Deals of the Year 2014 – Asia-Pacific

Bonds: corporates 

WINNER: SoftBank Y370bn retail and institutional bond 

Bookrunners: Daiwa, Deutsche Bank, Mizuho, Morgan Stanley, Nomura, Sumitomo Mitsui

HIGHLY COMMENDED: Hutchinson Whampoa €1.75bn hybrid bond

In a landmark transaction, SoftBank, a Japanese telecoms provider, paid $21.6bn to acquire a majority stake in US mobile operator Sprint Nextel last year (see Americas M&A deal). Its bid was contested, and so SoftBank had to increase its offer. This huge bond issue, which included Japan’s largest ever retail straight bond offering, was designed to raise some of the necessary funding. 

The deal was launched in February 2013, some months before the merger and acquisition transaction completed in July. At the same time, JCR, the Japanese rating agency, placed SoftBank on “rating monitor with negative implications” in the light of the impending acquisition. That made it more difficult for investors to evaluate the issuer’s credit. As a result, the retail element of the transaction required particularly sensitive treatment in structuring the product and in disclosure, according to the bankers.

Nomura acted as top left joint lead manager on the offering. Initially, this was targeted at retail investors only but, once it had been announced, the demand from institutional investors was so strong that the issuer decided to add a wholesale tranche.

The bonds eventually received an A rating from JCR, and investors took some comfort from the agency’s announcement that any downgrade of the issuer’s rating was likely to be limited to one notch. 

In the retail tranche, the issuer printed Y300bn ($2.93bn) with a 1.47% coupon and a four-year maturity. The size of the institutional tranche, which also had a four-year tenor, was Y70bn, with a 1.467% coupon. The wholesale slice was eventually two times over-subscribed, which, the bankers say, demonstrated how the domestic plain vanilla bond market was recovering.

SoftBank was so satisfied with the success of this transaction, particularly on the retail side, that it returned to market with another retail offering in June – this time for Y400bn.

Bonds: SSAs 

WINNER: Republic of the Philippines $1.5bn bond

Bookrunners: ANZ, Citi, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, Standard Chartered

HIGHLY COMMENDED: Republic of Korea $1bn bond

This was Republic of Philippines’ inaugural deal as an investment-grade issuer, and it was mobbed. After more than a decade of fiscal reform, both Fitch and Standard & Poor’s upgraded the Philippines to a BBB- rating in the first half of 2013. Moody’s followed with its own investment-grade rating in October. The market then awaited the sovereign’s first subsequent outing to cement its new status. 

The Philippines had not issued in US dollars for two years, but it has traditionally issued in January, so it was not entirely surprising when it launched a 10-year US Securities and Exchange Commission-registered dollar issue in January this year. The timing took into account the rising interest rate environment while reflecting a desire to get ahead of competing supply.

ANZ was joint lead manager and bookrunner on the deal, which had the added complication of including a liability management exercise. Indeed, it was originally going to be restricted to liability management, with only a $1bn buyback of US dollar bonds maturing between 2015 and 2025. But demand during bookbuilding was so overwhelming that it was decided to add $500m for new money purposes. The president of the Philippines had to sanction the increase in deal size personally. 

Thanks to demand, the initial guidance of 4.5% area was tightened to final guidance of 4.25% area (plus or minus five basis points) and ultimately priced at 4.2% – 30 basis points tighter than the initial guidance. The final order book was nine times oversubscribed, having pulled in $13.5bn of demand from more than 500 investor accounts. US investors took more than half of the paper (53%), while Asia bought 28% and another 19% went to Europe. Bankers point to a ‘quality investor mix’, consisting of 72% funds, 24% banks and 5% insurance accounts. The bond has traded well in the aftermarket.

