China Awards

China's best capital market deals of 2019

In the second instalment of our China Awards series, FinanceAsia reveals the thinking behind our awards for Best Deals and Borrowers.

FinanceAsia has already announced the winners of our China Awards for best service providers, best transaction banks and solutions, best deals of the year and best banks overall.

Over four articles, we explaining the rationale behind each of our awards and the contributions that the institutions we recognise have made to the positive development of China's capital markets in the review period beween July 1 2018 and June 31, 2019.

In the third part of that series, we run through FinanceAsia's award winners for the best equity and debt deals of 2018-2019 and explain why we believe that their victories are deserved. All of them are worthy victors.  

Many of the deals gripped the attenion of investors as they unfolded, from Anta-led consortium’s $6.3 billion acquisition of Amer Sports to Heineken’s $3.1 billion strategic investment in CRH (Beer). Certainly their effects will be felt for a long time to come. 

FinanceAsia's China Awards 2019 are organised in conjunction with CorporateTreasurer, our sister publication.

Deal of the Year: Anta-led consortium’s $6.3 billion acquisition of Amer Sports

Buyside financial advisor: Citi Sellside
Financial advisor: Goldman Sachs
Buyside legal advisors: Paul, Weiss, Rifkind, Wharton & Garrison, Freshfields, Kirkland & Ellis, Roschier, Fangda Partners
Sellside advisor: White & Case

With China gearing up to host its first Winter Olympics and Paralympics in 2022, the Mascot Bidco Oy consortium, led by Chinese sportswear giant Anta Sports Products, completed its acquisition of Finland’s Amer Sports in March.

The mammoth deal was the biggest-ever outbound acquisition by a Chinese sports company and the biggest Chinese outbound M&A deal by a non-state entity in over a year.

It was valued at €5.6 billion ($6.3 billion), with Anta taking a 58% stake in the company that manufactures Wilson tennis rackets, Salomon sports gear and Arc’teryx outdoor clothing. Buyout firm FountainVest Partners took a 15.8% stake, Anamered Investments, which is owned by Canadian billionaire Chip Wilson, took 20.7% and tech giant Tencent took 5.6%.

The consortium agreed to offer €40 per Amer share in cash and the acquisition was backed by an oversubscribed €2.2 billion five-year recourse loan as well as a €2.015bn debt package.

The deal cemented Anta’s reputation as a global sportswear company. It is best known as the sponsor of NBA stars Klay Thomson, Kevin Garnett and Rajon Rondo, as well as of Filipino boxing world champion Manny Pacquiao.

The wisdom of the deal was confirmed in Anta’s first-half results, released towards the end of August. Profits were up 27.7% to Rmb2.48 billion (US$316.2m) on revenues that jumped 40.3% to Rmb14.8 billion.

Best M&A Deal: Heineken’s $3.1 billion strategic investment in China Resources

Buyside financial advisor: JP Morgan
Sellside financial advisors: UBS, Nomura

Buyside legal advisor: Davis Polk & Wardwell

It is rare for a deal to change the competitive landscape of a market, but that is precisely what Heineken’s $3.1 billion strategic investment in CRH (Beer), the owner of China Resources Beer did for the Chinese beer sector in early August last year.

The deal proved to be an important and strategic opportunity for both CRH and Heineken.

China Resources Beer, the market leader in the world’s largest beer market, has since been able to strengthen its position as it focuses on premiumisation. It has been able to use Heineken’s established global network to promote and internationalise its own beer brands with the help of Heineken’s well-known premium brand-building capabilities and its world class international brand portfolio.

As for Heineken, the Dutch brewing company now has an opportunity to realise its potential in China’s beer market thanks to CRH’s best-in-class route to market network, a wide brewery footprint and deep understanding of the Chinese market.

“We believe that our strategic alliance will maximise synergies, enhance the long-term competitiveness of both companies and further increase our market share in China’s premium beer market,” said Chen Lang, chairman of China Resources Beer, in a statement in November last year. “It will bring together the competitive advantages of Heineken’s international premium brands with CR Beer’s leading position and rich experience in the Chinese beer market.”

