Awards for Achievement 2010: Day 1

Today we announce the defining deals of 2010 from each country. The deals can be an equity offering, an M&A transaction or a bond. In some cases, we have taken the opportunity to select a transaction that did not receive one of our major deal awards, but which very much deserves the recognition.

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 [email protected].

Agricultural Bank of China’s $22.1 billion IPO

Bookrunners: ABCI Securities, Deutsche Bank, Goldman Sachs, J.P. Morgan, Macquarie, Morgan Stanley, China International Capital Corp, Citic Securities, China Galaxy Securities, Guotai Junan Securities
Legal advisers: Allen & Overy, Davis Polk, DeHeng Law Offices, Freshfields, Haiwen & Partners, Herbert Smith

While the size of this deal is eye-catching in itself, it is when you set it against the transformation the former agricultural sector policy bank has gone through in the past 10 years to get it to a point where it could contemplate a listing at all, that the extent of the achievement becomes clear. Like several of the other IPOs that are being recognised with awards this year, ABC completed its dual-listing in Shanghai and Hong Kong at a time when the Chinese equity markets were severely underperforming and the international markets were highly volatile, leading to the cancellation of numerous IPOs globally. Even so, the bank set itself a tough deadline to get the deal done in just three months, from mandate to debut, to grab what it viewed as a viable market window and avoid clashing with the significant follow-on share sales being flagged by its domestic peers. And with executive vice president Pan Gongsheng keeping a firm grip both on the IPO process and the bookrunners involved, the bank was able to achieve its ambitious target.

The level of demand may not have broken any records -- some say the $2.8 billion of retail orders was a disappointment even – but the deal did demonstrate the depth of the Hong Kong market and as such showed the way for AIA’s IPO a few months later, which was even larger in terms of the capital it raised from the Hong Kong market alone.

The deal is also noteworthy for ABC’s close involvement in the cornerstone process: the bank started discussions with potential investors that it felt would bring value from a business point of view in addition to helping put the IPO in the global spotlight, as much as one year before the listing. This resulted in the largest ever cornerstone tranche for a Hong Kong IPO ($5.5 billion), and a strong line-up of high-quality support that underpinned both the anchor investor process and the bookbuilding itself.

Add a marketing strategy focusing on both long-term and short-term growth drivers (exposure to high-growth county areas and financial benefits from pre-IPO restructuring), a fair pricing just above the mid-point and a 30% gain in the first five months and pretty much all the boxes for a well-executed deal were ticked.

L’Occitane International’s $787 million IPO

Bookrunners: CLSA, HSBC, UBS
Legal advisers: Freshfields, Arendt & Medernach, Linklaters, Zhong Lun Law Firm

The competition for best Hong Kong deal included the growing number of so called dim sum bonds and Cheung Kong Infrastructure’s massive acquisition of Electricite de France’s distribution business in the UK, but it seems appropriate that the award go to a new listing given the record IPO volumes in Hong Kong this year. While not the largest newcomer in the past 12 months, L’Occitane successfully reignited the emerging trend of non-Asian companies going public in Hong Kong that had cooled after UC Rusal’s disappointing debut in January, and the French cosmetics and skincare maker is viewed to be largely responsible for making other high-profile companies, like Prada, seriously consider the Hong Kong market. The bookrunners created momentum by bringing in China Investment Corp as a cornerstone and by stressing the company’s expansion focus on Asia, China and the rest of the Bric countries. This also allowed the company to price at a premium to global peers like l’Oreal and Estee Lauder, which generate a majority of their sales in Europe and the US. Having completed the IPO against a challenging market at the end of April, L’Occitane’s share price has continued to rise and by early December was up more than 40%.

Bharti Airtel’s $10.7 billion acquisition of Zain Africa
Advisers to Bharti: Standard Chartered Bank, Barclays Capital, SBI Group, Global Investment House, Kuwait
Advisers to Zain: BNP Paribas, UBS
Legal advisers: AZB & Partners, Herbert Smith, Linklaters

Bharti’s takeover of Zain’s African assets seemed at the outset like an obvious choice. The multi-billion dollar deal closed in record time, went through several permutations and combinations due to multiple jurisdictions and an asset carve-out, and achieved Bharti’s aim of expanding its presence to Africa. But critics – and there were many – highlighted that the M&A adviser’s role was limited as no introduction was required and Bharti’s crack finance team did much of the negotiating. Another allegation was that the advisers were asked at the outset to provide balance sheet support and thus only lending banks really stood a chance to win a role.

