The past 12 months have been turbulent for the banking sector. Despite the consequences of the credit crunch on structured credit models and transaction flows, both international and local banks have once again brought an impressive number of deals to the attention of The Banker’s judges. The global, regional and country winners have been picked from the 447 transactions submitted from 93 countries around the world.
GLOBAL WINNER: NETHERLANDS
The Deal:RBS, Fortis and Santander’s €71.1bn acquisition of ABN AMRO
Merrill Lynch was exclusive financial adviser to the consortium (RBS, Fortis and Santander). The bidders’ in-house teams also worked on the transaction; Greenhill and Fox-Pitt Kelton provided additional advice to Fortis while NIBC Bank provided additional advice to Santander; UBS, Morgan Stanley, Lehman Brothers and Rothschild advised ABN AMRO; Goldman Sachs was exclusive financial adviser to the supervisory board of ABN AMRO.
Completed just as the credit crunch was taking hold of the financial markets, the acquisition of ABN Amro by a consortium formed by RBS, Santander and Fortis was fought long and hard.
Initiated by the activist hedge fund The Children’s Investment Fund, the bidding battle saw an initial offer from the UK’s Barclays Bank, which ABN Amro viewed favourably, against the groundbreaking deal proposed by the RBS-led consortium. The success of the RBS, Fortis and Santander’s joint bid has to be credited not only to the sound strategy put together by their advisers, but also, and perhaps more importantly, to the tenacity of the consortium members.
The deal secured a higher price for shareholders (a 3% premium on the bank’s mid July share price) and resulted in the largest ever acquisition in the banking sector. This is also the first consortium bid in a transaction of this size, and the first bid and consequent break-up plan for a bank, a type of company usually protected by regulators. The deal also had the largest cash component in a merger and acquisition (M&A) transaction (€67bn) and the largest ever equity issue in the financial services industry in Europe (€6bn Tier 1 securities).
ABN Amro’s history can be traced back to 1824, and, as the leading bank in The Netherlands, it has played an important role in the country’s financial system. Therefore, beside the support of the ABN Amro board for the rival offer, the consortium had to face opposition from politicians and unions in the Netherlands, and had to overcome issues posed by the Dutch stock market’s regulator. Dealing with corporate and public acceptance and solving financial market rules jigsaws must have caused some sleepless nights for the consortium’s teams and has made the deal even more exceptional.
Although it will take several years before it can be judged whether the RBS-led consortium has made a true success of the acquisition, particularly with current turbulent market conditions, the transaction has the requisites to create substantial synergies and add value to each of the acquirers’ business thanks to ABN AMRO’s global range of businesses.
The deal sees RBS acquiring the wholesale activities and Asian business, and receiving the cash proceeds of the LaSalle sale, which was part of the Barclays’s offer, for €27bn. Spain’s Santander acquired Latin American and Italian activities and consumer finance operations for €20bn. Antonveneta, the Italian bank for which ABN Amro won a lengthy, disputed battle just a couple of years ago, was then sold to Monte dei Paschi di Siena for €9bn. Fortis, ABN AMRO’s Benelux rival, acquired the Dutch retail business, private banking and asset management for €24bn.
REGIONAL WINNERS:AFRICA/ SOUTH AFRICA
The Deal:Industrial and Commercial Bank of China’s R36.7bn acquisition of 20% of Standard BankAn in-house team and Deutsche Securities advised Standard Bank; Goldman Sachs and ICEA Capital advised ICBC. In October 2007, ICBC, the world’s largest bank, paid R36.7bn ($5.24bn) for a 20% stake in Africa’s biggest bank, Standard Bank. It was a landmark transaction that signified the dawn of a new age in Chinese-African relations. It was the largest ever investment by a Chinese company and the biggest foreign direct investment ever made into Africa. The deal gives ICBC direct access to Standard Bank’s enormous customer base, which spans 18 countries across Africa. The deal was broken down into two parts. ICBC bought R15.9bn of new shares offered by Standard Bank and R20.7bn of existing stock from shareholders. The Chinese bank paid $104.58 per share for the existing stock, which was a 30% premium to the volume weighted average price prior to the deal’s announcement. The average price ICBC paid for each Standard Bank share was R120.3, which was 3.9% more than Standard Bank's record share price before the purchase. It was considered at the time a reasonable price to pay compared to global standards. The price paid was 14.4 times earnings, which was well below the 20.7 ratio for an MSCI index of emerging-market financial stocks.
