Deals of the Year 2016 – Asia-Pacific

Bonds: Corporates 

WINNER: Huawei $1bn bond

Bookrunners: ANZ Banking Group, Standard Chartered Bank, Bank of China (Hong Kong), DBS

Huawei’s $1bn bond marked the Chinese telecoms firm’s debut US dollar transaction in the international capital markets. The deal was an important step towards diversifying the company’s funding sources and was seen as a trade to pave the way for more bond issuances by Huawei in the international capital markets. 

The bond stood out also because it was an unrated deal, making it the largest 10-year unrated corporate note ever printed by an Asia-Pacific borrower. 

Huawei’s bond gathered significant interest even before it was launched. The borrower received $2.5bn-worth of indication of interest before order books were opened. Once the deal was launched, demand was so strong that overall interest reached $9.2bn. This meant bookrunners were able to tighten the bond’s pricing from the initial price guidance of about 220 basis points (bps) over 10-year US Treasuries to 195bps over 10-year US Treasuries. The bond could have even been priced at 190bps over 10-year US Treasuries but Huawei was happy to give up on 5bps to help ensure long-term investor relationships. The bond was priced with a coupon of 4.125%.

Asian accounts took 77% of the book, with Europe taking the balance. Real money investors and fund managers dominated the deal, accounting for 58% of the book. Sovereign wealth funds and insurance took 35% and banks took 4%. Corporates and private banks took the balance.

The bond’s strong performance continued even after the deal was finalised. The following day, Huawei’s bonds gained more than 1bps despite the yield on 10-year US Treasuries jumping to its highest point since November 2014. 

Huawei Technologies is a Chinese multinational networking and telecommunications equipment services company. It is the largest telecoms equipment maker in the world.

Bonds SSA 

WINNER: South Korea Rmb3bn Panda bond

Bookrunners: Bank of Communications, Citi, Goldman Sachs, HSBC, Standard Chartered Bank

South Korea’s Rmb3bn ($464.2m) bond was a landmark transaction for the Panda market – a sector where renminbi bonds printed by foreign borrowers are sold to local investors.

The transaction was the first Panda bond printed by a sovereign issuer as well as the largest Panda offering to date. This was also the debut Panda note for the South Korean sovereign and pundits believe this will unlock future deals in this format for South Korean corporate issuers.

This deal was a key testament to the revival of the Panda bond market, which has grown considerably in terms of volume and in terms of types of issuers in 2015. New types of borrowers from new jurisdictions have been piling into the market in the past 18 months.

Demand for South Korea’s transaction leaves market participants hopeful for more bonds to be printed in this sector. Significant investor demand meant the note’s orderbooks reached Rmb12.48bn. The deal was 4.28 times over-subscribed. High-profile commercial and policy banks as well as securities houses and asset managers were the bond’s key investors.

South Korea’s note had a three-year tenor and offered a coupon of 3% – the lowest yield and coupon among all Panda notes. The bond priced at the tight end of the price guidance, which was initially set at 3% to 3.5%.

South Korea carried out roadshows in Shanghai and Beijing, including one-to-one meetings with 10 major investors in the China interbank bond market. According to the bookrunners, this kind of marketing prior to the transaction was unprecedented.

Capital Raising 

WINNER: China Life Insurance Company $1.28bn core Tier 2 capital securities

Bookrunners: BNP Paribas, CICC, Citi, Goldman Sachs, HSBC

China Life’s $1.28bn extendible 60-year, non-call five-year core Tier 2 capital securities marked the borrower’s inaugural international debt capital instrument as well as the first ever transaction to comply with the China Risk Oriented Solvency System (C-Ross) introduced in 2014.

The deal’s structure was unprecedented and pundits believe it could set a precedent for other Chinese insurers looking to execute similar transactions.