But after listening to all the arguments we came full circle and are further convinced the deal still merits recognition. It is not uncommon for deals to be transacted between principals who know each other. And we heard time and again during pitch season that the ability to arrange financing will increasingly drive M&A going forward.

Bharti has become a truly international telecom player after the acquisition and it succeeded in financing the deal on competitive terms. The company has already been upgraded by analysts – a mere six months after the Zain acquisition -- who cite the fact that Bharti is extracting synergies even quicker than anticipated.

Cikarang Listrindo’s $300 million bond

Lead managers: Barclays Capital, Credit Suisse
Legal advisers:
Davis Polk; Hiswara Bunjamin & Tandjung, Shearman & Sterling, Makarim & Taira S

The inaugural international bond issue by Cikarang Listrindo, an Indonesian independent power producer, successfully fought off a weak and volatile market environment to attract orders worth 5.5 times the deal size, and even priced at the tight end of the guidance range to investors. This was in no small measure due to the company and its advisors listening to investors during a global road show that incorporated several one-on-one meetings, and then responding by creating an enhanced transaction structure. Key features included a debt service reserve account and an amortisation schedule. Even at the outset, the deal looked clever, using a double special purpose vehicle structure to address new withholding tax regulations.

High-quality asset managers bought most of the five-year bonds, which were re-offered at a 9.5% yield, and more than 50% was placed in the US. The total book size was $1.6 billion split on 142 accounts, and the lead managers could boast of a substantial conversion of preliminary meetings into final orders. Strong unfulfilled demand meant that the bonds traded higher in the secondary market, despite continued weakness in Asian markets in general. The credit qualities of this high-yield borrower also helped. It operates in a defensive industry in a rapidly growing country, and it has a reputation for managing its finances well.

Samsung Life Insurance’s $4.4 billion IPO

Bookrunners: Bank of America Merrill Lynch, Goldman Sachs, Korea Investment & Securities, Morgan Stanley, Shinhan Investment Corp
Legal advisors: Cleary Gottlieb, Kim & Chang, Shin & Kim, Simpson Thacher & Bartlett

While size by itself is not a guarantee for winning an award, it is hard not to consider the largest ever IPO in a particular country as a contender – especially when the deal is well executed and had to fight quite a few negatives to get to the finish line. Samsung Life is one such deal. Being the third Korean life insurer to go public in seven months, and coming just weeks after a very chilly reception for Korea Life’s IPO, it was critical to instil confidence about impending success – not least for the selling shareholders.

The bookrunners chose to target hedge funds pre-launch to have the entire deal covered on day one. Together with Samsung Life’s market-leading position and strong brand name, as well as the bookrunners’ skilful navigation of a deteriorating market environment, an ongoing law suit with creditors, Prudential’s mega rights issue and billions of dollars of expected share sales from the Chinese banks, this ensured strong momentum throughout the bookbuilding and allowed the company to set a solid valuation benchmark for the sector. Notably, this benchmark came at a premium to its Korean peers without going overboard, prompting investors to flock to, rather than flee the offering. The 40% international portion was 10 times covered and attracted more than 250 accounts. The positive sentiment generated during the roadshow even pushed up Korea Life, which had traded poorly since its own debut six weeks earlier.

In all, a worthy winner in a year when equity deals from Korea captured almost as much international attention as the country’s usual deluge of G3 bonds.

Petronas Chemicals' $4.1 billion IPO

Bookrunners: CIMB, Deutsche Bank, Morgan Stanley
Legal advisers: Adnan, Sundra & Low, Albar & Partner, Cleary Gottlieb, Shearman & Sterling

For the second year running, our top accolade for Malaysia goes to an IPO, and like Maxis in 2009 it is a listing that pushed the boundaries in terms of what the Malaysian market is capable of absorbing. A spin-off from state-owned oil and gas giant Petroliam Nasional (Petronas), Petronas Chemicals was also part of the government’s efforts to develop the local equity market through the introduction of more liquid stocks. At a deal size of $4.1 billion, Petronas Chemicals was the largest-ever IPO in Malaysia and Southeast Asia, as well as the largest chemical sector listing globally, evoking envy among bankers not on the deal.

