FinanceAsia Achievement Awards 2013 - Day 1

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

BEST CHINA DEAL
Shuanghui International’s $7.1 billion acquisition of Smithfield Foods

Advisers: Barclays, Morgan Stanley
Legal advisers: Paul Hastings; Simpson Thacher & Bartlett

China’s offshore ambitions have traditionally been dominated by its state-owned enterprises buying oil and gas assets overseas. In contrast, Shuanghui International’s acquisition of US-listed Smithfield Foods reflects the bold ambitions of China’s private sector, which has become more active in the M&A space in recent years.

Notably, the deal was the largest Chinese acquisition of a US public company and, as such, it had to jump through numerous regulatory hoops before it finally received approval from the Committee on Foreign Investment in the US.

The deal stands out for its potential to improve the food industry in China, which has been plagued by concerns over food safety. China is the biggest pork consumer in the world, accounting for half the world’s pork consumption. The deal also has far-reaching implications for the global food industry as the combined entity will control more than a quarter of the pork processing supply in the US and China.

It remains to be seen how quickly and effectively Shuanghui can integrate a big ticket acquisition such as Smithfield. But during a year when most of the deals from China were mundane and the change in the political leadership prevented SOEs from undertaking major acquisitions, Shuanghui International stood out for representing the ambitions of the private sector.

And as the number of advisers on M&A deals grow, it was a nice trade for Morgan Stanley and Barclays, which advised Shuanghui and Smithfield on a sole basis respectively.

 

BEST HONG KONG DEAL
Paul Y Engineering’s $411 million placement of shares and CBs

Placing agent: CLSA
Financial adviser to the issuer: Anglo Chinese Corporate Finance
Legal advisers: Conyers Dill & Pearman; Reed Smith Richards Butler; Slaughter and May

The combined sale of shares and convertible bonds by Hong Kong construction company Paul Y Engineering in January was truly impressive in the sense that the company was able to raise the equivalent of almost five times its $84 million market capitalisation while presenting investors with little more than a vision of what is intended to become Macau’s first ultra-luxury hotel and gaming venue.

The $1 billion project, scheduled to open in early 2016 under the name of Louis XIII, is the brainchild of former investment banker Stephen Hung and his son, who have teamed up with Hong Kong-listed Paul Y to make it happen.

In connection with the capital raising, Paul Y (which has since changed names to Louis XIII) distributed 49% of its construction business to existing shareholders, effectively transforming itself into a listed greenfield gaming company with a construction business on the side. And thanks to a carefully designed deal structure, which included a special dividend to existing shareholders, it did so without triggering any reverse takeover rules, saving valuable time.

CLSA was able to secure investments from top global funds such as Ontario Teachers’ Pension Plan and Janus Capital as well as close to 40 other investors, demonstrating its ability to communicate an equity story and the faith that investors were willing to put in the management. Hung and his son also supported the deal by taking up $62 million worth of shares.

Paul Y’s share price dipped below the placement price shortly after the deal, but has since recovered and by early December it was up 28%. A ground-breaking ceremony in the summer put renewed focus on the project and in early November the company issued an additional $133.5 million of shares and CBs, showing widening support for the project and a clear approval for the initial transaction.

 

BEST INDIA DEAL
Vedanta Resources $1.7 billion dual-tranche bond

Joint lead managers: Barclays, Citi, Deutsche Bank, JP Morgan, Merrill Lynch Pierce Fenner & Smith, Royal Bank of Scotland, Standard Chartered
Legal advisers: Amarchand Mangaldas & Suresh A Shroff; Latham & Watkins; Shearman & Sterling

Vedanta Resources’ timing to access the global debt capital markets was impeccable, with the deal coming just moments before Federal Reserve chairman Ben Bernanke mentioned the infamous word ‘taper’ on May 22 that led to the crumbling of bond market activity over the course of the summer.

India’s largest mining company was able to sell a $1.2 billion five-year note and a $500 million 10-year bond shortly after its global roadshow that ran from May 17 to 21. At a total of $1.7 billion, the transaction is the largest corporate bond issuance ever by an Indian group other than a financial institution and also the biggest high-yield issuance out of Asia ex-Japan this year.

