Day 2: Awards for Achievement 2008

Today we announce our Deals of the Year.
SinosteelÆs $902 million acquisition of Midwest

Adviser to Sinosteel: J.P. Morgan
Adviser to Midwest: Morgan Stanley
Legal advisers: Deacons

Even in a year punctuated by China outbound M&A into a variety of target markets, SinosteelÆs A$1.36 billion ($902 million) takeover of Australian firm Midwest stands out as a pioneering deal. It was the first hostile takeover by a Chinese firm in Australia and the first hostile takeover by a state-owned enterprise. Further, Sinosteel emerged winner in a drawn-out competitive situation which tested both its mettle and that of its adviser.
In 2007 iron ore producer Midwest became the target of an unsolicited takeover offer by Murchison Metals, a mining and infrastructure firm. Midwest turned to Sinosteel, with whom it had a working relationship since 2005, to stave off the bid. Beijing-headquartered Sinosteel tabled an offer of A$5.60 per share to acquire shares in Midwest, acquired a 10% interest in the firm and fended off Murchison.
Sinosteel also embarked on negotiations with the Midwest management to acquire control of the firm. When management dragged its feet, Sinosteel took its offer directly to shareholders in March, offering investors a deal which was already approved by AustraliaÆs Foreign Investment Review Board. A month later, Sinosteel improved its bid and won the endorsement of Midwest management.
But Murchison resurfaced in May with an all-share reverse merger proposal, cannily structured so that Sinosteel would not be able to use its shareholding in Midwest to block the bid. SinosteelÆs subsequent decision not to engage in a bidding war, but hold its ground and launch a legal battle against Murchison, questioning the validity of some terms of the Murchison offer, was inspired. It created uncertainty in the minds of shareholders and made SinosteelÆs cash offer look even more attractive. Sinosteel went on to corner enough of MidwestÆs outstanding shares to effect a compulsory delisting.
The deal, which closed in September, was textbook M&A of the sort advisers dream about advising on. It required Sinosteel to react quickly and decisively, to plot its moves and to identify the weakness of its adversary. It also signalled how far Chinese firms are willing to go to secure natural resources. Hostile bids are always fraught with uncertainties and we cannot conclude that this deal will set off a flurry of such activity. But SinosteelÆs success will certainly inspire a few daring firms to think outside the box.

Daiichi SankyoÆs acquisition of Ranbaxy Laboratories

Adviser to Daiichi Sankyo: Nomura
Adviser to Ranbaxy Laboratories: Religare Capital Markets
Legal advisers: Jones Day, P&A, Vaish Associates

Japanese pharmaceutical companies, which are some of the most sophisticated and cash-rich companies in the world, started shopping for targets abroad last year to enrich their drug pipelines and counter the uncertain outlook for sales in Japan. But Daiichi SankyoÆs takeover of Indian generics firm Ranbaxy Laboratories at an enterprise value of $8.5 billion made an impact on various counts.
What made corporate India and M&A bankers sit up and take note was the target. The family members who owned a controlling stake in Ranbaxy and managed the business were third generation, and the grandchildren of the firmÆs founder.
If 2007 was the year advisers started aggressively marketing outbound M&A to Indian clients on the back of the Tata SteelÆs acquisition of Corus, the second half of 2008 was when they started thinking about which families in India could be willing to cash out of the businesses they inherited.
The timing was perfect. The credit crunch was making it difficult for Indian firms to pursue outbound M&A given their reliance on external sources of funding to close their deals. And uncertainties surrounding a global recession were making owners feel vulnerable about their businesses and their ability to weather a downturn.
We reckon this is the India deal this year that has spawned the maximum copycat attempts and will continue to do so.

EugeneÆs $2.12 billion acquisition of Hi-mart

Adviser to Eugene: Citi
Adviser to Affinity: Goldman Sachs
Legal advisers: Lee & Ko, Yulchon

In an environment hostile to private equity activities, still darkened by Lone StarÆs purchase of Korea Exchange Bank in 2003, Korean public opinion can quickly turn against private equity firms making what it perceives as excessive profits. So, full marks to Affinity Equity Partners for its profitable but quiet divestment of its holding in KoreaÆs biggest consumer electronics specialty retailer at the start of the year.
Affinity, a Hong Kong-based private equity firm, sold Hi-mart to Eugene Corporation for W1.95 trillion ($2.12 billion), valuing the company at 11.6 times 2007 Ebitda. It was the largest M&A transaction in the Asian consumer retail sector since 1994 û and the biggest ever in KoreaÆs consumer retail sector.
Eugene beat more than 10 competing bidders for the 100% stake in Hi-mart, which had been held by Affinity since April 2005, by offering the firm a ôclean exitö rather than the highest price. By taking a lower bid, Affinity averted potential criticism and avoided political sanction. And by guaranteeing the jobs of Hi-martÆs employees, Eugene, a conglomerate with interests spanning finance, construction and confectionary, kept the labour unions on side.

