Achievement Awards: Why they won, Part 1

We explain in detail why the winning deals from countries across the region stood out.

In November, FinanceAsia announced the winners of its Achievement Awards for the past year, picking out the best private banks and the most impressive deals by country and deals by category. We also honoured the outstanding banks, financial institutions and law firm in the region.

Today, we explain in depth why the outstanding country deals won over our panel of judges. We'll continue tomorrow with the deal awards by category and conclude with the house awards. All awards will be handed out at a special ceremony on February 16 at the Grand Hyatt Hong Kong.


Hewlett-Packard’s $2.3 billion sale of 51% of H3C to Tsinghua Unisplendour

Target adviser: Credit Suisse

Acquirer adviser: Zhong De Securities

After a year in which Chinese companies have pushed outbound M&A volumes to record levels, bankers privately admit some foreign companies are looking at going in the same direction. McDonald’s is selling part of its franchise in China. Yum Brands is spinning off its China business.

It might appear from the headlines that Hewlett-Packard is part of the same group. But HP’s sale of a majority stake in H3C, its data networking business, was quite the opposite.

The company took a step back in order to take two steps forward, selling a big enough stake to make sure it could access Chinese clients for years to come.

China deal: HP

The sale was motivated by the Chinese government’s attempts to limit or expunge the use of foreign technology in sensitive industries. Seeing the winds change, HP had two options: wait for the inevitable, or shift strategy quickly. It opted for a decisive move.

The company sold 51% of its business to Unisplendour, a publicly-listed subsidiary of Tsinghua University. Unisplendour paid $2.3 billion in cash, giving H3C an enterprise value of $4.5 billion.

HP and its bankers demonstrated with this deal a savvy understanding of how to get ahead in China. The sale itself was crucial, of course. But the choice of partner was also impressive, aligning HP with a university often seen as a technology hub.

The move should ensure H3C easy access to government and state-owned contracts in the future. It all but guarantees that as China’s technology needs grow, HP will be there to meet them.


SCMP Group’s sale to Alibaba

Target adviser: HSBC

Chinese tech giant Alibaba is not prone to large acquisitions. The company’s hugely profitable domestic business leaves it with little need to expand offshore. But when it took over Hong Kong media company SCMP Group, it appeared to be after something more than just another source of profit.

“Our vision for SCMP is to build a global readership,” Joe Tsai, executive vice-chairman of the Alibaba Group, said in a press release at the time. “It is not just for expats or senior executives or companies in Hong Kong but it is for anybody who cares to know more about China and to understand China.”

The company’s determination to enlighten foreign readers about China has led to some run-ins with journalists at the South China Morning Post, the main asset of the SCMP Group. But it also led to an easy chance for Kerry Media, owned by Malaysia’s Kuok family, to dispose of a business facing steadily falling profits.

Read all about it: SCMP

SCMP’s shares had been suspended since February 2013, after Kerry Media exercised a share option that took SCMP’s free float below the minimum. Alibaba broke the deadlock in December 2015, buying the media assets of SCMP Group for HK$2 billion.

That gave investors HK$3.69 per share, which was well above the HK$1.72 30-day average price before the shares were suspended. But given the long delay, perhaps a more important metric is against the adjusted net asset value, which was just HK$1.03 when Alibaba made its offer.

The deal was only the first part of a series of sales. Kerry Media sold its controlling interest in Armada Holdings — the former SCMP Group, renamed after the disposal of the media assets — to Great Wall Pan Asia for HK$2.11 billion. Armada then sold property holding company Coastline International to Fosun International for HK$990 million, giving Fosun full control of Hong Kong’s TV City.

The sale of a company that had its shares suspended for almost two years gave a welcome exit to the Kuok family. But it was surely even better for small shareholders, who had been waiting for the deadlock to be broken for far too long.


ICICI Prudential Life Insurance $912 million IPO

Global coordinators: Bank of America Merrill Lynch and ICICI Securities Bookrunners: UBS, Citic CLSA, Deutsche Bank, Edelweiss, HSBC, IIFL, JM Financial and SBI Capital

The listing of ICICI Prudential Life Insurance was a landmark deal for India’s equity capital markets because it was the first insurance firm to go public.

