the sell side to represent insurance products group Symetra in its sale to Sumitomo Life, Japan’s fourth-largest life insurance company. Rounding out the trifecta is the still-to-be-closed A$2.4 billion ($1.7 billion) deal for Nippon Life’s acquisition of 80% of MLC, a life insurance subsidiary of National Australia Bank. It is the first such foray by Japan’s biggest life insurer as it seeks to catch up with rivals who have already moved offshore to escape the shrinking business prospects in Japan.
Morgan Stanley was also at the frontline of Japan’s changing corporate landscape, working with Mizuho Securities to advise struggling electronics group Sharp as it agreed to sell two-thirds of its stock to Taiwan’s Foxconn Technology Group for $3.5 billion, spurning a competing offer from the state-backed Innovation Network Corporation of Japan. It also kept the deal on track after a last-minute hiccup over contingent liabilities prompted Foxconn to cut the size of the offer. But that’s a story for next year’s awards.
BEST ECM HOUSE
It is hard to separate the words Japanese equities and Nomura. Japan’s biggest brokerage continues to excel in the overall breadth of its offerings and the ability to execute in the ECM arena, making it our winner for Best ECM House. Not surprisingly it was again the clear No. 1 in the ECM Bookrunner rankings with 77 deals worth a total of $12.5 billion, according to Dealogic, for an impressive 27.3% share, more than 11 percentage points ahead of runner-up Morgan Stanley.
Among the high points were its central role as lead global coordinator for our Deal of the Year, the global ¥1.4 trillion ($12 billion) IPO for Japan Post Group. One of the key goals of the government in its landmark triple privatisation was that the state-owned institution should end up squarely in the hands of the average investor. With its network of 159 offices nationwide and serving nearly 5.3 million client accounts, Nomura played a critical role to ensure 95% of the domestic shares on offer went to retail investors.
It also demonstrated good client servicing in an unusual request from Toyota Motor, which wanted to encourage a more long-term commitment from shareholders. Working with the client, Nomura developed a new Toyota Class AA share to help instil the “Toyota Global Vision.” The shares have a five-year holding period (with some limited exceptions) and offer a step-up dividend ratio. The structure has raised a few eyebrows but the flotation was a success with 47.1 million shares (approximately ¥500 billion) going on the market with a minimum impact on the common share price.
Rounding out the deals, Nomura acted as global coordinator for the February 2016 $911 million LaSalle Logiport REIT, taking advantage of the global demand for Japanese real estate and navigating highly volatile markets at the time of the sale. Family restaurant chain Skylark also came back to the table last June with Nomura’s help, successfully pricing a $656 million follow-on offering as Bain Capital sold off another chunk of its holdings.
BEST DCM HOUSE
It is a testing time for Japanese bond markets. With the BOJ’s surprise move to hit some bank deposits it holds with negative interest rates, the benchmark 10-year JGB headed into unheard-of negative territory. Navigating this and trying to help maintain an orderly flow of new issues has been our Best DCM House, Mizuho Securities.
The firm had the largest number of deals for the review period, according to Dealogic, with no less than 272 DCM deals in which it was bookrunner. With a total of ¥2.36 trillion, that gave it a 16.1% share in the No.2 slot behind Morgan Stanley.
With investors forced along the curve to find yield, Mizuho acted as co-lead manager to bring to market a ¥10 billion bond by West Japan Railway, the first-ever 40-year bond by a Japanese corporate issuer. With a coupon of just 1.575%, West Japan Railway was no doubt happy to lock in bargain rates running until after the century will hit its midpoint. Despite the inherent uncertainties of such a purchase, buyers lined up with demand nearly three-times supply. Life insurers took the lion’s share, at 74% of the total.
Other deals include acting as lead manager to help keep cash-hungry Softbank supplied with needed capital through a ¥370 billion domestic retail bond in November after a ¥100 billion issuance in June.
Mizuho was also active in the state-backed sector with a slew of bonds for the Japan Housing Finance Agency, which was tasked with helping to revive Japan’s housing market. The agency supports the issuance by the private sector of super-long 35-year housing loans. To help achieve this it went to market with 12 mortgage-backed security offerings in the fiscal year, along with 10 straight bond offerings with differing tenors.
BEST SAMURAI HOUSE
After it went green last year, our Best Issuer – once again Development Bank of Japan – has now stepped into sustainability. The state-backed group, one of the financing engines for the government, announced in October that it would launch its inaugural €300 million sustainability bond, the first-ever by a Japanese issuer.
For the DBJ, delving into the area of social responsibility is nothing new. Long before last year’s €250 million green bond, going back some 40 years, the DBJ has been involved with financing anti-pollution measures back, raising more than ¥3 trillion in investments and loans for environmental projects.
The bank saw the sustainability bonds not only as a responsible step to take but also as an opportunity to widen its investor base, especially in Europe. The four-year note carried a coupon of 0.375% with an A rating from S&P and an A1 rating from Moody’s, matching Japan’s (declining) sovereign rating.
Lead managers were Bank of America Merrill Lynch, Morgan Stanley, JP Morgan, and Goldman Sachs.