Equities 

WINNER: China Cinda Asset Management $2.5bn IPO

Bookrunners: Agricultural Bank of China, Bank of America Merrill Lynch, Bank of China, Bank of Communications, China Cinda Asset Management, China Construction Bank, China International Capital Corp, China Merchants Bank, Citic Securities, Credit Suisse, Goldman Sachs, Industrial & Commercial Bank of China, Jefferies, Morgan Stanley, Standard Chartered, State Development & Investment Corp, UBS

HIGHLY COMMENDED: Bt6.3bn Amata Grimm Power Plant Infrastructure Fund

This was Hong Kong’s largest and Asia-Pacific’s second largest initial public offering (IPO) of 2013 and, on its debut, it had the biggest gain among large new stocks in over two years. China Cinda is one of four bad banks set up in 1999 to buy non-performing loans from Chinese state-owned banks prior to their listings. It was obliged to acquire the loans at par, and is also heavily exposed to Chinese real estate, which prompted one blogger to ask: “Is this the worst IPO ever?” Certainly, it was hotly debated in Hong Kong, where it was duly listed.

The bank has other businesses, however, including the successful Ping An Insurance Group, and its attractions clearly outweighed its negatives, as the outcome would demonstrate. The offer was built around 10 cornerstone investors, who subscribed for a combined $1.1bn of the shares, promising not to sell for six months.  

The institutional order book was able to close a day early and was more than 50 times covered, with $45bn in subscriptions. The retail offer was 161 times oversubscribed, with $20bn of demand, thus triggering a clawback which raised the retail allocation from 5% to 20% of the whole.

The deal was priced at the top of the HK$3.00 ($0.39) to HK$3.58 price range and, after exercising a greenshoe option, China Cinda raised $2.8bn. As the first of four bad banks to list, it gained first-mover advantage, uncovering a pool of investors keen to tap into Chinese distressed debt opportunities. Until now, these had been difficult for private investors and small companies to access.

On the first day of trading, the shares opened at HK$4.40 and closed at HK$4.50, up more than 25% from the IPO price. 

FIG capital raising 

WINNER: UOB S$850m Basel III-compliant bond

Bookrunners: ANZ, HSBC, Nomura, Standard Chartered, UBS, UOB

HIGHLY COMMENDED: Bank Berhad RM750m subordinated bond

This was the first Basel III-compliant additional Tier 1 issue in all of Asia, allowing United Overseas Bank (UOB) to present itself as a proactive leader in embracing regulatory change. As such, it was enthusiastically received in its domestic market and tightly priced. 

The perpetual deal, non-callable for the first five years, was launched in July 2013, in a particularly challenging atmosphere for emerging markets. Shortly before, then-Federal Reserve chairman Ben Bernanke had indicated that tapering of quantitative easing was not too distant. In emerging markets, including Singapore, currencies were sold off and interest rates hiked. Only one bond had been priced in Singapore dollars in the previous month, given the unfavourable rates backdrop and the general uncertainty and volatility.

The hybrid bonds were non-cumulative and included a dividend stopper and a five-year reset. Loss absorption took the form of a permanent write-down of principal, with an allowance for partial write-down without an additional CET1 trigger. This combination gave investors the greatest amount of comfort, according to the bankers. 

The deal was skilfully navigated through the choppy rates environment to achieve competitive pricing against old-style comparables, and the implied Basel III premium was only around 45 basis points. Finding fair pricing proved to be a challenge, but after careful planning the deal went out with initial guidance in the 5% area. In spite of the unfamiliar structure, the order book drew in bids of S$2bn ($1.59bn) from about 80 accounts, which allowed final pricing to be tightened to 4.9%. The size of the transaction was increased accordingly from S$750m to S$850m. 

The vast majority of the paper – 93% of it – went to Singapore, and the yield pick-up attracted many of the local private banks. They took 74% of the deal, and the bond traded up the following morning.

Infrastructure and project finance 

WINNER: $730m Banten Power Plan  project financing

Bookrunner: CIMB, Citi, Malaysia Exim, Maybank, RHB

HIGHLY COMMENDED: A$811m New Bendigo Hospital

Coal may be a step back in terms of power generation, but the financing of 75% of the $998m Banten power plant was a step forward for Indonesia on several fronts. The national power company PLN tendered a 25-year build-operate-transfer proposal for the plant, with Malaysia’s Genting leading the winning consortium.

This was Genting’s first move into Indonesia’s power market, and also its first partnership with a Chinese company – Harbin – to provide engineering, procurement and construction. Indeed, it was the first major deal for any independent power producer in south-east Asia involving a Chinese contractor. Moreover, PLN’s 25-year power purchasing agreement (PPA) did not carry a financial guarantee from the Indonesian government – also the first time such a deal had been struck.