In order to qualify as core Tier 2 capital and to achieve an investor-friendly structure (since the perpetual maturity excludes a solvency ratio trigger), C- Ross requires core Tier 2 capital securities to be perpetual. China’s Company Law, however, does not allow Chinese companies to issue bonds without maturities. To get around this regulatory contradiction, the bookrunners created a ‘quasi-perpetual’ note, whereby the maturity is extendable every 60 years in case the bond is not redeemed at the redemption date. This effectively makes China Life’s bond a perpetual one, and makes it qualify as a core Tier 2 capital instrument under C- Ross. China Life is the first Chinese financial institution to issue bonds with an extendible structure.

Strong demand for the bond allowed China Life to tighten pricing. Initially, price guidance was set at 4.375%. But strong demand for the bond meant orders totalled more than $7bn. This allowed bookrunners to squeeze the coupon to 4%. 

Asian investors drove the transaction, taking 78% of the book. European buyers took the balance. In terms of types of investors, asset managers bought more than half of the bond at 52% and sovereign wealth funds together with insurance companies took more than a quarter at 27%. The rest was split among private banks, banks and other investors.

Equities 

WINNER: Haitong Securities $4.3bn private primary placement

Bookrunners: Haitong International, Macquarie, UBS, JPMorgan

The private placement of $4.25bn in Haitong Securities H-shares was impressive both for the size of the deal and for the transaction itself, which highlighted the growing expansion abroad by mainland China’s financial sector firms.

The Haitong Securities deal was the largest equity offering for a Chinese securities company at the time of pricing, as well as the second largest H-share private placement ever.

The transaction originated from reverse investor demand. Indeed, the bookrunners had already gathered almost $4bn of commitments from seven different investors by December 2014. The deal was completed in June 2015.

The transaction also included a particular price adjustment mechanism. If the 30-day average closing price prior to the day on which the last of the conditions was satisfied had been higher or lower than the reference price by 20% or more, then Haitong would have had the right to increase or reduce the subscription price by up to HK$1.56 ($0.20).

This mechanism allowed the bookrunners to achieve a deal of considerable size even before final approval, helping them to navigate a lengthy approval period.

The initial subscription price of HK$15.62 per share represented a 5% discount to the average closing price of the 30 trading days prior to the deal and a 16% discount to the closing price on the day before placing Haitong’s H-shares.

Testament to strong demand for the transaction, the offering size accounted for approximately 128% of the total H-shares issued by Haitong Securities.

Green Finance 

WINNER: IDBI Bank $350m green bond 

Bookrunners: ANZ Bank, BNP Paribas, Citi, HSBC, JPMorgan, Standard Chartered Bank

The IDBI Bank green bond marked several firsts in the market. It was the bank’s first US dollar green bond as well as the first green note printed by an Indian state-owned commercial bank.

This transaction marked an important moment for India’s capital markets as well as the country’s move towards promoting green financing and a green economy, as India is the fourth largest polluter in the world. But in a supportive policy move, the Reserve Bank of India (RBI) allowed local banks to issue infrastructure and green bonds in 2014. IDBI Bank’s bond is a product of this regulatory reform. After this deal, IDBI Bank announced it will provide an annual green bond report outlining its new green bond programme.

The bond’s proceeds will be used to finance or refinance loans to projects in six eligible green categories set by the RBI. These loans will be allocated to either existing or brand new projects in the renewable energy, energy efficiency, sustainable water management, sustainable waste management, sustainable transport and sustainable land use sectors.

Demand for the note was considerable. Orderbooks grew to $1bn thanks to interest from 110 investors. The note was priced at a spread of 255 basis points (bps) over the five-year Indian Treasury and with a coupon of 4.25%. Strong investor interest meant the transaction was priced 2bps through IDBI Bank’s existing curve. 

Asian investors took the lion’s share of the transaction, accounting for 82% of book. Europe took the rest. In terms of investor type, fund managers drove the deal, taking half of the orderbook, while banks and private banks accounted for 28% and 17%, respectively. Corporates and other investors accounted for the rest of the book.

