The Deals of the Year 2017 winners from Asia-Pacific.

Bonds: corporate 

WINNER: CK-Hutchison €2bn dual-tranche bond

Joint lead managers and joint bookrunners: Bank of America Merrill Lynch, Barclays, Crédit Agricole CIB, HSBC

In 2015, CK-Hutchison Group was formed by a transformational restructure involving Cheung Kong and Hutchison Whampoa. The conglomerate – which operates across utilities, telecommunications, retail ports, infrastructure and other energy sectors – is one of the biggest companies listed on the Hong Kong Stock Exchange. 

By the second quarter of 2016, it had not tapped the bond markets for 18 months and was looking to raise funds. As it would be the debut issuance by the newly merged entity, it was a test of investors’ confidence in its reorganisation. 

There had not been a euro-denominated corporate bond issued out of Hong Kong since 2014, but a euro issue made sense. Borrowing costs were low thanks to the European Central Bank’s quantitative easing programme, and CK-Hutchison derives about half of its revenues from the region. 

On April 5 it launched a Ä2bn benchmark, dual-tranche Reg S senior notes offering split between a seven-year and 12-year tranche. Order books were heavily oversubscribed, driven by high-quality accounts including fund managers, insurers and pension funds. As a result, the pricing of the shorter tranche tightened by 15 basis points (bps) from guidance and the longer tranche by 12bps. They carry coupons of 1.25% and 2%, respectively. The seven-year tranche bears the tightest coupon of any bond ever issued by CK-Hutchison and its predecessor entities. 

With the help of Bank of America Merrill Lynch, Barclays, Crédit Agricole CIB and HSBC, CK-Hutchison issued one of only two bonds from Hong Kong in 2016 that totalled the equivalent of more than $1bn. It was the biggest euro-denominated issue out of Asia (excluding Japan) since May 2012, and proved that the market had faith in the newly merged CK-Hutchison.

Bonds: SSA 

WINNER: Republic of Indonesia’s €3bn dual-tranche bond

Joint bookrunners: Barclays, Deutsche Bank, JPMorgan, Société Générale

For the Indonesian government, 2016 was a bumper 12 months for fundraising. It finished the year with its debut triple-tranche deal, which made it the first emerging market sovereign to tap bond markets after the surprise outcome of the US presidential election. 

But its real highlight came earlier in the year when it issued a Ä3bn dual-tranche bond, split equally between a seven-year and 12-year tranche. It was the biggest euro-denominated bond out of Asia and biggest from a non-European sovereign. It broke some of the issuer’s records too, being its debut dual-tranche euro-denominated bond, and largest and longest tenor. 

The Reg S/144A fixed-rate benchmark deal was perfectly timed after a comprehensive European roadshow it launched on June 7, so avoiding the market volatility caused by the UK’s historic Brexit referendum held two weeks later. 

Initial price talks put the shorter dated notes about 280 basis points (bps) over the seven-year mid-swap rate, and the longer notes around 345bps over the 12-year mid-swaps. The total order book reached a whopping Ä8.36bn and was dominated by high-quality accounts, which allowed pricing of both tranches to tighten by 20bps. The seven-year notes pay a 2.625% coupon and the 12-year notes 3.75%.

It met the issuer’s key objectives, including a more diversified investor base. The order book included fixed-income investors that were familiar with the country’s credit, but also new investors it engaged with on the roadshow. European investors took 58% of the seven-year tranche and 49% of the 12-year. 

It builds momentum for Indonesia’s capital markets by extending the government’s euro yield curve to 12 years, which can be used as a reference for its future deals, and by quasi-sovereigns and private sector entities looking to tap the bond markets. It also evidences the depth of the euro bond market, which is a key tenet of the European Commission’s capital markets union initiative.

Capital raising: FIG 

WINNER: DBS’s $750m AT1

Sole global coordinator and bookrunner: DBS 

Bookrunners: Citi, Deutsche Bank, HSBC, Société Générale

Additional Tier 1 debt (AT1) is a key component of policy-makers’ efforts to avoid a repeat of the taxpayer bailouts of banks during the financial crisis. A type of regulatory capital, AT1 notes absorb losses by being written down (temporarily or permanently) or converting into equity when the issuer’s capital levels dip below a specified level.

Last August, Singapore’s biggest bank, DBS, issued its debut US dollar-denominated AT1, which was also the first from south-east Asia. The $750m perpetual notes, which are callable after five years, were a big test for the region’s bank capital market, and it passed with flying colours. 