The deal thereby pulled together three of the most important Asian markets – Indonesia, Malaysia and China – for both the construction and the financing of infrastructure. The absence of a government guarantee obliged potential lenders to analyse the project credit risk on a standalone basis, with no precedents to build on. Yet the deal pulled in a club of Malaysian relationship lenders plus Citi as mandated lead arrangers. And they had to make those calculations on a deal that closed in July 2013, at a time when the prospect of a turn in the US interest rate cycle was putting depreciation pressure on the Indonesian rupiah. Malaysian and US lenders had to coordinate carefully to hedge out currency risks while keeping to Indonesian regulatory requirements.

The project’s appeal was helped by a reliable loan structure, with the commercial loan tranche of $504m maturing in 11.5 years. That gave lenders the comfort of knowing there was a significant cushion between the loan maturity date and the end of the 25-year PPA. Moreover, Malaysia’s state export-import bank (Exim) chipped in with a $200m tranche, which at 17 years provided the project with a longer piece of financing to complement the commercial deal.

Islamic finance 

WINNER: Cagamas Berhad RM3.8bn sukuk

Lead managers: AmInvestment Bank, CIMB, Maybank, RHB

Cagamas Berhad’s $1.2bn equivalent multi-tranche Malaysian ringgit sukuk was Asia-Pacific’s largest sukuk of 2013. It also represented the single largest ringgit bookbuilding exercise to date. 

Cagamas – the national mortgage corporation of Malaysia –promotes residential housing finance and the development of the secondary mortgage market. To fund its loans and debt acquisitions, it borrows via bonds, discounted notes and Islamic securities. As such, it is the leading issuer of AAA debt securities in Malaysia as well as one of the top sukuk issuers in the world.

This deal was executed in the context of the issuer’s RM40bn ($12.25bn) Islamic/conventional medium-term note programme, and was structured as a sukuk commodity murabaha. It consisted of eight different tranches, with tenors ranging from one year to 20 years, and profit rates from 3.4% to 5%. 

In spite of the challenging market environment, robust demand saw the book approach a subscription rate of more than three times. In response, the deal size was increased from its original RM2.5bn to RM2.8bn. The one-day accelerated bookbuild served as testament to the corporation’s strong credit, according to Cagamas CEO Chung Chee Leong. That, and the overwhelming support of investors, resulted in most of the tranches being priced at the low end of the price guidance.

The transaction was the largest single issuance in Cagamas’ 26-year history, and notched up a number of other firsts. It was the single largest issuance from Cagamas via a bookbuilding exercise; the single largest AAA rated sukuk commodity murabaha issuance of the year; and the single largest ringgit bookbuilding exercise done all year.

Banks took 42% of the issue, followed by government agencies with 32%. Insurance companies accounted for 15%, local fund managers 8%, foreign fund managers 2% and corporates 2%. But the success of the deal also had a wider influence. Bankers said that it restored investor confidence and brought liquidity back to the bond market in spite of the uncertain conditions then prevailing.

Loans 

WINNER: Alibaba $8bn syndicated loan

Bookrunners: ANZ, Bank of China, Citi, Credit Suisse, DBS, Deutsche Bank, Goldman Sachs, HSBC, ING, JPMorgan, Mizuho, Morgan Stanley, Royal Bank of Scotland, BNP Paribas, Bank of East Asia, Bank of Taiwan, Citic Group, Mega International Commercial Bank, Ping An Securities, Société Générale, China Merchants Bank

HIGHLY COMMENDED: Focus Media $1.5bn acquisition loan

Few categories had such a head-and-shoulders winner as this one. Alibaba’s $8bn syndicated loan broke almost every record in the region including, quite simply, being the largest ever US dollar syndicated loan in Asia. 

The deal demonstrated the depth and strength of the loan market for borrowers with good credit profile. Alibaba is China’s largest internet company and recently announced its intention to list, not in Hong Kong, but in the US. The company made its syndicated loan debut in 2012 and has $4bn of existing debt. This latest jumbo loan was designed partly to refinance that debt as a prelude to the initial public offering.

