Deal of the year

FinanceAsia Achievement Awards 2012 – Day 1

Today we recognise the best deals from each of the main markets in the region.

The following deals, the banks that worked on them and their clients will be honoured at an awards dinner at the Grand Hyatt hotel in Hong Kong on February 5. If you would like to book a table at the event, please contact Amber Gordon at [email protected].


Alibaba Group’s privatisation of, acquisition of shares held by Yahoo and related financing
Advisers to Alibaba on privatisation: Credit Suisse, Deutsche Bank, Rothschild
Adviser to HSBC
Advisers to Alibaba on the share acquisition: Credit Suisse, Deutsche Bank
Advisers to Yahoo: Goldman Sachs, UBS
Adviser on share placement: Credit Suisse
Placement agents for convertible preference shares: Credit Suisse, Morgan Stanley
Adviser to the CIC-led consortium: Citi
Adviser on the bank lending: Rothschild
Mandated lead arrangers on term loans: ANZ, Barclays, Citi, Credit Suisse, DBS, Deutsche Bank, HSBC, Mizuho, Morgan Stanley
Legal advisers: Allen & Overy; Fenwick & West; Freshfields Bruckhaus Deringer; Skadden, Arps, Slate, Meagher & Flom; Munger, Tolles, & Olson; Paul, Weiss, Rifkind, Wharton & Garrison; Sullivan & Cromwell; Wachtell, Lipton, Rosen & Katz; Weil, Gotshal & Manges; White & Case; King & Wood Mallesons

2012 was a busy year for China’s biggest e-commerce company, Alibaba Group. Not only did it finally make some progress on its strained relationship with Yahoo by agreeing to buy back half of the US company’s 40% stake in a $7.6 billion deal, but it also took its B2B unit private through a $2.5 billion general offering to minority shareholders. Together the two transactions put the group in a much better position to focus on its growth businesses and seek synergies between its different units. They also laid the groundwork for a listing of the entire group in the next few years. We therefore feel that it is appropriate to award the two transactions and the related financing packages as one deal.

The privatisation of fits into a continuing trend that is seeing controlling shareholders — sometime with the help of private equity firms — step in and buy back oversees listed Chinese companies after their valuations have plummeted. Alibaba made sure the offering was widely accepted by offering a 45.9% premium to the latest market price and a 60% premium to the 60-day closing average — a generous price that suggested that the company and its founder Jack Ma was already focusing to the longer-term plan.

But, neither of the two transactions would have been successful without the financing and that is what really makes the Alibaba deals stand out. The company initially secured $3 billion of bank lending towards the privatisation and then an additional $2 billion to buy the shares from Yahoo. At the time of the second loan, it also sold $2.6 billion of new shares to a few existing shareholders and a consortium of high-quality investors led by China Investment Corp (CIC) and issued $1.688 billion of convertible preference shares to at least 15 investors. The final $6.3 billion package ranks as the largest ever non-LBO private financing for a tech company globally and was a huge achievement in light of the uncertain macro-economic environment, the negative sentiment surrounding internet stocks and the amount of money investors had already lost on other recent deals, including the Facebook IPO.

Alibaba’s CFO, Joe Tsai, and the involved banks did a great job focusing investors’ attention on the company’s market position and growth projections to counter the negative vibes and make sure all the different parts got across the line in a timely fashion. This, in our mind, makes the group’s 2012 reorganisation a worthy winner of our Best China Deal award.


China Gas’s defence of the $2.2 billion hostile offer by ENN Energy and Sinopec
Advisers: Citi, Macquarie
Legal advisers: Appleby, Kirkland Ellis, Linklaters, Sullivan & Cromwell, Walkers

Macquarie advised Hong Kong-listed China Gas Holdings on its successful defence of the largest ever hostile takeover offer on the Hong Kong Stock exchange and one of the only hostile transactions involving a state-owned enterprise bidder: the $2.2 billion unsolicited pre-conditional offer by Hong Kong-listed ENN Energy and Hong Kong-listed China Petroleum & Chemical Corp (Sinopec). Macquarie conducted 70 one-to-one meetings with investors to explain the company’s strategic direction and also field the minority shareholders’ views. Not only did Macquarie stave off the bid, the transaction resulted in significant value being created for China Gas shareholders, through the marked appreciation in share price, strengthening of the shareholder register and a resulting strategic agreement with Sinopec.