And it seems to have done precisely that. In an upbeat analyst report towards the end of August, Citi estimated that China Resources Beer in the next five years could double its market share to 30% in the high-end beer market following the launch of Heineken’s products by next year. Shareholders certainly agree. Hong Kong-listed China Resources Beer's share price has climbed almost 25% since then.

Best Equity Deal: Megvii $750m Series D fundraising

Legal advisor: Davis Polk & Wardwell

One of the largest private fundraisers this year, Chinese artificial intelligence unicorn’s Megvii’s $750 million Series D fundraising in April, shows the continued demand for disruptive technologies.

What makes the Beijing-based company different is that its technology works. The eight-year-old company is one of few to have commercialised AI-enabled solutions.

“We aim to accelerate our development as a trusted global leader in AI and the [Internet of Things], empowering humans and enabling industrial progress,” said founder and chief executive Yin Qi.

Commercial banks such as Industrial and Commercial Bank of China (ICBC) and Bank of Beijing already use Megvii’s facial recognition technology, known as Face++, to help authenticate payments and other banking services. Smartphone developers like Oppo and Vivo use Megvii’s technology in their mobile devices and the company counts China Life Insurance, China Citic Bank, Foxconn Technology Group, as well as China’s State Taxation Administration among its customers.

Investors in its Series D round of funding include Bank of China Group Investment, a private investment arm of the state-owned bank, and ICBC Asset Management. Foreign investors such as Macquarie Group and a subsidiary of Abu Dhabi Investment Authority, one of the state’s sovereign wealth funds, also participated.

Megvii’s total fundraising since it was founded in 2011 comes to around $1.2 billion and the firm is valued at more than $4 billion.

Investor faith in Megvii is paying off. In late August the company filed for an IPO in Hong Kong that could raise as much as $1 billion with Citigroup, Goldman Sachs and JP Morgan as joint sponsors

Best IPO: Ningxia Baofeng Energy Group Rmb8.15 billion ($1.1 billion) Shanghai IPO

Bookrunner: Citic Securities

This year’s best IPO award goes to the largest A-Share initial public offering for a domestic private enterprise since the foundation of the Shanghai Stock Exchange. In mid-May, coal chemicals producer Baofeng Energy raised Rmb8.15 billion ($1.1 billion).

The May flotation, managed by Citic Securities, hit a number of firsts. It was the largest A-Share IPO in Ningxia Province history and also the largest IPO in the western part of China for the past eight years.

Baofeng sold 10% of its enlarged share capital, or 733.4 million shares, to raise Rmb8.15 billion ($1.2 billion). The IPO priced at Rmb11.12 per share, delivering a punchy price/earnings ratio of nearly 23 times. 

The proceeds raised, it said, would be used to expand the production of polyolefin and to repay bank loans.

Underlining just how significant the deal was is the fact that it took just 27 days – a record-fast time – from approval by the China Securities Regulatory Commission to listing. The average time it normally takes is three to six months.

Then there was the oversubscription. Offline, 5,194 accounts managed by 2,690 offline investors become effective allotment entities, while online, the oversubscription rate was more than 407 times.

There is also a social aspect to the deal. Headquartered as it is in the Ningxia Hui Autonomous Region, the expansion of Baofeng Energy is expected to contribute to the regional employment, taxation, education and community development and play a significant role in the Western Development Project as well as the Belt and Road scheme.

Best Corporate Bond: BYD Rmb2.5 billion corporate bond

Bookrunners: UBS, Ping An Securities, Tianfeng Securities

When it was founded in 1995, BYD – the initials stand for “Build Your Dream” – focused on rechargeable batteries as its core business. It moved into the auto sector through its acquisition of the then-struggling domestic auto manufacturer Tsinchuan Automobile in 2002.

It hit public consciousness in 2008 when Berkshire Hathaway took a 10% stake and the Shenzhen-based company remains one of the world’s largest producers of battery-powered and hybrid vehicles.

In April this year and with the help of UBS, BYD raised Rmb2.5 billion (US$349 million) through the sale of five-year paper at 4.6%, part of the largest single programme issued by a privately owned enterprise this year.

BYD has a close relationship with UBS – this transaction is the 13th time that the Swiss bank has provided financial services for the company and the seventh time it has acted as lead manager of its onshore debt financing.