KKRÆs $575 million acquisition of Unisteel and acquisition finance facility

Advisers to KKR: Deutsche Bank, Morgan Stanley
Lead arrangers: DBS, Deutsche Bank, GE Commercial Finance, ING, Morgan Stanley
Adviser to Unisteel: Macquarie
Legal advisers: Allen & Gledhill, Lee & Lee, Simpson Thacher & Bartlett, White & Case, WongPartnership

Private equity firm Kohlberg Kravis Roberts & Co (KKR) emerged the winner in an auction for Singapore-listed Unisteel Technology in June with a bid that valued the target at S$785 million ($575 million). Unisteel is a precision engineering company, which listed on the Singapore Exchange in 2000.
The sale of Unisteel to KKR was announced at a time when credit markets were already dislocated. The leads embarked on a syndication knowing there were competing deals in the market and, further, that market conditions were deteriorating. And they were successful in finding long-tenor, cost-effective financing which met the requirements of KKR.
The deal established that as long as they are transacted at reasonable multiples, Asian markets remain open for leveraged buyouts. The $280 million acquisition finance facility attracted a consortium of nine participating banks.
This was one of the deals which almost everyone we spoke to had an opinion about. Some of the more honest bankers conceded this was the deal they missed this year. Others acknowledged that their concerns about a successful closure were misplaced. And in awarding the deal two of our key awards, we recognise that the banks who advised on it made the right call with regard to it being doable and then went on to successfully execute.

BlackstoneÆs $600 million acquisition of a 20% stake in Bluestar

Adviser to Blackstone: Merrill Lynch
Adviser to China National Bluestar Corp: UBS
Legal advisers: Simpson Thacher & Bartlett, Skadden

Financial sponsors have long been attracted by the growth opportunity in the worldÆs most populous country. But China has proven a difficult market. Many assets are termed strategic and in some instances private equity firms have ended up with investments which have given them limited say in decision-making thus little opportunity to add value. For buyout firms specifically, itÆs a challenge to find deals which give them exposure to the country and that are doable.
Late last year, US private equity firm Blackstone paid $600 million for a 20% ownership stake and proportionate board representation in specialty chemicals company China National Bluestar, a wholly-owned subsidiary of ChemChina.
The complexity of the deal was high as Bluestar has three listed units: Blue Star Cleaner, Shenyang Chemical Industry and Blue Star New Chemical Material. It also has a number of unlisted units. The advisers had to structure an investment which met all guidelines.
But, importantly, the structure also had to find favour with regulators. Securing requisite clearances has been challenging for private equity investments in China especially. The Blackstone investment successfully closed in October this year.
Blackstone views the investment as a partnership and is actively seeking ways to create value for itself and its partner. This deal could end up redefining how some buyout funds approach their China investments. And create a new kind of partnership.

Please go to the next page for more deal awards...

China Railway Construction CorpÆs $2.6 billion H-share IPO

Bookrunners: Citi, Citic Securities, Macquarie Capital
Legal advisers: Baker & McKenzie, Beijing Deheng Law Office, Freshfields, Jingtian & Gungcheng

In a year when it was a struggle to get most IPOs over the finish line and the poor market environment has dragged almost all newcomers into the red since listing, CRCC does deserve recognition for pulling off a sizeable offering that was flawlessly executed and generated record demand û even if part of that was due to the fact that China infrastructure is regarded as one of ôsafeö themes in a downturn. Supported by nine cornerstones, the total order amount reached HK$1.1 trillion ($140 billion) and the deal was the most popular with Hong Kong retail investors ever, allowing it to price at the top of the range.
After gaining 12% on its debut, the stock has impressed by holding above the IPO price for most of this year except for a six-week period in October and early November - proof as good as any that the distribution was solid. But the groundwork for a successful listing was laid much earlier when the bookrunners embarked on a comprehensive restructuring of the company û a five-level enterprise hierarchy with more than 1,000 subsidiaries - to form a core that highlighted CRCCÆs main business areas within railway and highway construction and which could be more easily be marketed to investors.
Together with the near simultaneous A-share listing, CRCC raised $5.7 billion from the IPO, making it the largest IPO in Asia this year and the second largest globally.