Importantly for Hong Kong, the Securities and Futures Commission of Hong Kong strictly enforced rules on both bidders and target to maintain a transparent and fair market in shares during this rare hostile bid case in Hong Kong, for example requiring clarifying announcements by the bidders when statements were made by management that could have been wrongly perceived to be no increase statements, thus avoiding any confusion in the market. Both bidders and target, all Chinese companies with international investor bases, followed the Hong Kong takeover code and securities law closely, reflecting well on Hong Kong as an international financial centre.


Citi’s $1.9 billion exit from HDFC
Bookrunner: Citi 

It is not common for us to award a self-led deal, but Citi’s sale of its remaining 9.85% stake in India’s Housing Development Finance Corp (HDFC) in late February was such a good deal that we are willing to make an exception. Being both large and well-executed, it set a benchmark for Indian block trades early in the year, particularly in the financial sector where numerous other banks and private equity firms have followed suit and cut their exposure to Indian lenders this year.

Notably, Citi has outperformed the competition in India ECM this year with a market share of more than 40% and hence has shown that it is more than capable of winning mandates from other issuers too. And Citi bankers say that while the mandate was a given, there was a lot of pressure to maximise every dollar for the firm in this trade.

The firm took advantage of a 16% gain in the Indian stock market in the first two months of the year and the deal attracted more than $2.6 billion of demand from foreign institutional investors and another $1.2 billion from domestic institutions even though markets had started to get more volatile. More than 100 investors participated in the deal and about 70% was allocated to long-only accounts.

The deal was supported by anchor investors and launched with a wide discount range of between 0% and 10.4% to create momentum and to help identify genuine demand at the optimal price for both the seller and the issuer. The final price was fixed at a 6.25% discount. HDFC closed well above the placement price on the first day and as of early December the share price was up about 27% versus Citi’s exit price.


Cikarang Listrindo’s $500 million seven-year bond and tender offer
Bookrunners: Barclays, Credit Suisse
Legal advisers: Davis Polk & Wardwell, Shearman & Sterling

The benchmark deal for Indonesian power company Cikarang Listrindo re-opened the Asian US-dollar high yield market after a gap of several months. The credit was familiar to investors, and the order book was more than eight times subscribed from over 250 accounts spread evenly across Asia, Europe and the US. The lead managers took advantage of stable market conditions created by the passage of an austerity bill in Greece, and during a swift execution process they tightened the offer yield by 55bp from initial guidance to 6.95%. Their aggression was justified by the performance of the notes in the secondary market, where they immediately traded a point higher.

More controversially, Cikarang made a concurrent tender offer and consent solicitation for its outstanding $300 million 9.25% 2015 notes, aiming to loosen several covenants, as well as reduce its borrowing costs. There was some investor resistance, but more than 93% of the notes were tendered by the earliest consent deadline, earning holders a three percentage point premium.

In the end, the transaction pleased most parties. The issuer gained cheaper funding and removed constraints imposed in more difficult market conditions two years earlier; investors gained exposure to a liquid Indonesian bond; and bankers were encouraged to approach other potential high yield borrowers.


Samsung Electronics’ $1 billion five-year bond
Bookrunners: Bank of America Merrill Lynch, Citi, Goldman Sachs, J.P. Morgan, Samsung Securities
Legal advisers: Cleary Gottlieb Steen & Hamilton, Simpson Thacher & Bartlett

Samsung Electronics is hardly a frequent visitor to the international bond markets. In fact, it last tapped the dollar market 14 years back, so it is a rare credit for investors. This year, it bags the award for best Korean deal as it demonstrated that it is possible for a Korean company to price inside of the sovereign. Its $1 billion bond came about 50bp to 60bp inside of the Korean sovereign and achieved the lowest five-year yield for a Korean borrower. The ultra tight pricing for its dollar bond was achieved by positioning Samsung Electronics alongside global US tech companies, such as IBM and Cisco which were trading at tighter levels, rather than similarly-rated Korean issuers.