Execution of the bond was slick. Reverse roadshows were arranged before the issuance to attract potential investors, laying a solid foundation for successful issuance. BYD also adopted the greenshoe option with a basic size, which provided the issuer with more flexibility and capacity.

Conscious of its own debt structure, BYD looked at a claw-back clause to relieve concentration risk and eventually went with a five-year non-put three structure.

The issue was oversubscribed and attracted a total of 26 diverse institutional investors, with the majority of the paper going to funds.

The company remains a success. Towards the end of August, BYD reported a 204% jump in first-half profits to Rmb1.45 billion ($205.3 million) with revenues that rose 15% to Rmb62.2 billion on the back of a 95% rise in so-called new energy vehicles between January and June.

Best Green Bond: China General Nuclear Power Corporation $1.1 billion dual-currency triple-tranche green bond

Bookrunners: Agricultural Bank of China, BNP Paribas, Bank of China, China Construction Bank, China Everbright Bank, China Merchants Bank, Crédit Agricole, DBS, Industrial & Commercial Bank of China, OCBC, Standard Chartered Bank
Green Structuring Advisors: Crédit Agricole, BNP Paribas

China General Nuclear Power Corporation’s $1.1 billion dual-currency triple-tranche green bond was an issue that harmonised with international standards and showed Chinese issues could attract a significant international book

Following in the footsteps of its successful issuance of dual-currency bonds last year, the state-owned energy corporation successfully launched a dual-currency three-tranche bond deal in September.

As expected, the five-year $500 million tranche was well-covered within two hours and books eventually hit $1.5 billion. This allowed bookrunners to tighten in pricing by a hefty 25 basis points, one of the largest tightenings this year. It eventually went out with no new issue premium at 3.875%.

Thanks to a reverse inquiry, there was a US$100 million 30-year tranche. It attracted a number of high-quality long-term investors, including world-renowned insurers, banks and asset managers, and was priced at par to yield 4.8%, or US Treasuries plus 173.4bps.

Alongside these US dollar tranches, China General Nuclear Power Corporation also sold a €500 million ($555 million) seven-year euro Green bond tranche. The roadshow highlighted the energy corporation’s aspiration to become a world-class clean energy provider and that successfully secured green interest.

Strong demand of €750 million allowed pricing to come in from guidance to go at 99.696 to yield 2.04%, or mid-swaps plus 150bp.

But what was significant was the book. While the 92% of the US dollar five-year issue, for example, came from Asia, the majority of the euro tranche book – 51% – came from asset managers, funds, insurance, corporates, private banks and others in the European (EMEA) region.

The issue is rated A3/A (Moody’s/Fitch).

Best Venture Capital Deal: Hunliji $70 million Series D1 fundraising

Financial advisor: La Clede Investment Advisory

The $70 million Series D1 round of funding in March for Hangzhou-based marriage services platform Hunliji – it means “wedding planner” – has been named best venture capital deal of the year.

In just six years, Hunliji has become the leading tech company in the marriage industry market. It dominates the sector so much that it claims more than 50 million users and almost 200,000 wedding services merchants across 400 cities.

The round was led by existing investors Matrix Partners China and Orchid Asia.

Founded in 2013, the group has raised more than $165 million so far, according to Crunchbase. And since its Series A round in September 2014, which was led by Vertex Ventures, it has been supported by Matrix Partners China and Orchid Asia as well as Fosun.

Hunliji started off as a simple wedding-service platform and has evolved into a platform on which shops can list their services online – this includes wedding dresses, wedding photos, honeymoon services, hotels and decoration. It has offices across the country.

Although the overall number of marriages is declining across the country, the average spend for those who tie the knot is increasing and Hunliji is capitalising on a Chinese wedding market that is likely to exceed Rmb3.3 trillion (US$490 billion) by 2021, according to third-party research firm Qianzhan.

Key to the company’s development is its plans to combine online and offline experiences. Hunliji plans to open more than 300 Marriage Experience stores this year.

Best Private Equity Deal: Carlyle and Meinian’s $440 million acquisition of Adicon

Sellside financial advisor: Goldman Sachs
Buyside legal advisor: Paul, Weiss, Rifkind, Wharton & Garrison
Sellside legal advisor: O'Melveny & Myers

The $440 million acquisition of diagnostic group Adicon by US investment firm Carlyle Group and Meinian, the largest professional health examination and medical treatment services group in China, has paid off handsomely for both companies. Because not only does the deal allow them to capitalise on the demand for diagnostic test outsourcing in the country, it also confirms Carlyle’s leadership position in China’s healthcare sector.