That is of course just one element of a diversified funding programme that looks to place approximately 30% overseas. For the 2015-16 fiscal year, the DBJ programme was for ¥150 billion in government-guaranteed foreign bonds, ¥200 billion in similar domestic bonds, and ¥400 billion in corporate issuance, matching the programme from the year before.
The bank’s future was also – it appears – finally settled this past year with plans for a long-delayed privatisation now effectively shelved. The move was not a huge surprise since the government had kept nudging forward the planned date, which was last set for around 2020. A new target date has not been set but cannot be before 2025.
The repeated delays reflect worries in the ruling party under Abe that a privatized DBJ will not provide the same support to domestic SMEs, a part of the government’s economic program and, of course to the ruling party’s re-election strategy.
BEST LOAN HOUSE
The firm was active in both equity and equity-linked deals, ranking No. 4 among law firms and rising to No.2 in terms of volume league tables.
The firm also advised on nine of Japan’s M&A deals for the year with an 11.7% market share.
As noted below, the Deal of the Year presented numerous challenges, such as how to write financial projections for businesses that the two subsidiaries, Japan Post Bank and Japan Post Insurance, are not even allowed to enter until the government’s ownership falls below the majority level. With the decision to sell the three groups at once, all of the legal work was effectively tripled.
It was just one of a string of high-profile clients for the New York-based firm whose recent history includes the invention of the leverage buyout and, in turn, the private equity industry. Kohlberg Kravis Roberts & Co., a client in the US way back in the mid-1970s, is still a client of Simpson Thacher & Bartlett’s Tokyo office, which represented portfolio company Panasonic Healthcare Holdings in its €1.02 billion acquisition of the diabetes business of Bayer.
Goldman Sachs is another frequent partner. In addition to its role in Japan Post, the US bank was a client for the sale of the majority stake in Universal Studios Japan to Comcast and the sale of HCC Insurance Holdings to Tokio Marine.
Simpson Thacher & Bartlett also advised Sony in its ¥300 billion offering of common stock and Sumitomo Life in its US$3.8 billion acquisition of Symetra Financial.
The positives are the hopes of the Japanese government and BOJ that the regional lenders will be at the vanguard of new lending to small-and-medium-sized enterprises across Japan to help them get moving and better compete globally. Policymakers worry that the regions outside of Tokyo, Osaka, Nagoya, and Fukuoka have lagged badly in the economic recovery and that the success of Abenomics rests on getting the whole country back on its feet.
As Moody’s noted in a November research report, Suruga benefits from a triple bonus of high profitability due to a unique business model, a strong risk appetite, and strong liquidity. “The profitability gap between Suruga Ban and its regional bank peers has been widening,” the ratings firm said.
The numbers bear out such confidence. Suruga’s net interest margin has risen to 1.44% while the average for Japanese regional banks has been sliding to just 0.25% as of the end of the previous fiscal year. The loan-deposit margin is similarly impressive, rising to 3.42%, while the average among its peers was down to 1.33%, Suruga said.
Deal Awards
Global Coordinators: Nomura, Morgan Stanley, Goldman Sachs, JP Morgan
Domestic Bookrunners: Nomura, Morgan Stanley, Goldman Sachs, JP Morgan, Daiwa, Mizuho, SMBC Nikko
International Bookrunners: Goldman Sachs, JP Morgan, Morgan Stanley, Nomura, Citigroup, UBS
From the outset the first step in privatising a national institution was bound to have a number of hurdles. The government needed a Goldilocks outcome, whereby share prices would rise by enough to show there was enthusiasm for the idea but not too much to suggest that the taxpayer had been taken for a ride.
So to the winners, we can only say, the cheque s in the mail.
Asahi Kasei’s legal adviser: Cleary Gottlieb Steen & Hamilton, Nishimura & Asahi, Hogan Lovells
Polypore’s financial adviser: Bank of America Merrill Lynch
Polypore’s legal adviser: Jones Day
In a transaction almost as complex as the company’s technology, Japan’s Asahi Kasei purchased Polypore for $3.2 billion, kept the battery business that fits its product line-up, while simultaneously selling off the filtration business to US industrial giant 3M for $1.0 billion.
The deal valued the company at $3.2 billion, representing a 24% premium over the weighted average price for the preceding 20 days to the transaction date in February 2015 with a closing date of August. To ensure there were no hitches, each of the agreements was conditional on the other being executed.
In the deal, Morgan Stanley advised Asahi Kasei while Bank of America Merrill Lynch was across the (three-sided) table to represent Polypore and Centerview Partners advised 3M.
With Japanese corporates still somewhat reluctant to take majority positions in other companies, often preferring a minority investment, the triple play could be a model for the future as companies seek new markets and new technologies to provide the edge in business.
Goldman Sachs legal advisers: Skadden Arps Slate Meagher & Flom, Simpson Thacher & Bartlett, Nagashima Ohno & Tsunematsu, Mori Hamada & Matsumoto, Nishimura & Asahi
Comcast’s legal advisers: Clifford Chance, Davis Polk & Wardwell
The natural urge would be to get out and bank the money. But another alternative was to double down and invest more in order to make Harry Potter appear, a move that turned the theme park into the hot attraction in Japan with attendance now soaring. The USJ team had seen what it could do for attendance figures after it debuted at the Universal Orlando Resort in Florida in 2010.