Infrastructure and Project Finance 

WINNER: Track 3B coal-fired power plant financing

Bookrunners: CIMB, HSBC, Maybank

This deal involved RM8.98bn ($2.34bn) in sukuk financing for Malaysia’s Track 3B independent power producer – a 2000-megawatt coal-fired power plant in Negeri Sembilan, Malaysia. The project will help substitute first-generation existing power plants when their power purchase agreements expire. 

The project involves the design, development, construction, operation and maintenance of the coal-fired power plant and is being implemented through operator Jimah East Power.

The engineering procurement construction contract involves IHI, Toshiba and Hyundai. They will be developing the project using ultra-supercritical technology that is set to create some of the most efficient coal-fired power plants in the country.

The project’s off-taker (the party that will be purchasing the plant’s future energy production) is Tenaga Nasional Berhad (TNB), the national utility company. TNB acquired 70% of the equity interest in the project company (Track 3B) in July 2015. TNB joined Mitsui & Co through its wholly owned subsidiary 3B Power as a sponsor for the project. 

The sukuk included RM5.25bn in private placement tranches and RM3.73bn in publicly issued tranches. The former attracted more than 50 investors, with a final orderbook coming to more than RM10.8bn.

The deal broke a number of records. It was the largest ever greenfield project bond in the power sector as well as the largest independent power producer (IPP) financing in Asia-Pacific. The RM8.98bn deal was also the largest sukuk in the world in 2015. 

What is more, senior debt financing for this project included an AA- rated sukuk with a tenor of up to 23 years – the longest ever rating for an AA- domestic rated Islamic project bond in the Malaysian IPP sector.

Islamic Finance 

WINNER: Khazanah Nasional Berhad RM100m sustainable and responsible investment sukuk

Bookrunner: CIMB

Khazanah Nasional Berhad, the strategic investment fund of the government of Malaysia, printed the first ever sustainable and responsible investment sukuk in June 2015.

The RM100m ($26.1m) seven-year note is part of the RM1bn Ihsan Sukuk Berhad programme – the first programme approved under the Securities Commission Malaysia’s Sustainable and Responsible Investment Sukuk framework. 

This new sukuk format ensures that the trade’s proceeds are used for socially responsible and sustainable projects. The proceeds of Khazanah Nasional Berhad’s note will be used to transform schools that participate in the Yayasan AMIR’s Trust Schools Programme. This is a not-for- profit foundation set up by Khazanah to make high-quality education more accessible among Malaysia’s state-owned schools through a public-private partnership with the ministry of education. 

The social impact of the transaction will be measured through a range of performance indicators that will be assessed over a five-year period. If these indicators are met, the sukuk holders will forgo 6.22% of the deal’s nominal value at maturity as a form of social obligation, according to the bookrunners. If the performance indicators are not met, the sukuk holders will be entitled to the nominal value due under the sukuk in full at maturity. 

This structure, which is driven by performance indicators, is the first of its kind in the ringgit sukuk market.

The sukuk was priced with a coupon of 4.3% via an accelerated bookbuilding process. The note was fully subscribed.

Corporates and banks accounted for most of the sukuk’s orderbook at 30% and 27.5%, respectively. Asset managers followed at 23% and government pension funds took 17% of the deal. Foundations took the rest. 

Leveraged Finance 

WINNER: Asia Satellite 

Communications $736m leveraged buy-out

Bookrunners: CTBC Bank, Cathay United Bank, Mega International Commercial Bank, ING Bank

Asia Satellite Communications’ deal stood out for a particular structure set up by a number of banks to meet local regulatory requirements as well as the sponsor’s needs.