ICICI Prudential become the first listed local insurer after India’s Insurance Regulatory and Development Authority of India said it plans to require all insurance firms to list in a bid to enhance operational efficiency and transparency.

From a capital market standpoint, the IPO created a new sector for the local stock market particularly within the financial industry, which is dominated by banks and microfinance companies.

The deal itself was not an easy pitch to investors due to its massive size and the lack of comparable stocks. At the final deal size of $912 million, it was the largest IPO in six years after Coal India’s $3.5 billion floatation in 2010.

The lack of other listed insurance firms meant the syndicate had to pay extra effort to come up with an equity valuation that proved satisfactory for both the company and the investors.

In the end, ICICI Prudential was able to strike a deal that valued itself at 3.44 times its estimated 2016 embedded value on a syndicate consensus basis, representing a premium to most global insurance companies.

The valuation was also about 48% higher compared to its implied market value when it sold a 6% stake to Temasek in November last year.

It is worth noting that ICICI Prudential handed out 1.1 million application forms for retail investors, underscoring the massive retail interest for the offering. The non-institutional investor portion was 28.55 times subscribed.


The Republic of Indonesia’s €3 billion seven and 12 year bond

Global coordinators: Barclays, Deutsche Bank, JP Morgan and Societe Generale

The Republic of Indonesia has a well-deserved reputation as being one of the most savvy issuers in the region, impressing investors and bankers alike with its mix of maturities and currencies, and its willingness to defy bad news.

That proved to be the case when the sovereign came to the market in June. The deal was launched just a week after Standard & Poor’s announced that it was not upgrading the country after a review. But the rating agency kept its positive outlook — and funding officials kept their positive attitude.

They turned to European investors with a €3 billion bond, spreading the deal between seven- and 12-year maturities. The two tranches generated huge demand, bringing in €8 billion of orders.

The deal underscored Indonesia’s diverse approach to the funding markets. Although the country is a mainstay in the dollar market, it has also proved happy to issue across the G3 currency space, becoming a regular issuer in both the euro and yen markets.

There were other deals from the country that impressed during our awards period, in particular Cikirang Listringo’s award-winning high yield bond. But Indonesia stood out with its ability, in a moment of bad news, to keep calm and carry on.


Maybank’s $500 million 10.5NC5.5 Basel III-compliant bond

Bookrunners: Deutsche Bank, HSBC and Maybank Kim Eng

Malayan Banking Berhad (Maybank) impressed in 2016, raising $500 million through the sale of a 10 non-call five-and-a-half year bond — and becoming Malaysia’s first bank to sell dollar-denominated Basel III-compliant capital.

The deal set a precedent for Malaysian banks, opening up a crucial source of new capital for a market that had too often relied on domestic funding sources.

But the bond also offered investors a crucial source of diversity. International investors have gotten used to plenty of sukuk and corporate supply from Malaysia, but little in the way of bank issuance.

The 10.5-year non-call 5.5-year bond was initially pitched at 280bp over 10-year Treasuries, but after the bookrunners managed to generate impressive demand, that was pushed down to a 255bp spread. After the first 5.5 years, pricing is re-set to 254.2bp over five-year dollar mid swaps.

The final order book closed at around $1.8 billion level after demand from roughly 100 accounts. Some 90% of that went to Asia and 10% to Europe. By investor type, funds took 40%, followed by insurers on 27%, banks 13%, private banks 10%, and pension and sovereign wealth funds 4%.

Maybank’s strong capital ratios meant the deal was not an essential transaction. But the bank proved eager to top up its capital — and just as eager to open a new market for its compatriots. For that, it deserves applause.


The Government of Mongolia’s $500 million bond

Global co-ordinators: Credit Suisse, Deutsche Bank, ING and
JP Morgan

Lead managers: Golomt Bank and TDB Capital

The government of Mongolia sold a $500 million five-year note in March, bracing tough market conditions following a slump in the price of its outstanding deal.