Its 3.6% coupon made it the lowest yielding dollar-denominated AT1 globally, smashing ICBC’s record of 4.25% set earlier in the year. Initial price guidance was about 4%, but after the order book peaked at more than $8bn the coupon was tightened by 40 basis points. The final order book was in excess of $6.5bn across 280 accounts.  

Its success was aided by investors’ hunt for yield, the notes’ A3 rating from Moody’s (the highest ever for dollar-denominated AT1), some novel structural features and an extensive roadshow. The banks leading the deal – Citi, Deutsche Bank, HSBC, Société Générale CIB and DBS itself – had to get by without any similarly rated comparables in the AT1 market. 

With more than 80% allocated to Asian investors, it proved the depth of Asia’s investment base for this new breed of debt. It also creates a (very attractive) pricing benchmark for other banks in the region looking to issue dollar-denominated AT1, and is a vote of confidence in DBS and its balance sheet.

In North American and Europe, the first AT1 deals set important precedents and paved the way for what is now a buoyant market. It means DBS’s inaugural deal bodes well for south-east Asia’s nascent AT1 market.


WINNER: Postal Savings Bank of China’s $7.6bn IPO

Joint sponsors and joint global coordinators: Bank of America Merrill Lynch, Goldman Sachs, JPMorgan

Financial adviser: UBS 

Joint global coordinators: China Merchants Securities, Citi, DBS, HSBC 

Joint bookrunners and lead managers: Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, China Galaxy International, China Merchants Bank, China Securities International, Citic CLSA, Deutsche Bank, Essence International, First Capital Securities, Haitong Securities, Huarong Financial, ICBC, Nomura, Sun Hung Kai Financial

In a sluggish year for initial public offerings (IPOs) globally, Postal Savings Bank of China (PSBC) was a clear highlight. The retail lender’s listing on the Hong Kong Stock Exchange on September 28, 2016 raised $7.6bn, making it the world’s biggest IPO since Alibaba floated in the US in 2014, and Hong Kong’s biggest IPO in six years.

Going public will transform the equity base of PSBC, which had only one shareholder, China Post Group, until 2015 when it introduced 10 strategic investors. Its IPO opened the door towards more global investors. “The IPO will help PSBC diversify ownership, improve corporate governance and refine the management of the bank,” PSBC’s president, Lyu Jiajin, told The Banker last October.

PSBC was struggling to guarantee the success of such a large listing. To de-risk the deal, PSBC and its advisers orchestrated a five-month cornerstone marketing plan that led to about 77% of the IPO being pre-placed with six anchor investors. 

The portion of the offer set aside for institutional buyers was multiple times over-subscribed, thanks to the active participation of quality investors including long-only funds, global hedge funds and high-net-worth individuals. A record-breaking 26 bookrunners worked on the deal.

The HK$4.76 ($0.61) per share offer price was towards the lower end of the HK$4.68 to $5.18 range that was marketed, and the share price remained flat over its first days of trading before dipping in October. But by early April 2017 it had recovered to trade above its issue price. Short-term fluctuations in share price, however, should not overshadow the deal’s true significance, which is the diversifying investor base of one of China’s most promising banks.

Green finance 

WINNER: Bank of China’s $500m green covered bond

Joint global coordinators: Bank of China, Citi, HSBC 

Joint bookrunners: Barclays, Bank of America Merrill Lynch, China Construction Bank, Crédit Agricole CIB, Société Générale, Standard Chartered

China has emerged as an unlikely leader in the global green bond movement. Its State Council has set out an ambitious plan to develop a green finance system, it is the first country to issue green bond guidelines, and in 2016 it accounted for Rmb255bn ($36.9bn) in climate-aligned bond issuance.

China has also pioneered some of the world’s most innovative green financings, one of which is Bank of China’s (BoC’s) $500m green covered bond on November 3, 2016. The three-year notes were issued out of BoC’s London branch and rated Aa3 by Moody’s, a one-notch uplift from BoC’s rating. It is the first green covered bond out of Asia and the first denominated in US dollars globally.

Despite market jitters about the upcoming US election, it was snapped up by investors. It priced 20 basis points lower than initial guidance, carrying a coupon of 1.875%. Notably, European investors took 28% of the final books (with Asian buyers taking the rest). This is an improvement on BoC’s multi-tranche green bond, which it issued a few months early via its Luxembourg branch, of which Europeans took about 20%.

The notes are backed by a pool of climate-aligned bonds that trade on China’s over-the-counter bond market. As such, they offer an avenue for a broader range of international investors to access China’s rapidly growing green bond market.