Beijing Capital International AirportÆs $300 million follow-on

Underwriter: UBS
Legal advisers: Fried Frank Harris Shriver & Jacobson

Beijing Airport needed fresh capital by June at the latest, but because of a decline in airline traffic and an increase in the acquisition cost for terminal three, the view on the stock was so negative that a simple vanilla follow-on equity offering would have required a massive discount to get out the door. UBSÆs solution was to look for a non-traditional anchor investor who could buy the bulk of the deal to ensure a successful transaction, but to still sell a smaller portion in the market through an accelerated bookbuild to create price tension. It found a willing buyer in GIC Infrastructure, which agreed to take as much as 80% of the placement.
On the night of the deal (May 30), UBS used GIC to drive the pricing by cutting back its portion and promising a larger amount if it raised the price. The gamble paid off and the placement was priced close to the mid-point at a 6.9% discount and at a price that was about 11% above analystsÆ average target price.
The fact that only 20% of the otherwise quite large deal û 20% of the H-share capital and 27 days of trading volume û were offered to institutional investors helped underpin the demand. All in all, an innovative solution that ensured the airport operator got the cash it needed at a reasonable cost and with limited downward impact on the share price.

CapitaLandÆs S$1.3 billion convertible bond

Bookrunner: J.P. Morgan
Legal advisers: Allen & Gledhill, Linklaters, WongPartnership

While this is a deal that can most likely not be repeated by too many Asian issuers even when the markets do recover, making use as it does of the developerÆs high profile and status as a proxy for Singapore, it still deserves credit for pushing the limits in a challenging market - and getting away with it. The timing was also excellent and allowed CapitaLand to replenish its coffers with a sizeable amount of long-term money before a sharp widening in credit spreads pushed up funding costs.
Launched on the final day of January, CapitaLand took advantage of the fact that Singapore dollar swap rates were at a record low, and was able to increase the size versus its own record-breaking S$1 billion CB in 2007. The trade-off was that it had to settle for a shorter maturity and a lower conversion premium, but a 10-year maturity (seven-year put) and 46% premium still stand out in what turned out to be a difficult year for CB issuance. At S$1.3 billion ($920 million) the deal is the largest equity-linked deal in Asia this year and the largest Singapore CB ever.
Market participants have noted that J.P. Morgan was unable to sell all the bonds on the night and retained a portion on its own books. However, the bank acted responsibly and put its balance sheet to good use by holding on to whatever it had left until it could trade out without affecting the market negatively, ensuring a successful outcome both for the company and the bondholders and most likely a profit for itself. The CB traded up the day after the deal and the share price fell only 1.6%, which was very modest in light of the large deal size.

China Shanshui CementÆs $269 million IPO

Bookrunners: Credit Suisse, Morgan Stanley
Legal advisers: Norton Rose, Simpson Thacher & Bartlett, Commerce & Finance Law Offices, Maples and Calder, Jones Day, Shearman & Sterling, King & Wood

The successful and targeted marketing of Shanshui CementÆs growth prospects, better-than average cost base and industry position as the second largest clinker and cement producer in China, allowed for early orders from both long-only and hedge fund investors despite negative market sentiment overall and growing scepticism towards IPOs. Six other Hong Kong IPOs that started traded in June all fell on their first day and were down at the time Shanshui priced on June 26. Another four offerings that month were pulled before pricing.
An attractive discount versus its sector peers ensured the deal caught the attention of key investors and while the demand wasnÆt overwhelming (like for most other IPOs around that time), it was solid enough for the deal to price slightly above the bottom of the range.
The stock also traded up in the aftermarket, which enabled the greenshoe to be exercised in full û something only one other Hong Kong IPO (out of a total of 21) had managed thus far in 2008. It stayed mainly above the IPO price until early September, when global issues took over and the stock began tumbling in line with everything else.