However, it wasn’t without challenges. Fragile investor sentiment towards emerging market credits – particularly those from India and Indonesia, which continue to be plagued by domestic issues – prompted syndicate bankers to take a different approach to the bookbuilding.

Instead of announcing the transaction in the Asian morning as usual, bankers opted to launch it during US trading on May 21, expecting to tap strong demand from US investors before heading over to Asia’s on May 22. This helped alleviate fears investors had towards Indian credits.

The strategy paid off. Top US investors expressed strong interest in the deal which provided early momentum resulting in a tightening of both the five- and 10-year tranches by 25bp from an initial price guidance of 6.25% and 7.375%. As a result, US investors subscribed to half the deal, followed by Europe with 26% and Asia with 24%.

This strategy has provided a template for other issuers, especially if Asian investor sentiment is fragile. Vedanta’s success story is indeed eminent in the minds of many.

 

BEST INDONESIA DEAL
Matahari Department Store’s $1.5 billion re-IPO

Bookrunners: CIMB, Morgan Stanley, UBS
Financial adviser to the sellers:
Moelis & Co
Legal advisers: Clifford Chance; Freshfields Bruckhaus Deringer; Hadiputranto, Hadinoto & Partners; Hiswara Bunjamin & Tandjung; Makes & Partners; White & Case

After reviewing the possibility of a trade sale, private equity firm CVC Capital and its partners, Lippo Group-controlled Multipolar and GIC, opted to sell part of their stakes in Matahari Department Store through a fully marketed follow-on.

As the free-float was less than 2% before the deal, this was essentially a re-IPO, but as it didn’t include any primary shares and no retail tranche, the sellers didn’t have to go through a lengthy regulatory process, leaving them in charge of their own timetable.

That was a good move, since they were able to hit the market at the end of the first quarter when Southeast Asian consumer stocks were a top investment theme and Indonesia was still one of the most favoured emerging markets.

The bookrunners worked hard to position Matahari at a premium to other Indonesian department store operators and brought in 15 regional and global cornerstones that validated the aggressive price range by taking up 32% of the $1.3 billion base deal. The rest was at least four times covered. The final price was fixed at 27 times this year’s earnings, which marked a 29% premium to its local peers and prompted a re-rating of the Indonesian retail sector.

The deal, which accounted for 46% of the company post greenshoe, was also a raving success for CVC and the other sellers who were able to trim their stakes at a market capitalisation of $3.25 billion – more than 3.6 times the initial investment value in 2010, before taking into account the use of leverage. And as CVC still holds 24.8% of the company on its own and 51% together with its partners, the final return can increase quite a bit more.

While Indonesia has come under a lot of pressure in the second half of the year, Matahari has been pretty steady and in early December it was still up close to 5% versus the re-IPO price, making it a good deal for the investors as well.

 

BEST KOREA DEAL
Republic of Korea $1 billion 10-year bond

Joint lead managers: Citi, Deutsche Bank, Goldman Sachs, HSBC, Korea Development Bank, Woori Investment and Securities
Legal advisers: Bae Kim & Lee; Cleary Gottlieb Steen & Hamilton; Kim & Chang; Simpson Thacher & Bartlett

The Republic of Korea is not a frequent visitor to the international bond market - the last time it tapped global markets was in 2009. As a result, investors were eager to have a slice of its $1 billion SEC registered offering. And the timing of the deal could not have been better.

The sovereign announced the transaction in a relatively stable market in September, ahead of the release of economic data that could have led to more market uncertainty.

Moreover, it was launched at a time when other Asian countries such as India and Indonesia were being hit by emerging market outflows, further reinforcing South Korea’s safe haven status.

As a result, the order book reached a whopping $5 billion, with particularly strong participation from Asian investors, which were allocated 59%. In the past they have probably bought exposure to South Korea’s credit, mostly through its policy banks.

The execution was also flawless. The deal was priced without any new-issue concession and at the tight end of final guidance – Treasuries plus 115bp – the lowest 10-year coupon for a dollar-denominated deal from South Korea. The tight level provided a positive backdrop for other South Korean issuers as the trade was able to pull the nation’s curve tighter.