The sovereign was on negative outlook from Moody’s and was downgraded by Standard & Poor’s and Fitch in November of 2015. Once the darling of frontier market investors, the country has been on a downward track for the last few years. In particular, it has been hit by declining commodity prices and a fall-out with foreign companies which caused foreign direct investment (FDI) to shrivel up.

Crunch: Mongolia

The sovereign had originally hoped to raise funds in January but had been forced to step back because of volatility across the whole of the emerging and frontier markets.

That meant the pressure was on when Mongolia returned to the market in March. The sovereign proved willing to pay up to achieve its goal — eventually closing the deal with a 10.875% yield — and that proved just enough. The $500m bond generated $780 million of investor demand.

Most issuers who win awards are enjoying an improvement in fortunes, watching their funding costs fall and their investor base grow. But some issuers go in the other direction — and have to pay up to keep their access to bond investors open.

Mongolia did just that. It was no doubt a tough decision. But it was one that was necessary for a country in Mongolia’s unenviable position.


Abraaj-led consortium’s $1.77 billion sale of 66.4% of K-Electric to Shanghai Electric Power

Seller advisers: Citi, Credit Suisse

Acquirer adviser: Guotai Junan Securities, JP Morgan

There are few deals this year that have summed up China’s ‘One Belt, One Road’ strategy more than Shanghai Electric’s $1.77 billion acquisition of Karachi’s biggest electricity company.

As China clamps down on what it calls ‘irrational’ M&A — pointing the finger at companies investing outside their core businesses — this is just the type of transaction the government wants to see. It furthers Chinese influence in a country that is increasingly important to the Middle Kingdom, adding to the already-crucial China-Pakistan Economic Corridor.

But the deal was motivated by more than policy. Shanghai Electric’s acquisition of K-Electric gives it a new channel to spread some of its abundant over-capacity, and access to a fast-growing country that is attracting increasing interest from international investors.

For private equity firm Abraaj Capital, the deal represented an almost perfect exit. The firm joined a consortium to buy a majority stake in K-Electric seven years ago, betting on its ability to clean up a sprawling asset and secure strong returns from investors. In the end, Abraaj was able to secure an internal rate of return of 11%, according to one source.

Shanghai Electric Power bought the entire 66.4% stake from KES Power, a holding company formed by a consortium consisting of the Dubai-based Abraaj, Saudi Arabia’s Al-Jomaih Group and Kuwait’s NIG Industries. The consortium took over K-Electric in 2009, and Abraaj took management control.

The deal ticked all the boxes. Shanghai Electric managed to marry commercial acumen with political sense. Abraaj had a risky seven-year bet vindicated with an impressive return. In the process, the two worked together to pull off the largest non-government M&A in Pakistan’s history.

M&A bankers have reason to be worried that China’s attempts to reign in the massive growth in overseas acquisitions will hurt their revenues. But they can rest assured that if they bring more deals like this, Chinese government officials will do little but stand aside — and applaud.


ICTSI’s tender and new bond

Bookrunners: Citi, HSBC and Standard Chartered

It is not easy to lower borrowing costs and extend your maturity profile at the same time. But International Container Terminal Services (ICTSI) did just that in October.

The Philippine port operator — run by billionaire Enrique Razon — set out in early October with the goal of cleaning up its debt maturity profile. ICTSI had two corporate hybrid bonds outstanding, a $300 million 6.25% perpetual that comes callable in 2019 and a $450 million 5.5% perp that is first callable in 2021.

Between them, these two deals cost the company $43.5 million in interest payments a year. But since both were trading well above par, ICTSI’s chief financial officer Rafael Consing Jr decided to launch a tender offer for the two deals on October 3. He could pay for that, he calculated, with a new, cheaper deal.

Consing and his team — as well as representatives from bookrunners Citi, HSBC and Standard Chartered — hit the road to pitch a new deal to investors in early October. They were on the road at the same time investors were accepting a tender for two outstanding bonds.

In the end, investors holding $160.3 million of the $300 million deal accepted the tender, while $185.1 million of the $450 million bond was tendered. On October 13, the same day that ICTSI closed its tender offer, the company launched a new deal.