But the surprises were not over. On the way to a planned initial public offering for the now cash-generating operation, everything was up-ended, with the IPO yanked in favour of a 51%-stake sale to Comcast Corp., a unit of NBC Universal, in a $1.5 billion deal.
Given the state of the domestic bond market, it was probably not all that tough a sale since anything offering a positive return is starting to look good in Japan’s shell-shocked market.
Tokio Marine’s legal advisers: Sullivan & Cromwell LLP
HCC’s financial adviser: Goldman Sachs
HCC’s legal advisers: Willkie Farr & Gallagher
The deal was the biggest outbound transaction in 2015, based on Dealogic data, and one of the largest-ever Japanese cross-border acquisition in the financial services industry.
The June deal was sealed at a 37.6% premium to the HCC closing price at the time, with the premium due in part to a desire by Tokio Marine for exclusivity, according to a source familiar with the matter.
Legal advisers: Shearman & Sterling, Sullivan & Cromwell, Norton Rose Fulbright, White & Case, Milbank Tweed Hadley & McCloy
Multilateral lenders: Export Development Canada (EDC), the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC), the Export-Import Bank of the United States, the Export Finance and Insurance Corporation of Australia (Efic)
Participating Banks: BNP Paribas, ANZ, ING, Société Générale, Sumitomo Mitsui, Standard Chartered Bank, Canadian Imperial Bank of Commerce, Crédit Agricole, Intesa Sanpaolo, National Australia Bank, Natixis, HSBC, The Bank of Tokyo-Mitsubishi UFJ, KfW IPEX-Bank and Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden
The $4.4 billion package, which closed in December, was four years in the making. It was led by the big multinational export credit agencies, Export Development Canada, the World Bank’s International Finance Corporation, the European Bank for Reconstruction and Development, along with BNP Paribas.
In the four-part package, loans run from 12 to 15 years at rates of Libor plus 2.65% to Libor plus 4.65%.
Orix’s financial adviser: Bank of America Merrill Lynch, Rothschild
Vinci’s financial adviser: Morgan Stanley
NKIA’s financial adviser: Citigroup, SMBC Nikko
NKIA’s legal adviser: Anderson Mori & Tomotsune
Ever since the idea of a new airport serving Kansai in western Japan was literally floated (it sits on a floating island), New Kansai International Airport has been stuck in controversy. Seen as one of the big over-priced projects in the waning days of the 1980s bubble economy, it was assumed by sceptics that its optimistic traffic numbers would never be met and that its huge debts would never be paid off.
Things did indeed go badly. After rising for a few years after it opened in 1994, traffic began to fall off in the middle of the SARS crisis and international carriers began to desert. The airport had the unwanted distinction of having among the highest landing fees anywhere in the world. Even worse, the island was found to be sinking in 2000, requiring additional construction and yet more debt, which ballooned to ¥1.2 trillion.
Enter in December 2012 the Abe government, which wanted to make Kansai a centrepiece of its privatisation strategy. It needed a successful sale to show the overall programme would work, yet demanded a hefty ¥2.2 trillion deal that was a big multiple to pricing models used elsewhere.
Analysts estimated the asking priced was six times the price tag for similar rights at Portuguese airports agreed in 2013.
With this rather demanding mandate and a client hard to argue with, financial advisers Citigroup and SMBC Nikko had their work cut out for themselves. Other problems soon emerged. Since the airport is also used by Japan’s Self Defense Force, information that would be routine elsewhere (such as some terminal construction details) were found to be secret.
After an initial round of bidding, it didn’t look any better. Of the estimated 20 companies said to be interested (some reportedly strong-armed into taking part in the first place) only one remained – a partnership between French construction and public facility operator Vinci, advised by Morgan Stanley, and Japanese leasing and finances group Orix, advised by Rothschild and Bank of America Merrill Lynch, respectively.
As one banker said, how can you have competitive pricing with only one bidder?
With all this bad news, something had to go right. And it turned out that the cavalry emerged in the form of foreign tourism. Even the government’s ambitious foreign tourism target to double tourism flows by 2020 to 20 million annually was hit five years early, prompting the government to double the goal to 40 million. With most coming from Asia, Kansai is a convenient landing place near the hot ticket destination of Kyoto.
The Vinci-Orix led-consortium also appear to ably fit the bill for such a project. Vinci already has experience running 25 airports around the world. Orix, meanwhile, brings financial heft and a solid knowledge of how things are done in Osaka.
The 44-year lease, which also includes the smaller Osaka International Airport nearby, provides a lot of time for uncertainty, but assuming the airport doesn’t spring a new leak, it looks like this deal could be a win-win. At least it’s enough to win our innovative deal of the year award.
FinanceAsia will toast the winners at a cocktail reception in Tokyo on June 2.
This article has been corrected to show the adviser for 3M and correct the spelling of Anderson Mori & Tomotsune.