Shortly after the transaction, GS Caltex announced roadshows in Asia and the US as well as Woori Bank and a flurry of other Korean issuers. This year has proved to be a momentous year for Korean credits, exemplified by ROK’s landmark deal.

 

BEST MALAYSIA DEAL
Sun Life and Khazanah’s $596 million acquisition of CIMB Aviva

Advisers: Bank of America Merrill Lynch, CIMB, JP Morgan, Morgan Stanley, Rothschild
Legal advisers: Ashurst; Lee Hishammuddin Allen & Gledhill; Wong & Partners, Skrine

Sun Life Financial, Canada’s third-biggest insurer by assets, teamed up with Khazanah Nasional, the Malaysian government’s investment arm, to buy 98% of Aviva’s Malaysian life insurance joint venture for M$1.8 billion ($596 million).

The price included a 20-year exclusive bancassurance agreement with Malaysian bank CIMB, whose network in Malaysia spans 312 branches and 7.8 million customers.

The deal illustrates global insurers’ desire to bulk up in Asia Pacific: more than half of the global growth in gross premiums will come from the region in the next decade. Sun Life’s purchase shows successful execution on that strategy, where some of its peers have struggled to find or seal a deal. 

The deal marks the biggest Canadian M&A bid in Malaysia on record and the largest ever Southeast Asian M&A by a North American insurance company.

Sun Life’s purchase also illustrates the growing trend towards distribution partnerships with banks over a longer period. Much depends on the goodwill of the partners in such deals and Sun Life appears to be off to a flying start based on its solid relationship with CIMB in their Indonesian joint venture.

True, the deal values CIMB Aviva at a pricey 2.4 times its embedded value (for the first half of 2012), compared to the 1.8 times that AIA paid for ING Malaysia in October 2012, but the Canadian insurer is already executing its plan to turn around the downward trend in gross written premiums seen under Aviva’s management of the business.

Sun Life is also exploring opportunities to cross-sell its products with Khazanah over its portfolio of companies across Asia.

Khazanah and Sun Life each own 49% of the business, which includes CIMB Aviva Assurance and CIMB Aviva Takaful, an Islamic insurer.

 

BEST PHILIPPINES DEAL
LT Group’s $920 million re-IPO

Bookrunner and financial adviser: UBS
Legal advisers: Allen & Overy; Angara Abello Conception Regala & Cruz Law Office; Picazo Buyco Tan Fider & Santos Law Office; Sidley Austin

In a year of record Philippine ECM issuance, it seems fitting to give this award to an equity transaction and LT Group’s fully-marketed follow-on in April was an obvious candidate. At $920 million it is the country’s largest ever equity capital-raising targeted at public investors, and it came on the back of a year-long corporate reorganisation that created a new consumer-focused conglomerate that is liquid enough to appeal to global investors.

The reorganisation involved the Tan family injecting its privately-held consumer businesses within tobacco manufacturing, beverage production, banking and property into a previously listed company focusing on the production of distilled spirits.

The deal, which due to the small initial free-float was done as a re-IPO, also featured the Philippines’ first ever formal cornerstone tranche that saw 11 global long-only funds, including Fidelity, Waddell & Reed and Wellington, take up 62.5% of the $792 million base deal. Although it was a Southeast Asia-style cornerstone tranche with no lock-up, it helped justify the valuation range and created competition for the remaining shares.

In the end, the rest of the deal was about seven times oversubscribed with orders from 130 institutional investors from the US, Asia and Europe. More than 80% of the deal went to long-only accounts and the price was fixed at the top of the indicated range at 16.3 times this year’s earnings and at a 21% premium to the three-month volume-weighted average price.

As further proof of the successful deal, the share price gained about 30% in the following month, before starting to edge lower in line with cooling global demand for emerging market equities. That hasn’t taken anything away from the initial achievement, however, which aside from delivering a good solution for the Tan family gave UBS an opportunity to show why it is the leading ECM bank in the Philippines.