Effectively, the deal was marketed as a US high-grade bond rather than an emerging market bond. No Asia roadshows were held and while the execution and documentation was done out of Asia, the deal was heavily distributed to US investors which accounted for 90% of the allocations. The deal employed a unique distribution strategy for a Korean borrower, and while its bonds widened slightly on secondary, overall, the ability to price well inside the sovereign was an impressive outcome. It also helped raise the company’s international profile and reflects the bifurcation within the Asia debt space — with the Asia premium coming down for some borrowers that can prove they are no longer emerging market credits.


IHH Healthcare’s $2.1 billion IPO
Bookrunners: Bank of America Merrill Lynch, CIMB, Credit Suisse, DBS, Deutsche Bank, Goldman Sachs
Legal advisers: Akol Avukatlik Burosu; Albar & Partners; Allen & Gledhill; Allen & Overy; Jingtian & Gongcheng; Kadir Andri & Partners; King & Wood Mallesons; Linklaters; Talwar Thakore & Associates; WongPartnership

With Malaysia being responsible for two of the top six IPOs in the world this year and a significant portion of the proceeds raised from new listings in Asia ex-Japan, it seems fitting that the country’s best deal is indeed an IPO. We picked Khazanah-backed IHH because of its scale — it is the second largest listed hospital operator in the world and twice the size of its closest Asian rival — premium valuation and smooth execution, and because it delivered a good outcome for both the issuer and investors. Faced with a difficult global market backdrop and poor sentiment for new listings, the bookrunners were able to generate significant interest for the IPO by securing 22 carefully selected cornerstone investors that together took up 62% of the base deal, effectively creating a scarcity of stock for other investors. Their presence also helped validate the valuation, which involved a lot of assumptions about future growth in the company’s three home markets in Malaysia, Singapore and Turkey.

To ensure there would still be enough liquidity in the stock post listing, the cornerstones were allowed to sell up to 50 million shares in the first six months — an innovative structure that seems to have worked well. By early December the stock had gained close to 18% since the July listing.


Mongolia’s $1.5 billion debut sovereign bond
Advisers: Bank of America Merrill Lynch, Deutsche Bank, HSBC, J.P. Morgan
Legal advisers: Allen & Overy, Shearman & Sterling

The Mongolian sovereign’s debut $1.5 billion bond stood out for a number of reasons. The deal had been mooted years ago so the fact that it finally crossed the line was an event in itself. The five- and 10-year bonds helped establish a liquid benchmark. It also attracted $15 billion in orders from international investors — twice the size of Mongolia’s GDP. (While this may be an indication of just how frothy bond markets are, the exuberant demand helped a frontier credit like Mongolia achieve tight pricing for a chunky size.) It priced just slightly wide of Sri Lanka, which has a $60 billion economy, which was an achievement given that Mongolia’s economy is just a fraction of that, and Sri Lanka is a more seasoned borrower.

Despite the tight pricing, immediately after the bonds priced, they traded up in the secondary market, an indication that they were held in the hands of buy and hold investors. The bulk of the bonds were allocated to fund managers. While Mongolia’s bond prices were volatile the week after it priced amid reports that the Mongolian People’s Revolutionary Party might pull out of the coalition government, from the standpoint of the sovereign, the timing was right and the deal was flawlessly executed. The sovereign also achieved cost savings by accessing capital markets directly as opposed to through a guarantee structure.


Bloomberry Resorts’ $230 million re-IPO
Bookrunners: CLSA, UBS
Legal advisers: Allen & Overy; Skadden, Arps, Slate, Meagher & Flom

The re-IPO of Bloomberry Resorts showcased the kind of value that experienced advisers such as CLSA and UBS can bring to deals. The company was raising money to help fund the construction of Solaire Manila — an ambitious project to create the Philippines’ second Las Vegas-style casino and resort complex, situated within the government’s new Entertainment City development.