The loan consists of $6.5bn in senior-term loan facilities and a $1.5bn revolver. The number of lenders matched the size of the transaction. A group of five banks started discussions with Alibaba, and was later expanded to nine mandated lead arrangers and bookrunners. They were joined by 13 general syndication participants to raise $3.8bn – a record for general syndication response in Asia.

Execution was speedy, to say the least, with signing completed in the record timeframe of five weeks from kick-off. Other superlatives included being the largest ever US dollar syndicated loan by a Chinese issuer, and the largest syndicated loan ever issued by any internet company anywhere. 

The lenders took comfort from Alibaba’s growth in size and scale – it has 440 million registered users and a 95% share in China’s online shopping market, and 40% of its online business-to-business market – and the fact that it has become a recognised name in the bank market. The deal broke the traditional Asian barrier of asset-light business model syndicated loan financing, bankers said.

M&A 

WINNER: Bank of Ayudhya $5.3bn 72% takeover by Bank of Tokyo-Mitsubishi UFJ

Advisors to Bank of Tokyo-Mitsubishi UFJ: Bank of America Merrill Lynch, Phatra Securities

Advisors to Bank of Ayudhya: Advisory Plus Co, Deutsche Bank, Morgan Stanley

HIGHLY COMMENDED: Citic Securities acquisition of $310m 20% stake in CLSA

Bank of Tokyo Mitsubishi UFJ (BTMU) became the first Japanese bank to gain control of an Asian lender when it acquired 72% of Thailand’s Bank of Ayudhya for Bt170bn ($5.3bn). Not only was this the sole outright acquisition of a non-distressed Thai bank by a foreign strategic partner, but it was also the largest bank merger and acquisition transaction in south-east Asia. 

While Thai regulations limit foreign ownership of healthy banks to 49%, exceptions are permissible if the outcome is positive for the banking system. In July 2013, BTMU launched a voluntary tender offer to acquire all the outstanding shares of Ayudhya. The Ratanarak family owned a 25% block which they would not tender, so the key to the deal was General Electric, which had agreed to sell its own 25.3% stake.

Another Thai regulation forbids foreign banks to have more than ‘one presence’ in the country, so BTMU proposed to integrate its own Bangkok branch with Ayudhya. The acquisition was transformational, according to bankers, in that it combined the two banks’ complementary strengths. Ayudhya, the most profitable of Thailand’s big public banks, had a wide branch network and strong retail base. BTMU, on the other hand, was strong in local corporate lending, not least to Japanese companies doing business in Thailand. After integration, the combined operations would have a better balanced loan portfolio mix.

The combined entity will become a unique bank in Thailand, bankers say, with an established domestic banking platform, a strong Japanese customer base, and with access to an international network and global banking services. 

As important for BTMU was the potential for using Ayudhya and Thailand as a platform to expand into the Greater Mekong subregion. After the tender offer closed, BTMU owned 72% of Ayudhya’s shares and, with the addition of 18,000 Ayudhya staff, had more foreigners than Japanese staff on its payroll.

Real estate finance 

WINNER: SP Setia Berhad RM700m sukuk 

Bookrunners: CIMB, Hong Leong Financial Group, RHB

HIGHLY COMMENDED: Al-Aqar Capital RM655m sukuk

Malaysian real estate company SP Setia successfully raised RM700m ($214.36m) with its innovative hybrid sukuk which, even though unrated, was placed with a diverse group of investors. 

Publicly listed SP Setia is Malaysia’s leading property developer, operating across the spectrum from residential homes and high-rise condominiums to townships, commercial centres and business parks. In December 2013, it received Securities Commission approval for its proposed sukuk musharakah programme of up to RM700m in value.

The company was keen to manage its leverage ratio, its debt covenants and debt headroom more effectively, and so was drawn to the associated benefits of a corporate hybrid structure. At the same time, the debt features of a hybrid would ensure that the sukuk musharakah could be competitively priced and distributed to fixed-income investors.

In order to achieve equity accounting treatment, the instrument was structured as a perpetual instrument with a five-year non-call period, callable thereafter at each subsequent profit payment date. To protect investors without losing the equity accounting, it featured an annual step-up of one percentage point, starting in year six and rising to a maximum of 20%. Additional investor protection was provided by early call triggers in the event of privatisation or breach of leverage ratios, among other circumstances.