The size and the links to Petronas helped attract early interest from international investors, while an extensive investor education, cornerstone and anchor process ensured the deal remained on their radar screens amid a heavy equity calendar that made the buy-side increasingly selective and led to the downsizing or cancellation of several other offerings in the market at the same time. A surge of orders on the final day left the institutional tranche 18 times covered and prompted a large number of investors to remove their price limits, opening for a pricing at the top of the range – at a small premium to the closest comp. The stock traded slightly above issue price in the weeks after the November 26 debut even as equity markets around Asia came under pressure, bringing further testament to the solid execution of the deal.

Republic of the Philippines’ Ps44.1 billion ($1 billion) peso global bond

Bookrunners: Citi, Credit Suisse, Deutsche Bank, HSBC, J.P. Morgan, Goldman Sachs
Legal advisors: Cleary Gottlieb; Romulo

Few deals have shaped a country or its capital markets the way the Republic of the Philippines’ peso global did. The concept of selling a local currency-denominated bond to global investors had long been pitched by bankers but had never gained traction in Asia.

Detractors pointed out that such a bond could hurt liquidity in the onshore market. But the Philippines persevered and took the leap of faith required to go ahead with the debut deal. Its boldness was abundantly rewarded as the bonds priced inside its domestic curve, despite a sharp rally ahead of the deal launch, and succeeded in raising $1 billion equivalent – about five times the usual size of its domestic bond auctions.

Crucially, the bond enabled the sovereign to reduce its US dollar debt and diversify its investor base. The peso global also set a new benchmark for the Philippines and the 5% yield was the lowest ever paid by the Philippines for a US dollar or peso bond.

The bond was timed beautifully, launching amid resurgent appetite for appreciating Asian currencies. With US Treasury yields hovering at all-time lows, emerging market funds were scouring the globe for yield and a chance to get exposure to Asian currencies. The deal was also flawlessly executed, gathering an astounding orderbook of $13.5 billion through a bookbuilding process that lasted 16 hours. It also rewarded investors -- including some that were new to the sovereign -- as the bonds rallied strongly in the secondary market.

Temasek Holdings’ S$1billion 40-year bond

Bookrunners: DBS, Standard Chartered

2010 is a record year for the Singapore dollar bond market, not just in terms of volume, but when it comes to breadth and depth as well. Amid a slew of deals, Singapore state investment agency Temasek’s S$1billion ($766 million) 40-year bond stood out as a pioneering deal. It was the longest Singapore dollar-denominated bond issued to date and set a new benchmark for the domestic bond market, where long tenors are few and far between. Singapore’s swap offer rate does not extend beyond 30 years and the government securities curve only go as far as 20 years.

The 40-year bond was driven by reverse enquiries and smartly capitalised on demand from pension funds and insurance companies seeking ultra long tenor. It came within 72 hours of Temasek issuing its sterling bond and reflected the investment agency’s ability to tap different pockets of investors within a short space of time. Pricing was also punchy – the bond offered a coupon of only 4.2%.

The deal captured rare offshore demand for a Singapore dollar bond, with Hong Kong investors accounting for 12% of the demand.

In 2010, no other issuer did more for Singapore’s bond market than Temasek. The state agency methodically set up a yield curve, which provided a reference point for other companies within its stable to issue their own bonds. The 40-year bond captured this trend and stood out for pushing the boundaries of the Singapore dollar market.

Sri Lanka’s $1billion 10-year sovereign

Bookrunners: Bank of America Merrill Lynch, HSBC, Royal Bank of Scotland
Legal advisors:
FJ & G de Saram, Davis Polk, Milbank Tweed

Sri Lanka struck the right chord with investors with its $1billion 10-year global bond. The deal captured the country’s turnaround story and rode on optimism about its economic prospects, with Sri Lanka having ended a 25-year civil war with the Tamil Tigers in May 2009.

The bond was well calibrated to satisfy investors’ appetite for bonds with longer durations. It was Sri Lanka’s first 10-year bond and no doubt helped establish a vital benchmark, extending the country’s yield curve beyond five years for the very first time.

The bond also banished bad memories of Sri Lanka’s previous visit to the G3 bond market in 2009. At that time, the bonds spiked more than two points in secondary trading, prompting fierce criticism that it had been mispriced and that the sovereign had paid too much.