Green finance aside, this is also the first international note issued by a Chinese entity to be secured by onshore assets. That marks a significant step in China’s liberalisation of its capital markets, and requires some regulatory hurdles to be overcome. 

For example, covered bonds must give investors expedited access to the cover pool assets in the event of default. However, China Central Depository & Clearing (CCDC), which held the bonds that make up the cover pool, had no such mechanism in place. BoC’s advisers had to convince CCDC to change its processes for this transaction, to achieve the rating uplift demanded by covered bond investors.

Infrastructure and project finance 

WINNER: Osaka and Kansai airports 44-year concession

Financial adviser to Orix: Bank of America Merrill Lynch, Rothschild 

Financial adviser to Vinci: Morgan Stanley 

Financial adviser to NKIAC: Citi, SMBC Nikko 

Lead arrangers and bookrunners: Mizuho Bank, SMBC 

Lead arrangers: Crédit Agricole CIB, Bank of Tokyo Mitsubishi UFJ 

Syndicate members: Nippon Life Insurance Company, Resona Bank, Bank of Kyoto, Kiyo Bank, Nanto Bank, Senshu Ikea Bank, Shiga Bank, Sumitomo Mitsui Trust Bank

The privatisation of Osaka and Kansai international airports is a precedent-setting project financing in Japan. In April 2016, a consortium led by Orix and France’s Vinci Airports took control of the two airports via a 44-year concession. It is the country’s biggest public-private partnership (PPP) and its first major airport privatisation. 

The consortium acquired the concession from a government-owned company in exchange for annual payments of Y49bn ($441m). Over the life of the concession, that amounts to about $18bn. The Y190bn of debt financing was provided by a group of 13 financial institutions, led by Mizuho and Sumitomo Mitsui Banking Corporation (SMBC).

The long life of the concession created multiple challenges. As a first-of-its-kind deal it had no blueprint and Rothschild, as financial adviser to Orix, played a crucial role in crafting an agreement that met international market standards while being acceptable to the consortium and the Japanese government. 

To mitigate refinancing risk, the funding needed to align with the concession’s long tenor. Mizuho and SMBC managed to put in place a 30-year Y160bn tranche, plus ancillary facilities, at a time when banks around the world have been pulling back from ultra-long-term financing. 

The privatisation, work on which started in early 2014, is a milestone in the Japanese government’s long-term goal of encouraging more private investment in the country’s infrastructure. Plans to privatise more airports, starting with Fukuoka and Sendai, are under way. The Osaka and Kansai concessions have laid the groundwork for these and future privatisations by creating an important precedent for concession structure, financing structure and transaction process.

Islamic finance 

WINNER: Khazanah’s $398.8m exchangeable sukuk

Joint lead managers and bookrunners: Bank of America Merrill Lynch, CIMB, Deutsche Bank

This sukuk, issued by Khazanah Nasional Berhad on August 31, 2016, is a winner on many fronts. The five-year, $398.8m issuance was the seventh benchmark exchangeable sukuk offering by Khazanah, Malaysia’s sovereign wealth fund, and was led by CIMB, Bank of America Merrill Lynch and Deutsche Bank.

The most notable feature of the deal, which is structured around the principle of wakala, is the reference stock. The sukuk is exchangeable into Khazanah’s holding of ordinary shares in Beijing Enterprises Water Group (BEWG), which does not meet the requirements for sharia-compliance set by major Islamic finance indices. It is the first dollar-denominated exchangeable sukuk with non-sharia-compliant reference stock at issuance. 

The deal’s unique structure enables Islamic investors to participate with the knowledge that Khazanah will satisfy any exchange via cash if BEWG’s shares, which are listed on the Hong Kong Stock Exchange, are not deemed sharia compliant at the date of the exchange. It paves the way for other entities to issue exchangeable sukuk with a broader variety of reference stock. It is also the first time investors have gained exposure to China’s growing water utility sector in sharia format. 

Its execution was impressive. It was sold via an accelerated bookbuilding and drew demand from a diverse group of investors including long-only funds, hedge funds, arbitrage funds and asset managers. Asian investors took about 60% of the paper while European investors were allocated the remainder. 

The final pricing represents an exchange premium of 43% above the reference share price with zero periodic payments and 0% yield to maturity. It is Khazanah’s first transaction to achieve a premium above 40%. 

It also set a benchmark in for Asia-Pacific (excluding Japan), being the region’s highest exchangeable premium for a zero coupon and zero-yield equity-linked issuance since 2007, and highest achieved by an exchangeable bond or sukuk in the utility and energy sector since 2003.