Bankers said that adopting a sharia-compliant structure was vital in ensuring the success of the deal. Given that certain investors can only buy compliant instruments, it broadened the investor base. As an unrated sukuk, it is non-transferable and non-tradable under the Malaysian regulatory framework. Even so, the deal was successfully placed with a range of different investor types, including statutory funds, insurance companies, banks and private banking accounts.

The transaction’s success was testimony to SP Setia’s strong credit profile, bankers maintained, as well as its intricate structuring, which addressed investor concerns while meeting the issuer’s objectives.

Restructuring 

WINNER: Billabong $360m recapitalisation

Advisors: Goldman Sachs, Moelis

It was a tense battle of competing restructuring plans, complete with recourse to the Australian Takeovers Panel. Billabong, the listed Australian surf and action sports retailer, finally chose the ‘superior’ plan put forward by private equity investors Centerbridge Partners and Oaktree Capital Management (the C/O consortium), advised by Moelis. 

Billabong was in serious financial trouble. It had breached its covenants, suppliers were tightening terms and a $385m syndicated facility was due for repayment in June 2014. The company’s market value, almost A$4bn ($3.71bn) in 2007, had fallen to just over A$200m, and it had been the subject of numerous failed sales processes and transaction proposals. 

Altamont Capital Partners, a private equity firm, teamed up with different partners to submit three different proposals in the first half of 2013. In July, C/O purchased Billabong’s original syndicated term loan and came forward with its own proposal. However, the company accepted the Altamont/GSO Partners (A/G) refinancing plan, including lock-up devices to make any competing plan uneconomic. These included a A$65m break fee, a ‘coercive’ 35% interest right on convertibles unless shareholder approval was received, and a punitive make-whole payment on change of control.

In spite of being refinanced out of its debt position, C/O went to the Australian Takeovers Panel – uniquely, in a distressed recapitalisation – and successfully appealed for the lock-up devices to be removed. It then publicly released its own proposals to inform all shareholders.

Its revised proposal offered to pay an 81% premium over A/G (36 cents versus 20 cents per share) for an approximately equivalent equity stake. A lower interest rate on its $360m debt package would result in A$143m savings over five years compared with the ‘highly levered’ A/G proposal. 

A rights offering component allowed existing shareholders to participate and so reduce dilution. New shares and options would give C/O between 34% and 41% of the company. In September, Billabong finally announced that it would accept this, the better deal.

Securitisation 

WINNER: BMW Korea $250m asset-backed securities

Arrangers: DBS, Standard Chartered

HIGHLY COMMENDED: MIK Asset One Mongolian residential mortgage-backed securities

This ground-breaking deal effectively reopened the public asset-backed securities (ABS) market in Asia for the first time since the depth of the financial crisis. It was also the first cross-border ABS deal from a European firm in Asia. 

BMW Financial Services Korea is the captive financing arm for BMW-manufactured cars and motorcycles in South Korea. It appointed DBS Bank and Standard Chartered Bank as joint lead managers for its inaugural cross-border securitisation transaction. This was backed by a portfolio of eligible auto loans and finance leases receivables originated by the company in South Korea.

The notes are issued out of a Singapore-incorporated special purpose company – Bavarian Sky Korean Auto Receivables 1 Pte Ltd. While the structure of the transaction is typical of Korean cross-border securitisations, this is the first time that the issuer has been incorporated in Singapore with the notes listed on the main board of the Singapore Exchange.

The Fitch-rated AAA notes sought to achieve funding diversification and cost-competitive term funding, while capturing the opportunities present in the tight issuance window, bankers said. That was notwithstanding the volatile swap market conditions and the time required for regulatory approval to come through. 

The securitised assets in the $250m Reg S transaction had a weighted average life of three years. The structure embedded a revolving funding period followed by a controlled amortisation period to provide longer term funding while eliminating prepayment and reinvestment risk. 

As part of the risk management features, the transaction benefited from a South Korean won-US dollar cross-currency swap to mitigate currency risk, interest rate risk and transfer and convertibility risk, given the mismatches between the dollar-denominated notes and the won-denominated auto receivables.