The following deals, the banks that worked on them and their clients will be honoured at an awards dinner at the Four Seasons hotel in Hong Kong on February 17. If you would like to book a table at the event, please contact Stephanie Cheung on +852 2122 5225 or stephanie.cheung@financeasia.com.
DEAL OF THE YEAR, BEST IPO AIA Group’s $20.5 billion IPO Bookrunners: Citi, Deutsche Bank, Goldman Sachs, Morgan Stanley, Barclays Capital, Bank of America Merrill Lynch, CIMB, Credit Suisse, ICBC International, J.P. Morgan, UBS Legal advisers: Freshfields, Debevoise & Plimpton, King & Wood, Linklaters, Sullivan & Cromwell It will probably not come as a huge surprise that our short-list for the best IPO this year comprised AIA and Agricultural Bank of China. The two $20 billion plus listings both had to overcome numerous negative issues – think AIA’s links to its financially troubled parent and the failed sale of the Pan-Asian life insurer to Prudential earlier in the year, or the quality of ABC’s assets and its public image as a poorer cousin of China’s other state-owned banks. Also, both were completed in record time, requiring a great deal of flexibility from the banks involved, were well executed and made money for investors in the months after the IPO, making each of them worthy of recognition.
In the end we chose to give the IPO award to AIA, while naming ABC the best China deal, which puts it ahead not just of all the other China IPOs this year, but of all debt and M&A transactions as well.
What impressed us by the AIA IPO was its ability to achieve a slightly higher valuation than Prudential’s revised bid just five months earlier and the fact that it successfully turned its stalled growth in recent years into an intriguing – and sought-after -- turnaround story, even though its new CEO had barely taken office when the deal launched (the CFO was so new he didn’t even participate in the roadshow).
And while the total size was slightly smaller than that of ABC, all the $20.5 billion were listed on one exchange and excluding the retail and cornerstone tranches, the bookrunners had to sell $17 billion of AIA paper to international institutions, versus $6 billion of ABC stock.
By the clever use of a 20% upsize option in addition to the greenshoe – a first for a Hong Kong IPO – parent company AIG was able to maximise the proceeds, without spooking investors with too large a deal from the outset. The price range was also kept at an attractive level to draw in demand, leading to strong momentum from day one. By the time the order book had swelled to more than $130 billion, the top-end pricing and the exercise of the upsize option met no resistance.
With regard to our Deal of the Year award, that was a much easier decision. In a year when at least two-thirds of deal revenues are estimated to come from equity, thanks to record IPOs and volumes in almost every market, in our mind the best IPO of the year also deserves the accolade as the top transaction in the region. BEST SECONDARY OFFERING $1.2 billion sell-down in Ping An Insurance by Newbridge Bookrunner: Morgan Stanley Legal advisers: Cleary Gottlieb, Freshfields
This was neither the most talked-about nor the largest block trade in Hong Kong this year. Both those awards would have gone hands done to Vodafone’s sale of China Mobile, which was bid for so aggressively that nobody really expected it to clear. Several months later market participants continue to speculate how much the bookrunners may or may not have lost on the transaction. For Vodafone that was still a highly successful deal, but we have slightly different criteria when we pick the best secondary offering and have settled for a deal that initially looked almost as bold as China Mobile, but which followed through with flawless execution. This was a clean-up trade by Newbridge following a similarly sized deal in May, and came on Ping An's first day of trading after a two-month suspension while awaiting approval for an acquisition. For the banks that had missed the first Ping An block, this was one they wanted to be on, for league table credits, if nothing else, and the bidding for the mandate was highly competitive. Morgan Stanley was the most aggressive, offering a hard underwriting agreement for the entire deal within 10 minutes of receiving the RFP at a tight 2.1% discount to the day’s close. Given that the stock had gained 2.7% earlier in the day, the seller was understandably happy and awarded the deal to the US bank on a sole basis. The bank then turned around and offered the shares to investors at an even tighter discount between 1.2% and 2.1%. But what had looked so aggressive from the start, quickly proved to be a very reasonable range as more than 100 investors piled in, covering the entire deal in less than an hour and allowing the price to be fixed at the very top for a 1.2% discount. This marked the tightest discount ever for a Hong Kong block above $1 billion and the tightest in 2010 for deals larger than $200 million. Adding to the positive outcome, the share price gained 5.4% the following day. This was a bold move by Morgan Stanley, but it pulled it off through a combination of fortunate timing, market insight and good execution. In fact, the only box that didn’t get ticked here was the one where we ask ourselves whether a particular deal can be repeated by others. Perhaps it can, but in light of the China Mobile experience, it may take a while.BEST EQUITY-LINKED DEAL China Unicom's $1.8 billion convertible bond Bookrunners: CICC, Goldman Sachs, Nomura Legal advisers: Sullivan and Cromwell; Herbert Smith; Davis Polk The China Unicom transaction stood out this year, not only because it was the largest CB ever in Asia ex-Japan, but because of the smooth execution and the fact that it was genuinely liked by everyone -- the issuer, the investors, analysts and even rival bankers. The deal was done to allow Unicom to issue 900 million new shares if the bonds are converted, which is roughly the same number of shares that it bought back from SK Telecom in 2009 at a much lower price.