The leveraged buy-out (LBO) was split into four facilities: a share purchase agreement $296m term facility, a mandatory general offer $200m short-term facility, a $200m term dividend facility and a $40m revolving facility. After the deal, Chinese government-backed Bowenvale owned 74.43% of Asia Satellite Communications while the balance was publicly owned. Bowenvale was originally a joint venture between General Electric (GE) and China’s government-backed Citic Group (whose stake is 50.5%). Thanks to the LBO, Carlyle Group was able to buy GE’s 49.5% stake through a special purpose vehicle.

Unlike most LBO financing, in Asia Satellite Communications’ deal the sponsor did not acquire a controlling stake of more than 50% in the target company, which is typically not preferred by financing banks. 

The banks also faced a challenge in dealing with Asia Satellite Communications’ pre-existing credit lines with Export-Import Bank of the United States (EX-IM). The terms of EX-IM credit facilities were generally favourable to the borrower, meaning Asia Satellite Communications was keen to maintain them. This, however, could have generated tension among the deal’s lenders. So, the arranging banks balanced the interest between the lenders of EX-IM credit lines and the deal’s dividend facility to allow the firm to keep both facilities while easing lenders’ concerns over potential conflicts of interest. 

The deal is also testament to Taiwanese banks looking to expand and carry out services abroad to escape a local saturated market. This is the first time Taiwanese banks have executed this kind of transaction for a Hong Kong-listed company.

Loans 

WINNER: Loan to Monde Nissin Corporation for the acquisition of Quorn Foods

Bookrunners: First Metro Investment Corporation, Banco de Oro Unibank, Bank of Philippines Islands

The £550m ($791.9m) loan to Monde Nissin to complete the takeover of Quorn Foods was a significant transaction as it underscored a new trend in Filipino capital markets. A growing number of Filipino conglomerates are buying foreign assets. Indeed, Philippines’s overseas mergers and acquisitions (M&A) volumes hit record highs in 2015. 

After enjoying several years of strong growth and a solid economic landscape, Filipino firms are ready to put their large balance sheets to work. Monde Nissin’s acquisition of UK-based meat substitute product company Quorn Foods for £550m is one of the deals underscoring this trend. 

Monde Nissin’s bid beat a range of global companies, including Danone, McCain Foods, Kerry Group, Nomad Foods and the WhiteWave Foods Company. The Filipino company was keen to buy the UK-based firm as it will help it expand into food categories that focus on health and sustainability.

The transaction also marked Monde Nissin’s first cross-border acquisition out of the Australasia region – now that Filipino companies’ balance sheets have ballooned, these firms are increasingly keen to buy assets outside their home region. The deal was also the third largest overseas M&A transaction executed by a south-east Asian company. 

Monde Nissin is the leading manufacturer of branded instant noodles in the Philippine market as well as being the largest biscuit company in the country. Earlier in 2015, it bought Australia’s Black Swan, a brand of chilled dips, as well as premium juices producer Nudie.

M&A 

WINNER: Privatisation of the National Power Construction Corporation of Pakistan

Advisers to government of Pakistan: MCB Bank, United Bank

The privatisation of National Power Construction Corporation – established in 1974 by the government of Pakistan to execute power-engineering projects – marked a key transaction for the country’s leaders as well as for its economy as a whole. Indeed, the state is working to scale back its presence in a number of sectors to increase competitiveness and efficiency in the local market. 

With this deal, the Pakistani government was keen to restore investor confidence in the country’s assets and privatisation programme. This transaction was the first strategic sale executed by the government since 2008.

The deal also helped the government of Pakistan meet the targets set by the extended fund facility it was granted by the International Monetary Fund (IMF). The facility was extended to the state under the condition that the budget deficit would drop. The state is now using its privatisation programme as a means to meet the IMF’s budget deficit reduction targets. 

Indeed, the NPCC deal advisers were pressed for time as the transaction needed to be completed before the IMF quarterly review of September 2015. The sale of 88% of the government of Pakistan’s NPCC shares totalled Rs2.5bn ($24.5m) for a share price of Rs1420. The sale price exceeded the government’s expectations by 27%.