Since the response on the roadshow was good, ICTSI authorised its bankers to float initial price guidance of 5.25% for the new perpetual bond, which comes callable in May 2024. That sucked enough investors into the book for ICTSI to hit its target — and it ended up pricing a $375 million bond with a yield of 5%, off an issue price of 99.225 and a coupon of 4.875%.

By FinanceAsia’s calculations, before the tender offer the company was paying interest of $43.5 million a year for $750 million of hybrid capital. It has now reduced the interest cost to $41.5 million a year at the same time as increasing its hybrid capital base to $779.6 million.

There are few better results a company could hope to achieve.


DBS $750m AT1 bond

Global coordinator: DBS

Bookrunners: Deutsche Bank, HSBC and Societe Generale

There were a few rivals for the best deal in Singapore this year. Temasek’s $866 million privatisation of SMRT proved a storming success despite earliy scepticism from shareholders. Manulife US Reit’s $470 million listing reopened a market that had been shut all year.

But DBS’s eye-catching bank capital transaction stood out from the crowd.

The Singaporean bank — together with its fellow bookrunners Citi, Deutsche Bank, HSBC and Societe Generale — found enough demand to issue a $750 million additional tier-one bond with the lowest-ever coupon achieved in the format.

The syndicates hit the international bond markets on 30 August with an initial price guidance of 4% area, before tightening it to 5bp each side of 3.65% — and eventually closing the deal at the tight end. That is a level that bankers think will be tough to beat for years to come.

DBS also won FinanceAsia's borrower of the year award. See the write-up tomorrow for more on the success of the bank's AT1 transaction.


The Republic of Sri Lanka’s $1.5 billion bond

Global coordinators: Citi, Deutsche Bank, HSBC and Standard Chartered.

The Democratic Socialist Republic of Sri Lanka took advantage of strong demand in the international credit markets in July, raising $1.5 billion through a dual-tranche deal to re-build its foreign-exchange reserves.

The country had last come to market with a $1.5 billion 10-year bond in October 2015. That deal was well timed from the government’s perspective, coming off the back of a previous emerging markets rally. But it was disastrous for investors, coming ahead of a balance of payments crisis that saw Sri Lanka head to the IMF for a $1.5 billion Extended Fund Facility.

All three rating agencies reacted to the balance of payments crisis by adjusting their ratings. Fitch downgraded the sovereign from BB- to B+ in February, while Standard & Poor’s assigned a negative outlook to its B+ rating in March, and Moody’s followed suit with its B1 rating in late June.

That made a new transaction a potentially tough sell. But bankers were able to steer the country well, generating an order book of $3.5 billion — around $200 million over the demand they built for the last transaction. Sri Lanka used that demand to sell a $500 million five-and-a-half year bond and a $1 billion 10-year bond.

The final pricing of the $500 million bond was fixed at par on a coupon of 5.75%, an impressive 37.5bp inside of initial guidance. A total of 200 accounts participated with 35% placed into the US, 37% into Europe and 28% into Asia.

Interested in opportunities in Sri Lanka? Find our more at FinanceAsia's second Sri Lanka Investment Summit in Hong Kong on March 16. 


Hon Hai Precision’s ¥388.8 billion  acquisition of Sharp

Target advisers: Mizuho, Mitsubishi UFJ Morgan Stanley Securities

Acquirer adviser: JP Morgan

When Terry Gou, founder and chief executive officer of Taiwanese electronics company Hon Hai Precision, announced plans to acquire Sharp it appeared that he was taking a large gamble.

Gou was preparing to take over a loss-making company with eroding market share in some of its key businesses. He was also going to have to be willing to stump up enormous amounts of capital to turn it back into a genuine player, in the display panels business in particular.

“If you asked me, would I have the guts to proceed with such a large transaction? I wouldn’t,” a person close to the negotiations told FinanceAsia at the time. “But that’s what it takes to differentiate a visionary CEO from others.”

The apparent risks of the transaction became even greater near the end of the bidding process.