Looking back on the deal, some CB specialists have suggested that the 0.75% coupon was unnecessarily high and that Unicom could have done better, but at the time, most of the comments were complimentary.
To criticise the coupon also misses the point. China Unicom had clear objectives with regard to the deal size and the conversion price and in order to achieve those, it was prepared to offer investors a small coupon. The company and the bookrunners may have been able to squeeze a bit more out of the investors, but by not doing that, they helped ensure the deal received healthy demand and reached that aftermarket sweet spot between 101 and 102 in the first five days after pricing.
The rarity of Asian CBs from investment grade names, coupled with plenty of stock borrow, created a lot of interest from both outright CB investors and hedge funds. Total orders topped $5 billion, allowing the conversion premium and coupon/yield to be pushed to the mid-point of the indicated ranges. The former was set at 35.5%, fulfilling Unicom’s aim for a conversion price above its HK$15.58 IPO price from 10 years ago, while the 0.75% yield was the lowest for an Asia-listed Chinese issuer since 2006. In all, this was a deal that demonstrated a clear understanding for what the market was willing to accept, resulting in a good outcome for both issuer and investors. BEST MID-CAP EQUITY DEAL Tiger Airways’ $178 million IPO Bookrunners: Citi, DBS, Morgan Stanley Legal advisers: Allen & Gledhill, Clifford Chance, Latham & Watkins, Drew & Napier, Stamford Law, WongPartnership, Minter Ellison Being the first IPO to price globally in 2010, Singapore-based Tiger Airways came to market on the back of a very challenging 18 months for the global airline industry and its roadshow coincided with a growing realisation that Japan Airlines was heading for bankruptcy. As it were, the Singapore IPO was exceptionally well timed as low cost carriers tend to outperform early in the economic cycle and the company has continued to deliver for its shareholders throughout the year.
Extensive international marketing and investor education helped create interest early on. And by positioning Tiger as a unique high-growth story and using its top-class backers (Singapore Airlines, Temasek, a company controlled by the family behind Ryanair and US private equity fund Indigo) as leverage with investors, the bookrunners were able to create an accelerating momentum during the bookbuilding that forced investors to lift their price limits as the demand grew. The final price was fixed at the mid-point of the range at S$1.50 per share for a 4% premium versus its global peers and a 15% premium to AirAsia, even as most IPOs at the end of 2009 had priced at quite deep discounts. The order book reached S$1.3 billion ($990 million) with more than 50% of the institutional demand coming from long-only funds.
In our view, a big part of bringing successful listings in the mid-cap space is about identifying listing candidates that are at a stage in their development that a listing will be beneficial both to the company and to investors. And Tiger’s solid performance this year, both in terms of its operations and the share price – the stock was up as much as 50% in the late summer and by early December had settled in a range about 25% above the IPO price -- suggests the bookrunners hit it right with this one.
BEST SMALL-CAP DEAL MakeMyTrip.com’s $78 million US IPO Bookrunner: Morgan Stanley Legal adviser: Latham & Watkins, Shearman & Sterling, Amarchand Mangaldas, S&R Associates One might have thought that an IPO that soars 89% on day one would spark criticism from the banking community for being priced too cheaply. But, in fact, throughout the awards pitch season we heard nothing but praise for this deal and bankers said it was hard to fault Morgan Stanley for the eye-catching debut, which appears to have been caused primarily by the scarcity of stock. Indeed, this IPO was frequently mentioned as one that the banks would have liked to be on – and not just in a small-cap context. The largest online travel agency in India with a 48% market share, MakeMyTrip.com gained a lot of traction among US investors who were already familiar with its Chinese peer, Ctrip.com, which has seen its share price multiply 12 times since listing on Nasdaq at the end of 2004. MakeMyTrip.com, which despite its market position has posted losses in the past three years, also chose to list on Nasdaq, making it the first US listing of an Indian issuer in four years. Further scarcity was created by the fact that the company offered only 15% of its share capital through the IPO. By the end of the nine-day roadshow, the deal had accumulated more than $1 billion of institutional demand from more than 190 investors. The company didn’t make use of the possibility to fix the price at up to 20% above the indicated range, supposedly because of objections from some key investors, but even at the top of the range at $14, it came at an impressive valuation of 32 times next year’s earnings. This compares with 24 times for Ctrip at the time. So, it is hard to argue that it was cheap. The stock peaked 189% above the IPO price after about a month of trading and while it has given up a significant portion of those gains following its second-quarter earnings, this only means that it has returned to more realistic valuations (75% above the IPO price) that can be backed up by business performance rather than a supply/demand imbalance with regard to its shares.
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