The deal was also impressive because the state had attempted the same transaction in years previous to no avail. This was the seventh attempt at selling NPCC shares, which meant the state and the advisers came up against somewhat weak investor confidence in the government’s privatisation efforts when executing the deal.

To make the transaction successful, the financial advisers looked for investor interest outside of Pakistan’s borders. To do this, the banks organised one-to-one meetings with potential buyers in the Middle East, as well as roadshows in Saudi Arabia. 

Restructuring 

WINNER: Berlian Laju Tanker debt restructuring 

Adviser: Houlihan Lokey 

Berlian Laju Tanker (BLT) is an Indonesia-based shipping company that provides chemical, gas and liquid cargo transportation services worldwide with a fleet of 44 vessels.

At the peak of the shipping market in 2007, BLT borrowed $850m to fund its acquisition of Chembulk Tankers. However, BLT defaulted in early 2012 and was forced into the Indonesian Suspension of Debt Obligation programme. BLT exited this programme in 2013, when Indonesian bankruptcy regulation changed. As a result, the new regulation amended and extended nearly all of BLT’s debt for 10 years and capitalised interest in the short term. 

The new regulation, however, did not address BLT’s $582.8m mandatory lead arranger (MLA) debt. Despite restructuring the terms of its debt under Indonesia’s new bankruptcy code, BLT remained highly levered. So, in April 2015, BLT entered into a restructuring support agreement with a majority of the MLA bank lenders whereby all of the assets that constituted MLA collateral were transferred to MLA bank lenders, in exchange for releasing all of their secured claims against BLT. 

These assets are now bundled into a new entity, NewCo, whose common equity is 100% owned by MLA bank lenders. Assets include 27 collateralised BLT vessels, BLT’s Chembulk Trading II shares and all the assets of BLT’s 27 vessel-owning subsidiaries. BLT received preferred redeemable equity interests in NewCo of $10m.

Once NewCo was established, it issued $185m in debt to MLA bankers in the form of take-back debt as well as $40m of new bank debt in exchange for new capital injections. NewCo is now set to access equity and debt capital markets to invest in the chemical tanker market at a time when asset prices are highly attractive. 

Securitisation and Structured Finance 

WINNER: Kookmin Bank $500m covered bond

Bookrunners: BNP Paribas, Citi, Société Générale

Kookmin Bank’s $500m note was the first ever covered bond issued to come out of South Korea under the government’s new act regarding the issuance of covered bonds.

The bond was printed under Kookmin Bank’s global covered bond programme, which is the first legislative covered bond programme in Asia-Pacific outside of Australia and New Zealand.

This programme is key for the South Korean lender as it helps to diversify its funding sources through longer term instruments. It also allows the bank to optimise funding costs as it can now print both public benchmarks as well as private placements of legislative covered bonds. These covered bonds have statutory preference under South Korea’s new covered bond regulation over a single cover pool of prime South Korean residential mortgage loans. This could be key in attracting strong investor demand as South Korean mortgage loans are largely seen as a solid financial instrument. Indeed, Kookmin Bank has already printed a second covered bond – a $500m note – in January 2016. 

Strong demand for the 2015 transaction meant the spread could be squeezed from an initial price guidance of basis points in the low 90s over mid-swaps to a final mark of 90 basis points over mid-swaps. The five-year bond carried a coupon of 2.125%. 

Considerable investor interest also drove orderbooks to $800m, with 32 accounts piling into the bond. US buyers dominated the trade to make up 51%, while Europe, the Middle East and Africa buyers took up 38% of the deal and Asia took the rest. Such strong participation by non-Asian investors for a new type of bond printed by a South Korean bank is testament to the success of this trade. 

In terms of investor type, funds and asset managers accounted for most of the bond’s orders at 40%, followed by central banks and sovereign wealth funds at 32%. Banks took up 19% and pension funds and insurance companies took the rest.