ATA IncÆs $53 million Nasdaq IPO

Bookrunners: Merrill Lynch
Legal advisers: OÆMelveny & Myers, Simpson Thacher & Bartlett, Jincheng & Tongda Law Firm, Commerce & Finance Law Offices

A provider of career-oriented exams and educational programs, ATA was the first Chinese company to list in the US this year when it started trading on January 29 and remained the only one until two other firms joined it in late July/early August.
The deal had to contend with several challenges during marketing, including suggestions by fellow educational services provider New Oriental that the Beijing Olympics may actually have a negative impact on its operations, and the cancellation or delay of eight other Asian IPOs. A renewed marketing effort drawing attention to ATAÆs good earnings visibility and industry growth opportunities helped to keep the book together and ensured the company got the money needed to continue to expand its product offering. And while unusual for such a small deal, Merrill LynchÆs decision to involve a cornerstone investor who committed to buy 20% of the deal looked particularly savvy when the interest in IPOs started to collapse around it.
Targeted demand generation left the book three times covered and ensured follow-up interest in the secondary market. By late May the stock was trading 80% above the IPO price and while it has been on a declining path since then, it didnÆt break below the listing price until the second half of September.

Please go to the next page for more deal awards...

Indonesia $2.2 billion multi-tranche global issue

Lead managers: Credit Suisse, Deutsche Bank, Lehman Brothers/Nomura
Legal advisers: Davis Polk & Wardwell, White & Case

IndonesiaÆs June offering, a tap of three existing bonds, can boast several accolades, not least the praise it enjoyed for its rapid 18-hour execution, which built on well-managed momentum, and the tight new issue price concession it achieved. This was the biggest-ever Asian non-investment grade bond issue, the largest emerging market non-investment grade issue anywhere in the world in 2008, and the biggest US dollar global bond by any Asian borrower this year.
The timing was also critical, as Indonesia was facing severe fiscal pressure due to the high commodity price environment. The three-tranche Regulation S/144A deal drew a $6 billion order book from around 200 investors from the US, Europe and Asia.
The issue was split into three tranches: $300 million 6.75% 2014; $900 million 6.875% 2018; and $1 billion 7.75% 2038. The 2014s were thrown into the mix to create uncertainty about how much would be issued in the other two tranches, with the aim of limiting the short-selling of outstanding bonds. And it had the desired effect.
According to the leads, the deal attracted at least 50 new accounts and most buyers bought the bonds using cash rather than through switches. The 2038s is now the largest single-tranche benchmark for Indonesia. New issue price concessions ranged from 10bp to 15bp, which compared favourably with the 30bp to 40bp that the sovereign had to pay up for its January issue.

Hong Kong and China GasÆs $1 billion offering

Lead managers: HSBC, Morgan Stanley
Legal advisers: Allen & Overy, Linklaters

The 10-year bond issue for ôTowngasö was the only jumbo offering by an Asian corporate investment grade borrower this year, and the first non-government-linked investment grade issue of this size since 2003. The bonds, rated A1 by MoodyÆs and A+ by Standard and PoorÆs, pay a coupon of 6.25% and were priced at 237.5bp over US Treasuries at the end of July, which marked the tight end of price guidance. The bonds were placed with an impressive range of investors during the usual summer lull and in a market reeling from the fallout from the Fannie Mae and Freddie Mac problems.
The quality of the company and the name recognition it enjoys in Hong Kong certainly helped: it is one of the highest-rated independent utility companies, piping gas throughout Hong Kong and into mainland China. But the Regulation S/144A issue also attracted its 142 orders worth $2.2 billion following a rapid and professional eight-hour bookbuilding exercise. A global roadshow was rewarded by a wide and diverse distribution, with 54% allocated to Asia, 33% to North America and 13% to Europe.

Vedanta Resources' $1.25 billion dual-tranche global bond

Lead managers: J.P. Morgan and Morgan Stanley (global coordinators), Barclays, Citi, Deutsche Bank
Legal advisers: Amarchand, Corpus Legal, Commerce & Finance Law, Latham & Watkins, Norton Rose, Shearman & Sterling, Simpson, Thacher & Bartlett

In difficult markets, but catching the tailwind of a commodity price boom, UK-listed Vedanta launched the largest ever high-yield bond for an Asian corporate borrower. The Regulation S/144A issue, rated Ba1 and BB+ by MoodyÆs and Standard and PoorÆs respectively, raised $500 million through a 5.5-year tranche, which pays coupon of 8.875%, at 521bp over US treasuries, and $750 million through a 10-year tranche, which pays a 9.5% coupon, at a 528bp spread. The June launch had to compete with a rival name being touted in the market û Kazakhstani resource company KMG û and a rather crowded lead manager team.
The deal was coordinated by J.P Morgan and Morgan Stanley with Barclays, Citi and Deutsche Bank joining them as bookrunners; and too many cooks meant there was some confused price talk. Nevertheless, the borrower, IndiaÆs biggest non-ferrous metals and mining company based on revenues, must have been a happy customer to have succeeded in raising the cash at all. The issue attracted 150 orders worth $1.5 billion and nearly 90% was placed with asset managers.