“Adicon is a platform company, which taps into the sustained growth and innovation in China’s healthcare market and helps the health system achieve cost savings. We have seen independent clinical laboratory leaders grow into substantial businesses in mature markets, and believe Adicon has similar potential,” said Ling Yang, managing director at the time of the Carlyle Asia buyout advisory team.

Equity for the investment came from Carlyle Asia Partners V, Carlyle’s flagship $6.55 billion fund focused on buyout and strategic investments across a range of sectors in the Asia-Pacific region.

Established in 2004, Adicon operates 20 fully owned diagnostic laboratories in China, offering diagnostic testing outsourcing services to more than 10,000 active customers, including hospitals, clinics and contract research organisations in 28 provinces.

The Chinese molecular diagnostics market is likely to grow to $1.8 billion by the end of 2024, according to Research and Markets. That growth is driven by the rising incidence of cancer and infectious diseases in China.

At the same time, the country’s wealthier middle class is able to pay more for the early detection of diseases, the consultancy said.

Best Panda Bond: BMW Finance Rmb3 billion panda bond sale

Bookrunners: Bank of China, Citic Securities

BMW has long been an enthusiastic issuer of asset-backed securities (ABS) in the Chinese market, but it is the German auto manufacturer’s debut renminbi-denominated bond that was the standout deal this year.

The Rmb3 billion ($447 million) three-year paper issued in March was the first European corporate deal issued under the new Panda Bond guidelines released by the People’s Bank of China last September. It was also the first automotive deal issued through a guaranteed structure. 

The offering was the first under BMW’s Rmb20 billion quota programme registered with the regulators.

Sold via BMW Finance NV, pricing on the deal was textbook. BMW priced through the comparables and managed to get the paper away within the pricing guidance of 3.60% to 4.20% – this despite onshore rates volatility during the week of pricing.

Not only is BMW a known name in the debt markets in China but pricing was also helped by an order book that was oversubscribed 1.25 times and with strong onshore and offshore demand.

In the end, it went at 4.00% with a minimal 34 basis-point new issue premium over the AAA corporate credit curve.

A significant point about the deal was that offshore investors could place orders through the Bond Connect link. In the end, 40% of the paper went offshore, something that has both helped with the internationalisation of the renminbi and made Panda bond issuance more popular.

Bank of China was lead underwriter for the deal, while Citic Securities was joint lead underwriter. HSBC and Standard Chartered were international advisers and sub-underwriters.

A sign that the deal was a success is that BMW returned to the market with an even bigger deal in July. This time it sold Rmb3.5 billion paper in two tranches with greater oversubscription and with a three-year tranche that priced inside its debut.

Best Structured Finance Deal: Suning Yunchang Rmb4.9 billion asset-backed securitisation

Bookrunner: CICC

The standout structured deal last year was the Rmb4.9 billion ($690 million) Suning Yunchuang ABS for China’s largest electrical appliance retailer, Suning Appliance Group.

Privately owned Suning has developed a synergetic landscape composed of smart retail, commercial real estate, retail logistics and fintech. And in this case, it saw an opportunity for a "quasi" real estate investment trust (Reit) securitised against 11 of its brick-and-mortar store properties in core commercial districts of Beijing, Chengdu, Chongqing, Changzhou, Wuhan, Kunming and Xi’an. 

All the properties boast premium sites and a good consumer base. Suning wanted to achieve 100% control of the equity and debt of the target asset holder via double special-purpose vehicles under ABS and trust schemes, and in this way indirect holding and final control of the target assets.

The ABS had three tranches, with an issuance size of Rmb2.872 billion, Rmb2.038 billion and Rmb10 million. The coupons for the Senior A and Senior B tranches were set at 6.20% and 7.50%, respectively.

The tenor was set to be 3+3+3+3+1 – with the end of each three-year cycle attached with a coupon rate adjustment option and an investor put option.

Managed by CICC, the real estate securitisation deal was the largest quasi-Reit offering last year. It was marked by professional and efficient execution, regulatory communication and marketing performance.

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