This time round, the leads got the balance right. The bonds rallied in secondary, but not excessively so. The timing of the deal was impeccable, coming just weeks after Standard & Poor’s had upgraded Sri Lanka’s long-term foreign currency rating to B+ from B on September 14. It also launched amid buoyant demand for emerging-market names. All this helped the deal to gather an impressive $6.5 billion order book and price at the tight end of guidance for a yield of 6.25%.

Capital Securities $422 million acquisition of Taiwan International Securities Corp

Adviser to TISC: Morgan Stanley

M&A deals in Taiwan have had a run of bad luck, with some of the highest profile announcements falling by the wayside before finish. That is why this deal, which went ahead smoothly, merits recognition. The transaction was founded on sound rationale that the fragmented Taiwanese securities market is ripe for consolidation. TISC, which has a history dating to 1988, was the 13th ranked player in the local brokerage market. Morgan Stanley convinced the two major shareholders of TISC, who had differing opinions about how to run TISC, about the logic of a combination with Capital. The US investment bank then worked with regulators to ensure the transaction secured requisite approvals. The deal created Taiwan’s fourth-largest securities brokerage and second-largest independent securities house. It was structured as a cash and stock offer to entice TISC shareholders to tender their shares, and enabled Capital to corner 89.61% of TISC. The tender offer was the first in Taiwan’s financial services industry since 2006 and the largest ever. It also marked the first time a Taiwanese acquirer had used a combination of cash and new shares. After the takeover, Capital is poised to become a force to reckon with in the securities industry in Taiwan and to pursue further takeover opportunities in Greater China.

Thai Union Frozen Products’ $884 million acquisition of MW Brands

Advisers to Thai Union: Morgan Stanley, Bualuang Securities
Adviser to Trilantic Capital Partners: UBS
Legal advisers:
Allen & Overy, Clifford Chance, Hunton & Williams, Latham & Watkins

Thai Union became a global name in the seafood industry in July when it acquired French tuna company MW Brands for €680 million ($884 million) from Trilantic Capital Partners. Trilantic, the former private equity arm of Lehman brothers, had pipped Thai Union to the post for MW Brands in 2006 when Heinz first sold it.

Broadly speaking, the deal represents the classic M&A situation which has emerged after the financial crisis -- a private equity firm trying to make a profitable exit selling to an Asian buyer with global ambitions, which is based in a country whose domestic banking system is flush with cash. But Thai companies have not been as quick to announce cross-border acquisitions as some of their Chinese and Indian counterparts. And Thai banks, which are lending Thai Union around $500 million to finance the deal, have not hitherto been used to providing financing for cross-border deals. So, the deal was definitely novel.

For Thai Union, which earned revenues of $2 billion in 2009, the deal is transformational. The company’s Chicken of the Sea brand is the third-biggest in the US. MW Brands adds the John West and Petit Navire brands, which sell mostly in the UK and France. In one shot, Thai Union’s revenues from Europe will increase three-fold from 11% of its total top-line currently, to more than one third.

We reckon these ingredients combined, make the deal worthy of note for Thailand.

Socialist Republic of Vietnam’s $1 billion global sovereign

Lead managers: Barclays Capital, Citi, Deutsche Bank
Legal advisers: Allen & Overy, Davis Polk, YKVN

Vietnam has had a difficult year with credit rating agencies, and a tough time persuading investors that it could have a share in the Asian growth and recovery story. Yet, the republic was able to launch its first international bond since 2005, achieving tight pricing and allocating the paper to an impressive range of high-quality investors, notably in the US. The lead managers sold the 10-year bonds with a sub-7% yield and placed nearly three-quarters of the SEC 144a registered deal outside Asia, despite unsettled market conditions caused by US policy statements about future banking system reforms.

The issue, which came in late January, was priced inside Vietnam’s theoretical secondary curve, but was nevertheless 2.4 times subscribed. A worldwide road show primed demand, which wasn’t deflected by a brief delay of the launch when equity markets fell and credit default spreads widened. Clearly, scarcity value was a supportive factor and Vietnam provided an alternative to the usual offerings from Indonesia and the Philippines. The republic, meanwhile, gained a flexible source of funding and lowered its borrowing costs. The deal had been several years in preparation, but in execution, it was rapid and opportunistic.

¬ Haymarket Media Limited. All rights reserved.
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