ASIA/ INDIAThe Deal:Guru Gobind Singh Refineries’ Rs137.89bn Project FinancingSBI Capital Markets was mandated sole arranger for debt and financial advisor; State Bank of India lead the lending consortium which comprised 26 banks and financial institutions.The largest public-private partnership in India, this transaction has achieved great results for both the client and the country’s economy. India is growing as a refinery hub, taking advantage of the limited capacities being added in the US and Europe. The deal is the largest foreign direct investment in India and the largest industrial project in the Punjab province. The project is part of a boom in infrastructure and resources development in the country, which has drained the local banks’s liquidity. Despite such constraints and the significant size of the deal, the Rs79.93bn ($2bn) debt syndication was oversubscribed and the book closed in a record time. The pricing was also favourable and the deal obtained the lowest possible rates considering the 14-year tenor of the loan. Technically complex, the transaction was modelled on a non-recourse basis as a perfect project finance structure. As with all good project finance deals, the structure also allowed the client to refinance debt at a lower cost once completion risk is over.
AMERICAS/ MEXICOThe Deal Red de Carreteras de Occidente’s MXP37.1bn infrastructure privatisationLead managers and bookrunners were HSBC, Santander, NordLB, Dexia and Banorte. Inbursa, Banbras, ING and WestLB were mandated lead arrangers; Goldman Sachs provided financial advice.The 30-year concession to operate and manage a package of four toll roads in Mexico was the first concession to be bid out by the federal government to private investors under its Programa de Aprovechamiento de Activos, and the largest infrastructure finance project in the region. The seven-year callable loan – a so-called mini-perm financing – is neither a bridge loan nor a permanent, long-tenor facility, but is designed to give the borrowers maximum flexibility to secure long-term funds. This deal (which bookrunners managed to distribute in the midst of the subprime meltdown) represents the first large-scale use of the mini-perm structure and the largest Mexican peso loan ever to a private borrower. Crucially, the success of this deal ensures that infrastructure projects in emerging markets, where development had been constrained by limited local currency financing, will be more attractive. Moreover, it provides a blueprint for vital infrastructure funding and opens the door for other large-scale local currency privatisations in Mexico and the region. The Mexican government, for example, has already identified 11 other potential privatisations.
EASTERN EUROPE/ CROATIAThe Deal:Hrvatske Telekomunikacije’s HRK7.6bn IPO on Zagreb and London stock exchangesHrvatska Postanska Banka (HPB) and Erste Banka were domestic lead managers while JPMorgan was the global co-ordinator.Croatia’s largest ever IPO (€1bn) had been long awaited. Originally postponed from 2000, when the bursting of the global technology and telecoms bubble deterred the government from proceeding, the credit crunch in mid-2007 threatened to derail the process again. This time, however, the offering went ahead, and the confidence proved justified. The Croatian government had originally planned to list a 25% stake (from its 42% holding), but following the bookrunners’ reports of substantial demand from foreign institutional investors, the government passed a resolution allowing a further 7.5% to be added to the IPO. Even after this decision, the IPO was twice oversubscribed, as investors focused on company fundamentals and the management expertise of Deutsche Telekom, which holds a controlling 51% stake in Hrvatske Telekomunikacije (HT). The book-build was completed in late September 2007, and HT’s shares and London GDRs began trading on October 5. To add to the complexity of the deal and the total demand, the government had decided that all Croatian citizens had the right to submit preferential bids for HT shares, for up to HRK38,000 (€5200) each. HPB and Erste used their whole local distribution network to cater for this retail demand, and developed a new IT application specifically for processing all the preferential bids.
MIDDLE EAST/ UNITED ARAB EMIRATESThe Deal:Merger of Emirates Bank International and National Bank of Dubai to form Emirates NBDGoldman Sachs acted as lead financial advisor to the joint steering committee of EBI and NBD established in connection with the merger. Morgan Stanley and Lehman Brothers were fairness opinion advisers to the board of NBD.The merger of EBI and NBD to form Emirates NBD creates the largest banking institution in the MENA region and a true UAE champion. With combined assets of $48.5bn at Q1 2007 and combined equity of $4bn, the merged entity is in a better position to seize opportunities and compete effectively with other large regional and international banks through increased financial strength and scale.The agreement of July 12, 2007 provided an implied ownership split of EBI 66.3%/NBD 33.7%, with Emirates NBD majority owned by the Dubai government with a 55.8% stake. The board of the new entity is split with six members from EBI and six from NBD with the chairman and CEO coming from EBI. The combined entity will have a 19.2% market share by assets and almost a fifth of corporate loans.