 

BEST SINGAPORE DEAL
TCC Asset’s $11.1 billion public takeover of Fraser & Neave

Advisers: Goldman Sachs, JP Morgan, Morgan Stanley, DBS, UOB
Legal advisers: Latham & Watkins

TCC Asset’s acquisition of Fraser & Neave (F&N) was the largest successful public takeover of a Southeast Asian conglomerate and shook up the corporate landscape in Singapore. As the largest M&A deal in Singapore, it clearly had heft. But the protracted battle for F&N also provided plenty of entertainment in the city state’s stodgy corporate landscape and, more importantly, helped unlock shareholder value.

The 130-year old F&N was long viewed as a conglomerate with a hodge-podge of businesses that was undervalued. A bidding war between Thai tycoon Charoen Sirivadhanabhakdi, who controls TCC Assets, and Stephen Riady-controlled Overseas Union Enterprise (OUE) changed all that.

The complexity of the transaction stemmed from the fact that several corporate actions by various parties including Heineken, Asia Pacific Breweries and OUE were running in parallel at the time and required deft manoeuvring by TCC Assets.

In the end, TCC  won the bidding war, though it was forced to revise its offer price after OUE put in a competing bid. The deal highlighted a major theme this year - namely rich Thai families becoming more active in the M&A space as they seek to diversify and take advantage of cheap financing to do so.

 

BEST SRI LANKA DEAL
National Savings Bank $750 million five-year bond

Joint lead managers: Barclays, Citi, HSBC
Legal advisers: Davis Polk & Wardwell; Milbank Tweed

Sri Lankan issuers have always been savvy and National Savings Bank’s (NSB) bond issuance is testimony to that, being the first non-investment grade Asian financial institution to price a global 144a/Reg S benchmark offering in 2013.

The transaction essentially sets the stage for more supply to come and, as a result, deserves this year’s Best Sri Lanka Deal award.

NSB sold $750 million of five-year notes in September after a delay due to unsettled market conditions as speculation mounted about the timing of US Federal Reserve tapering.

However, following the positive shift in market tone after successful transactions for Republic of Korea and Republic of Indonesia a few days prior, the financial institution decided to launch its deal.

The transaction attracted a good order book from more than 175 institutional accounts and a $2.3 billion subscription. These were strong factors that enabled the issuer to narrow its pricing from an initial guidance of 9.25% to 8.875% – a full 37.5bp move – and upsize the deal from the initial benchmark target of $500 million.

In preparation for its proposed bond offering, NSB obtained its inaugural ratings at par to the Sri Lankan sovereign ratings from Standard & Poor’s and Fitch – which rated the issuer B+ and BB- respectively – reflecting its key role as a policy bank and its large market share.

 

BEST TAIWAN DEAL
Advanced Semiconductor Engineering’s $400 million CB

Global coordinator: Citi
Bookrunners: CIMB, Citi, Credit Suisse, DBS
Legal advisers: Davis Polk & Wardwell; Lee & Li; Baker & McKenzie

While there have been a number of convertible bonds out of Taiwan this year, ASE’s five-put-three offering at the end of August stood out both in terms of size and the aggressive pricing, which delivered a great deal and zero-cost financing for the issuer. At the same time, the share price moved up about 15% in the following three months, resulting in a good outcome for investors as well.

Part of the success was due to the timing of the deal. The Taiwanese semiconductor assembly and test services company hit the market just as global funds were starting to look at Greater China again and benefitted from a lack of high-quality CBs from Asia ex-Japan issuers in recent months.

But the bookrunners also helped create early momentum by lining up a number of anchor orders and provided enough asset swaps to cover half the deal, making it more appealing to technical investors. At $400 million, this was the largest CB by a Taiwanese issuer in two years, but that proved no issue as the total demand exceeded $1.6 billion at the final price and more than 130 accounts came into the deal.

This allowed for a zero coupon and yield (the yield was offered at 0% to 1%) and a 30% conversion premium, while the implied volatility worked out at approximately 25%. The latter marked a significant premium to the 100-day historic volatility at 20% and made ASE one of the most expensive CBs out of Asia ex-Japan this year.

Despite the tight terms, the CB traded up to 101 on the first day while the share price gained 3.9%, suggesting that the bookrunners were spot on in terms of judging the level of investor demand for new paper and being able to maximise it for the benefit of the issuer.