With no cash flows to show investors, bankers on the deal had to sell the project’s potential. The banks prepared the ground with research analysing the Philippines gaming sector and anchor investors were brought in to underpin demand.

The deal moved quickly despite its unique nature, reflecting a polished piece of execution. Indeed, there were just 13 weeks between the kick-off meeting and pricing. Such a tight time frame was possible thanks in part to the use of an old-for-new top-up placement that CLSA and UBS had pioneered on a deal for Metro Pacific Investments in 2009.

Getting the deal done quickly also minimised the chance of disruption — it is not hard to imagine how an IPO for a mega-casino in the Philippines could have gone awry.

But the deal didn’t just get done; it got done well. The book was multiple times covered across the entire price range and closed two days early thanks to the strong demand. That’s looking like a good bet so far as the stock has almost doubled in price since.


Genting’s S$1.8 billion perpetual
Bookrunners: DBS, HSBC, CIMB, Deutsche Bank, J.P. Morgan
Legal advisers: Adnan Sundra & Low, Allen & Gledhill, Clifford Chance

This year, the Singapore dollar bond market chalked up record volumes and offered liquidity for both onshore and offshore borrowers, so it is fitting that the best deal goes to a Sing dollar bond. Genting (Singapore)’s S$1.8 billion perpetual helped push the boundaries of what was thought possible. It was the largest corporate hybrid to be issued in a local currency market in Asia and also the largest single tranche Singapore dollar denominated bond to date.

This was impressive considering it was an inaugural bond for Genting Singapore — which runs Resorts World Sentosa Singapore. And when the deal priced back in March, there were few reference points for a perpetual of that size. According to one banker, it was unclear whether the company should pursue a senior or subordinated bond, how much it should raise, and whether the bond should be rated or unrated.

In the end, the company sought a rating which enabled it to achieve a heft that was only possible for a rated transaction. The deal attracted a S$6 billion order book and offshore investor participation of 42% — an unusually high offshore participation for a Sing dollar bond. Part of this was thanks to the fact that the Genting name resonated with Malaysian investors and approval was sought to market the deal in Malaysia. The deal highlights a key theme this year — which is the depth of demand for corporate hybrids in the Sing dollar market. There were certainly questions on its size, and whether it was too big, as the bonds softened in May, but those prices have recovered.


Sri Lanka $1 billion bond
Bookrunners: Bank of America Merrill Lynch, Barclays, Citi, HSBC
Legal advisers: Davis Polk & Wardwell; Julius & Creasy; Milbank, Tweed, Hadley & McCloy; Nithya Partners

In terms of establishing itself as a borrower, Sri Lanka is doing all the right things. The sovereign has come a long way since its debut bond in 2007. Each year it taps the market, it beats its previous record and succeeds in tightening its pricing, improving its subscription rate and broadening its investor base. This year was no different.

Despite the volatility in the eurozone, Sri Lanka was able to seize a market window and capitalise on excess investor liquidity seeking diversification away from Western economies. Its $1 billion deal attracted a blowout book of $10.5 billion from 425 accounts. The bonds were placed to high quality accounts — 90% of the bonds were allocated to fund managers. It achieved the tightest coupon for sovereign but the bonds still went on to perform solidly in secondary markets, rewarding investors who bought them.

Notwithstanding its fiscal difficulties, Sri Lanka’s bonds trade at tighter levels than some of its more highly rated European sovereign peers. The sovereign continues to play a key role in developing an offshore curve, which has enabled Bank of Ceylon to tap the market this year. This year’s offering is the third 10-year bond from Sri Lanka, further defining the sovereign’s yield curve and setting the groundwork for the sovereign to access longer dated funding in the future.


Dai-ichi Life Insurance’s $236 million exit from Shin Kong Financial
Bookrunner: Goldman Sachs

This deal is a good example of the “club-style” deals that have become more frequent this year as a way around low liquidity and selective investor appetite. By marketing a deal to a small but targeted group of investors, bankers have been able to deliver better prices for the sellers and the latter are typically happy to pay a proper fee for these solutions.