China Merchants BankÆs Rmb30 billion lower-tier 2 multi-tranche bank capital bond

Lead managers: China International Capital Corp, UBS
Legal advisers: Beijing Deheng Law Firm, Jun He Law Offices

UBS, which was incorporated in China just 18-months ago, teamed up with CICC to help raise Rmb30 billion ($4.4 billion) for China Merchants Bank in the largest bank capital deal in Asia-Pacific since 2005, and the second biggest bank issue in the region ever. The three-tranche issue, launched in early September, attracted a Rmb50 billion order book spread across 26 syndicate banks, and was mostly placed with mainland insurance companies. Rmb19 billion was raised from a 10-year (non-call five) tranche paying a fixed 5.7% coupon; Rmb7 billion from a 15-year (non-call 10) paying 5.9%; and Rmb4 billion from a 10-year (non-call 5) floating-rate bond paying 153bp over the one-year deposit rate.
Both the preparation and execution were impressive. The deal was launched just two weeks after the end the Beijing Olympics, following one-on-one meetings in Beijing and Shanghai and lunches in Shenzhen. Investors were also primed with detailed information about China Merchants in a previously distributed memo which anticipated questions about the bankÆs loan book and strategy. This was a large deal in a market which, with $110 billion-equivalent of renminbi deals this year, is dwarfing others within the region.

MRCB Southern LinkÆs $318.7 million project financing sukuk and $60.4 million syndicated loan

Lead managers on the sukuk: CIMB, HSBC, RHB Investment Bank
Mandated arrangers on the loan: CIMB, HSBC
Legal advisers: Adnan Sundra & Low

The sukuk issuance and term loan financing was an innovating financing structure for the MRCB GroupÆs greenfield, toll-road project financing in Malaysia. It was the first (and only) project finance transaction in Malaysia this year and came amid uncertainty in the local political arena and bearish global markets. It used a combination of Islamic and conventional financing, which optimised the rating aspects, maximised cost efficiency and arguably helped move Islamic financing into the mainstream spotlight.
While typically most projects in Malaysia are financed entirely through bond issues, which incur significant cost of carry during construction, this transaction used sukuk to access longer tenor funding and introduced a term loan, which will not be drawn until the proceeds from the bond issues are fully utilised, to reduce the cost of carry. Structuring the bonds as Islamic sukuk widened the investor base to include Islamic funds.

CitiÆs pooling solution for Samsung Electronics

Samsung Electronics invited bids from cash management banks to provide a global US dollar pooling solution. Citi successfully advised Samsung on how to better leverage its own internal sources of working capital with the objective of reducing its reliance on both the capital markets and the credit markets. Citi provided Samsung with domestic solutions to reduce working capital cycles, and domestic sweeping structures to eliminate overdraft positions, and surplus cash up-streaming from each regional treasury centre into a new global overlay US dollar structure.
The structure offered end-of-day concentration of all regional positive and deficit positions to pooling centres at Citi in London, and the pool was then drained in London by sweeping to overnight investment funds so as to maximise yields. The solution has given Samsung Electronics full visibility into its global accounts and global US dollar liquidity and has optimised working capital processes and cash conversion cycles.

Reliance IndustriesÆ $400 million Exim financing

Sole arranger and lender: J.P. Morgan

In the weeks after Lehman BrothersÆ collapse, when fund-raising was extremely challenging, J.P. Morgan structured an innovative deal to help Reliance Industries raise $400 million for the development of its oil and gas exploration and production facilities.
Despite the lack of liquidity in the market and extremely volatile conditions, J.P. MorganÆs solution delivered 11-year funds at a cost far below where RelianceÆs medium-term debt was trading in the markets. It achieved this by securing a US Exim guarantee against the companyÆs purchases of US engineering services, oilfield equipment, offshore platform support and drill and well services, which Reliance was buying from American exporters such as McDermott, Bechtel and Canyon Offshore.
A typical US Exim financing can take up to three months to negotiate but J.P. Morgan and Reliance executed this amortising term loan within just one month.
¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media