Leveraged finance and high yield 

WINNER: Lionhorn’s $262m-equivalent loan

Sole underwriter, arranger and bookrunner: CIMB

Fast-food giant McDonald’s is overhauling its strategy in Asia. Rather than direct ownership, it is moving towards a franchise model whereby its restaurants are run by local businesses. On December 1, 2016, this plan took a giant leap forward when it sold the franchise rights to its operations in Singapore and Malaysia, which amounted to more than 390 restaurants.

The acquirer was Saudi Arabia’s Lionhorn, an outfit led by Sheikh Fahd and Abdulrahman Alireza, who are the franchisees of McDonald’s restaurants in the western and southern region of Saudi Arabia. Lionhorn wanted a one-stop-shop funding solution for its purchases in the two markets, which were key pillars of its global expansion programme. That meant a cross-border, multi-country and multi-currency transaction was required. 

It turned to Kuala Lumpur-headquartered CIMB, which is considered a local player in both markets, to run the financing. The bank fully pre-funded 10-year and seven-year term loans, one denominated in Malaysian ringgit and the other in Singapore dollars. Together they totalled the equivalent of $262m. 

The proceeds were used to part finance the acquisition and for ongoing capital expenditure. They were carefully structured to accommodate the borrower’s aggressive expansion plans in Singapore and Malaysia.

The loans were signed on November 17, 2016, and successfully syndicated in the Singaporean and Malaysian markets earlier this year. The Banker understands that the syndications were oversubscribed by quite a margin.

The transaction is a huge boost for the local leveraged finance market. For both McDonald’s and Lionhorn, this was their debut transaction in south-east Asia. The fact a regional player ran the entire financing process – acting as sole underwriter, mandated lead arranger and bookrunner – for the sale of such a prized asset shows the value ascribed to local market knowledge. 


WINNER: Intas Pharmaceuticals Rs8.9bn loan

Bookrunners: Axis Bank, Bank of Tokyo Mitsubishi UFJ, Citi, HSBC, ICICI, Kotak

Teva’s acquisition in 2016 of Dublin-headquartered Allergan’s generics business made headlines for its $40.5bn price tag. What is less known is that it spawned some ground-breaking transactions on the other side of the world.  

Anti-trust authorities approved Teva’s tie-up with Allergan on the condition that the latter divested its UK and Irish generics businesses. Intas Pharmaceuticals, a growing company headquartered in India, won the bid to acquire these assets for £603m ($771.3m) in cash. Regulators demanded that the sale was completed quickly, which placed a priority on an efficient financing package.

The group of mandated lead arrangers – including India’s Axis Bank, Kotak Mahindra Bank and ICICI Bank – devised a two-step solution involving Intas’s wholly owned subsidiary Accord, which runs its overseas operations.

First, Intas was extended an ‘external commercial borrowing’ – a facility specific to India that gives local corporates access to foreign money – of up to Ä260m. This senior secured loan was used to fund Accord, which was acquiring the target asset. Second, the banks lent Accord up to £385m via a senior secured term loan.

Both loans achieved tight pricing and their repayment structures gave the borrowers enough time to integrate the new UK and Irish businesses. As one of the few acquisition financing transactions where Indian banks put in a larger share of the underwriting book than foreign banks, it is regarded as a breakthrough for the local loan market.

A number of local banks, including Kotak, have played leading roles in pushing the development of local markets in recent years. Their strong showing on this landmark acquisition for India’s pharmaceutical sector is testament to their efforts.

For Intas, the deal was transformative. It more than doubled its pan-European operations, and made it a top 20 generics player globally. In 2017 it became India’s highest valued private pharmaceuticals company.


WINNER: China Cosco and Cosco Pacific’s Rmb120bn merger with China Shipping

Sole financial adviser to China Cosco and Cosco Pacific: UBS

The Rmb120bn ($19bn) combination of China Cosco and Cosco Pacific with China Shipping is a milestone in Chinese president Xi Jinping’s pursuit of more efficient and competitive state-owned enterprises (SOEs) in the country. The resulting entity, known as China Cosco Shipping Corporation, opened its doors in Shanghai on February 18, 2016. 

The merging parties were China’s biggest shipping SOEs and had incredibly complex organisational structures. Their operations spanned every subsector of the maritime industry including ports, oil tankers, dry bulk, supply chain logistics, insurance, financing and leasing. 

As sole financial adviser to China Cosco and Cosco Pacific, UBS was instrumental in the restructure and consolidation, which involved more than 70 transactions between two dual-listed companies, two companies listed on the Hong Kong Stock Exchange, and numerous affiliates. 