 

BEST THAILAND DEAL
BTMU’s $5.6 billion purchase of a majority stake in Bank of Ayudhya

Advisers: Bank of America Merrill Lynch, Deutsche Bank, Morgan Stanley, Phatra Securities
Lead legal adviser: Baker & McKenzie

Bank of Tokyo-Mitsubishi UFJ’s acquisition of a majority stake in Thailand’s Bank of Ayudhya for $5.6 billion marks the largest cross-border purchase of a Thai company in history.

The transaction is also the biggest among a string of purchases by Japanese banks in Asia and the largest-ever banking deal struck in Southeast Asia.

GE Capital, which tendered its entire 25.3% stake in Ayudhya, made a significant return on its six-year investment, people familiar with the matter said.

The deal is clearly a landmark transaction because of its size, but also due to its complexity. Thailand doesn’t allow foreigners to own more than 49% of a local bank unless the Thai bank is distressed and says banks must only have one presence in the country – meaning BTMU would have to merge its Bangkok branch with Ayudhya.

BTMU won regulators’ permission to buy up to 75% of Ayudhya partly due to the close trading relationship between Thailand and Japan.

BTMU was also able to reach an understanding with the Ratanarak Group, which own a quarter of the Thai bank’s shares. The Ratanarak family saw the Japanese as reliable partners going forward and BTMU agreed to the Ratanarak Group having significant rights, according to people familiar with the matter.

This concession meant BTMU negotiated a price of an implied 2.02 times March 2013 price-to-book value, which is reasonable compared with other recent deals, particularly SMFG’s purchase of a 40% stake in Indonesia’s BTPN at about 4.5 times book in May.

For BTMU the acquisition holds considerable promise. Through its investment in Ayudhya it is seeking to establish a full-fledged commercial banking platform in Thailand.

 

BEST VIETNAM DEAL
Vingroup’s debut dollar
bond issuance, inaugural global syndicated loan and Warburg Pincus investment into Vincom Retail

Sole global coordinator of the bond: Credit Suisse.
Joint bookrunners of the bond:
Credit Suisse, Deutsche Bank, ING
Sole coordinator of syndicated loan: Credit Suisse
Bookrunners of syndicated loan: Credit Suisse, Maybank Investment Bank
Mandated arrangers of syndicated loan: Credit Suisse, Deutsche Bank, Maybank Investment Bank
Legal advisers: Allen & Overy; Clifford Chance; Freshfields Bruckhaus Deringer; Shearman & Sterling; Simpson Thacher & Bartlett; YKVN Lawyers
Financial adviser to Warburg Pincus: Credit Suisse
Financial adviser to Vingroup: Citi

It was a busy year for Vingroup, Vietnam’s largest listed real estate company by market capitalisation. Not only did the developer do several landmark deals in 2013 that boosted its profile in global capital markets but it was creative in terms of diversifying its sources of funding.

This set a benchmark for the rest of Vietnam to follow and, in our mind, makes the group’s 2013 funding capabilities a worthy winner of our Best Vietnam deal.

For starters, Vingroup’s $200 million 4.5-year senior high-yield note with a callable option, issued on October 31, was Vietnam’s first benchmark dollar-denominated bond offering from a local corporate.

Although the deal is deemed a landmark for Vingroup when it comes to tapping a new investor base, sources noted that only selective investors were keen to participate. Nonetheless, the bonds are faring very well in the secondary market, having traded up over 105 on December 3 from 101 shortly after pricing.

Also related to the fixed-income space, the developer tapped the syndicated loan market by raising an inaugural international bank loan of $150 million on October 8. Deemed a landmark transaction for Vietnam, Vingroup was the first property company from the country to do this.

The syndicated loan was in fact a successful follow-up to the $200 million acquisition by a Warburg Pincus-led consortium of 20.2% of Vincom Retail’s equity interest on May 29, which was the first investment by WP in Vietnam and the largest initial investment to date in a Vietnamese company by a global private equity firm. This partnership brings together Vincom Retail’s market-leading position in the country’s most important urban centres and WP’s global retail and consumer industry expertise.

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