Hon Hai — also known as Foxconn Technology — is understood to have conducted more than 100 discussions with various advisers about acquiring Sharp in the six months before launching the deal. Gou certainly went into with his eyes wide open. But an eleventh-hour revelation that Sharp faced up to ¥350 billion ($3.1 billion) in contingent liabilities put the deal on ice.

There were two options for Gou at that point: he could walk away, or he could use this information to his advantage. Knowing he was in a position of strength as the sole remaining bidder, he chose the latter —negotiating a ¥100.2 billion drop from the original price.

Hon Hai ended up investing ¥338.8 billion in Sharp through the issuance of new shares, depositing ¥100 billion to make sure the deal went through. Hon Hai structured the deal using subsidiary shareholders in order to avoid consolidating the Japanese company.

It is still too early to tell whether the acquisition will be seen as a stroke of genius or a move too far. But for his boldness, his resilience and his willingness to play for the long-term, Terry Gou and his company deserve recognition for pulling off the best deal in Taiwan.


Casino’s Bht122.16 billion sale of 58.56% of Big C Supercentre to BJC

Seller advisers: Bank of America Merrill Lynch, BNP Paribas, Credit Agricole, Credit Suisse, Goldman Sachs, HSBC, JP Morgan, Natixis, Rothschild, Societe Generale

Acquirer adviser: Morgan Stanley


Casino’s €920 million sale of Big C Vietnam to Central Group

Seller advisers: BNP Paribas, Credit Agricole and HSBC

Acquirer advisers: Citi and Deutsche Bank

The best deals in Thailand and Vietnam this year should best seen as part of one movement — the decision by French retailer Casino to reduce its debt level after Standard and Poor’s put it on credit watch. The company shored up its balance sheet by selling its stakes in supermarket chain Big C in both countries.

The sales occurred almost simultaneously. Casino announced its disposal of Big C Thailand in February, and announced its sale of Big C Vietnam in April. That raised the French company $7.5 billion overall.

There's a sale on: Big C

Casino sold its 58.56% stake in Big C Thailand to BJC, a subsidiary of Thai billionaire Charoen Sirivadhanabhakdi’s TCC Group. The company paid Bht122.16 billion ($3.4 billion) for the stake, although since the majority stake sale triggered a mandatory takeover offer, BJC ended up having to bid $5.8 billion for the company.

The deal gave Casino a premium of 28% to the last trading price, and implied a valuation of 17 times Ebitda, according to bankers. The multiple Casino achieved in Vietnam was even better.

Central Group, the giant Thai retailer owned by the Chirathivat family, won the bidding for Big C Vietnam, paying €920 million ($1.1 billion) for the company. That implied a multiple of 20.4 times Ebitda.

Casino managed to pull off the largest retail M&A deal in Vietnam, and the second largest Southeast Asia food M&A, with its Thailand deal. But it also managed to meet a pledge it had made to investors.

Casino had outlined a €4 billion develeraging plan. The sale of the two Big C stakes easily achieved that, bringing in €4.2 billion.

The fact that the deals were being marketed at the same time added a degree of complexity to bankers and executives working on the deals, although this was no doubt helped by the fact that BNP Paribas, Credit Agricole and HSBC were advisers on both transactions.

More impressive was how smoothly Casino was able to achieve its objectives, despite potential bidders knowing it felt compelled to sell. But although the company certainly deserves credit for its efficiency, bankers should be applauded for lining up strong bids that allowed the company to achieve its objectives smoothly — and quickly.

In the end, the transactions were too late to stop the downgrade from happening. After putting Casino on review for downgrade in December, S&P downgraded it by one notch to BB+ in the middle of January, before either deal closed. But that should not distract from the clear success of two disposals that significantly reduced Casino’s debt.

Southeast Asia’s M&A markets are too often bereft of eye-catching deals. But sometimes two come along at once, and it becomes clear that they both deserve recognition. In Vietnam and Thailand, Casino undoubtedly pulled off the most impressive deals of the year.

¬ Haymarket Media Limited. All rights reserved.
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