Many of the transactions occurred simultaneously and were conditional upon one another. The resulting corporate structure sees China Cosco Shipping Corporation rely on core subsidiaries to operate its different businesses, all of which share the Cosco Shipping branding. 

It is the most complex merger in China to date and creates a significant precedent for future SOE reform. It shows that size and complicated corporate structures are no barrier to streamlining SOEs to improve economies of scale and create synergies.

It also boosts China’s standing in the global shipping industry, which is suffering a severe downturn due to record-low freight rates and the drop in global trade following the global financial crisis. China Cosco Shipping operates the world’s fourth biggest shipping business, is the world’s second biggest terminal operator, holds the world’s third biggest container lessor and is the world’s biggest energy transporter.

The deal was agreed on December 11, 2015 and reached financial close in April 2016, after the combined company had commenced operations. 


WINNER: Kaisa’s $10.7bn-equivalent debt restructure

Financial adviser: Houlihan Lokey

Shenzhen-based Kaisa Group Holdings has become a symbol of China’s pivot to a market-based economy. In early 2015 it became the country’s first property developer to default on its dollar bonds, marking the beginning of the Chinese government’s policy to not prop-up struggling companies. 

Then in July 2016 it completed a precedent-setting restructure of Rmb48bn ($7.7bn) of onshore debt and $3bn of offshore debt. Its financial adviser, Houlihan Lokey, had to contend with a difficult situation, including the departure of key members of senior management, the founder’s family trying to sell its 49% stake to another property developer, a liquidity shortage, and enforcement proceedings launched by onshore lenders. 

Kaisa had a complex capital structure. The offshore debt consisted of five series of New York law-governed high-yield bonds, English law-governed convertible bonds, an English law-governed swap agreement, and Hong Kong law-governed bilateral loans. This was guaranteed by a number of subsidiaries and was held by a diverse group of creditors, which created hurdles during negotiations. 

The offshore restructure was implemented via concurrent and inter-conditional schemes of arrangement in Hong Kong (where Kaisa was listed) and the Cayman Islands (where it was incorporated). It gave creditors the option of converting their existing bonds into new high-yield notes with longer maturities, contingent value rights (which entitle holders to a cash payment if Kaisa’s share price reaches certain levels) and/or mandatorily exchangeable bonds (which switch to convertible bonds when certain conditions are met). Creditors holding more than 96% of the debt voted at the scheme meetings and 99% voted in favour of the scheme.

The majority of Kaisa’s onshore debt was in the form of bilateral loans, which were individually renegotiated to extend maturities and reduce the interest payable. 

When Kaisa recommenced trading on the Hong Kong Stock Exchange in March 2017, two years after it was suspended, its share price jumped more than 80%, signalling a vote of confidence in the company’s revised balance sheet.

Securitisation and structured finance 

WINNER: Citics Wanxin Yuejia Rmb555m ABS

Sole underwriter and bookrunner: Citic Securities Company

Securitisation in China is undergoing a renaissance. The Citics Wanxin Yuejia asset-backed securitisation (ABS) is a prime example of the financial innovation occurring in the Chinese market and the diversity of assets being securitised.

The Rmb555m ($80.5m) transaction by Wanxin Media was issued in December 2016 and is backed by eight bookstores it owns throughout the Anhui province. The deal consists of a Rmb360m A tranche, which pays 4.2%, and a Rmb195m B tranche, which pays 4.7%. Both mature in January 2035. 

Structured as a real-estate investment trust (REIT), the deal marks a string of firsts in China’s blossoming REIT sector. It is the first REIT in the domestic cultural media industry and the first to be backed by bookstores. It paved the way for similar deals to come to market in early 2017, leading some commentators to predict that a fully fledged, listed REITs market will soon arrive in China.

The Wanxin Yuejia deal is also the first time that a state-owned enterprise’s (SOE’s) media assets have been used as the underlying properties in an ABS. This created complex considerations for the lead advisers, including sole underwriter and manager Citic Securities. As securitisation is a form of off-balance-sheet financing, it raised novel property rights issues regarding the transfer of state-owned assets, and was also subject to regulatory scrutiny and strict disclosure requirements. 

ABSs have the potential to become an important tool in the government’s push to reform the country’s SOEs into more efficient and competitive industry players. The tax treatment and cash flow arrangement of Citics Wanxin Yuejia’s ABS has freed up Wanxin Media’s balance sheet and guaranteed its revenues. It creates a blueprint for other SOEs to make use of this flexible source of financing. 


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