In this case Dai-ichi wanted to sell its entire 11.1% stake in Shin Kong Financial — a relatively illiquid stock that was under pressure due to concerns about the company’s fundamentals. Goldman started the process by taking Shin Kong on a non-deal roadshow in late May, which allowed it to identify which investors would be the most relevant to target with a sale. It then decided to split the transaction into three different blocks to make the size easier to digest and limit the impact on Shin Kong’s share price.

The first sale amounted to $75 million and was priced at a 12% discount. It was allocated to about 10 investors, but the vast majority of the shares went to just three buyers. The second and third trades amounted to $90 million and $71 million and came at gradually narrowing discounts of 9.9% and 6%. The share price fell after each of the deals, but never below the placement price, which helped create additional demand from other investors.

Dai-ichi agreed to three-month lock-ups after the first two deals, but they were both released early as new market windows opened up, enabling the entire block to be sold over a two-month period. The outcome was an elegant solution that allowed Dai-ichi to exit at a good average price and without too much disruption to the stock.


Tesco Lotus’s $450 million property fund IPO
Bookrunners: Bank of America Merrill Lynch, Nomura, Phatra Securities, Royal Bank of Scotland
Legal advisers: Allen & Overy, Shearman & Sterling

As Thailand’s biggest IPO in almost six years and the first new listing to be marketed to international investors in more than two years, there are obvious reasons why Tesco Lotus ended up on the shortlist for the best deal in Thailand. Add to that the fact that it attracted a lot of demand and has traded well. It also pushed the envelope as the largest property fund in Thailand and the first to be marketed to institutional investors, and may even become the trigger for the exchange to put a proper Reit legislation in place.

But what really clinched the winning vote was the marketing strategy. Rather than just value the fund at a premium over the Thai risk-free rate or relative to the Singapore-listed Reits, the bookrunners put the focus on Tesco Lotus’s stand-alone merits such as absolute income and cash flow, level of growth, market position and the quality of its management. They also brought in a cornerstone investor — Capital Research — which had never invested in Reits before and was happy to look at the fund on this basis. That set an aggressive benchmark and ensured that the pricing was driven by international investors even though two-thirds of the deal had to be allocated to domestic accounts.

In the end the price was fixed at the top of the range for an implied yield of 6.5%, which was significantly tighter than other listed property funds in Thailand.

The Tesco Lotus Retail Growth Freehold and Leasehold Property Fund, which is 25% owned by UK supermarket chain Tesco, held 17 malls anchored by Tesco Lotus hypermarkets when it listed in mid-March and is in the process of acquiring an additional five. By early December it had risen 41% since the debut, making it one of the most successful IPOs in Asia this year.


Vincom’s $185 million CB and $115 million tap
Bookrunner: Credit Suisse
Legal advisers: Clifford Chance; King & Wood Mallesons; Shearman & Sterling; Vilaf; YKVN

Vincom, a property, tourism and hospitality company, has issued a US dollar convertible bond in the international market before. But that was before the default of state-owned shipbuilder Vinashin at the end of 2010, which led to a complete collapse in investor confidence for Vietnam debt. When Vincom returned to the market this year, it was the first Vietnamese issuer to raise capital from international investors since the Vinashin collapse, making it a proper test of the market. Even so, the company was able to achieve both an 85% bigger deal and better terms than on its previous CB, which had been fully converted into equity already

The latest five-year CB was launched with a base size of $150 million, but upsized to $185 million following strong demand from a bit more than 20 investors. It came with a two-year put option and was priced with a 5% coupon, 7% yield and a 10% conversion premium. There is also an annual conversion price reset down to a floor of 80%.

Notably, Credit Suisse executed a $60 million equity swap with the major shareholder alongside the CB. This was the first equity swap ever done by a Vietnamese company and the first equity derivatives transaction to be approved by the Vietnamese regulators, thus breaking new ground in terms of making it possible to hedge otherwise unhedgeable CBs.

The bonds traded slightly below par in the first few months after pricing despite a slight gain in the share price, but Credit Suisse managed to find enough demand for the company to sell a further $115 million of CBs through a tap in late June, bringing the total issue to $300 million.

¬ Haymarket Media Limited. All rights reserved.
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