FinanceAsia Achievement Awards 2013 - Day 2

Today we recognise the region's best overall deals of 2013.

DEAL OF THE YEAR
Cnooc’s $18.2 billion acquisition of Nexen

Advisers: BMO Capital Markets, Citi, Goldman Sachs, RBC Capital Markets
Legal advisers: Stikeman Elliott; Davis Polk & Wardwell; Blake Cassels & Graydon; Paul, Weiss, Rifkind, Wharton & Garrison

Cnooc’s acquisition of Canadian company Nexen had always seemed like a long shot. The Chinese company had been evaluating potential targets since 2005 and ran the slide rule over the Toronto-listed Nexen for a considerable period of time starting from 2009.

It finally started negotiations in 2012 but, given the number of approvals that were required, it was not until early this year that the deal finally closed. Getting across the finish line was no easy task. It involved a huge effort by the bankers and legal advisers to jump through numerous regulatory hoops, including getting approval from the Committee on Foreign Investment in the US (Cfius).

Due to the sheer size and wary attitude towards Chinese acquirers buying up assets in North America, there were worries that another major Chinese company could strike with a billion dollar deal, making it impossible for Cnooc to seal its deal.

Against all odds, Cnooc managed to close its $18.2 billion deal, making it the largest ever foreign acquisition by a Chinese company and the largest upstream oil & gas M&A since 2009. While the returns on Nexen’s key Long Lake oil sands project lag behind Cnooc’s returns, the deal offered Cnooc the opportunity to gain a foothold into unconventional oil and gas assets.

 

BEST CROSS BORDER M&A 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. 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 faced challenges in getting regulatory approval.

However, Shuanghui moved with speed, beating other potential bidders such as Thailand’s CP Group, and convinced shareholders at Virginia-based Smithfield Foods to accept the offer. The deal stands out for its potential to improve the food industry in China, which has been plagued by concerns over food safety.

It remains to be seen how quickly and effectively Shuanghui can integrate such a big ticket acquisition. 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 DOMESTIC M&A DEAL
Tencent’s $448 million investment in Sogou

Advisers: Credit Suisse, Goldman Sachs
Legal advisers: Baker & McKenzie, Goulston & Storrs; Paul Weiss Rifkind Wharton & Garrison; Shearman & Sterling

Internet company Tencent’s $448 million investment in domestic rival Sogou wasn’t the biggest domestic M&A deal in Asia but it was interesting and cleverly structured in a way that enabled the company to strike a deal without requiring the approval of China’s Ministry of Commerce’s (Mofcom).

The internet sector in China is rife with deal failures, due to Mofcom’s reluctance to consider any applications from companies with variable interest entity structures for fear of lending legitimacy to them.

Tencent and Sogou got around this by ensuring that the entity did not meet the revenue thresholds that were required for Mofcom approval. The deal is part of a trend towards domestic consolidation, as slowing growth in China forces companies to merge to be more profitable.

Soso, Tencent’s search business, is relatively small and so should benefit from being merged with Sogou, China’s third largest search engine. The merger is expected to enable them to better compete with dominant player Baidu.

 

BEST FIG DEAL
Citic Securities’ acquisition of CLSA Asia-Pacific Markets for $1.15 billion

Advisers: Citic Securities, Crédit Agricole, Credit Suisse, JP Morgan, Rothschild
Legal advisers: Skadden Arps Slate Meagher & Flom; Sullivan & Cromwell; Baker & McKenzie; Kirkland & Ellis; Gide Loyrette Nouel

Citic Securities’ acquisition of Hong Kong-based broker CLSA Asia-Pacific Markets for $1.15 billion was notable for its multifaceted nature and both parties’ persistence in the face of adverse market conditions.

It was a landmark transaction as the largest overseas purchase by a Chinese broker to date. It creates a global platform for China’s largest securities house by market value and paves the way for CLSA to expand in the mainland’s capital markets.

During more than five years of negotiations, the transaction took many turns. The acquisition was done in two stages: first, Citic Securities agreed to buy a 19.9% stake for $310 million, then it bought the remaining 80.1% for $842 million.

The deal was drawn out partly because of a change in senior management at Crédit Agricole in 2010. CLSA was 65% owned by the French bank, with the remaining 35% held by staff. Crédit Agricole was also grappling with the fallout from a crisis in the eurozone during the course of the negotiations.

Another major hurdle to getting the deal done was that the two banks had to convince regulators in all the markets in which CLSA operates that the takeover posed no threat to the stability of financial markets and that the Chinese government would not interfere in the merged company.

Citic Securities is about 20% owned by the Citic Group, which in turn is a state-owned company headquartered in Beijing.

The deal was approved in almost all the jurisdictions.

At the time of writing, integration was progressing relatively smoothly. This is no mean feat considering CLSA is best known for its independent research and lavish parties.

 

BEST EQUITY 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 since 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 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 IPO
BTS Mass Transit Growth Infrastructure Fund’s $1.4 billion IPO

Bookrunners: Morgan Stanley, Phatra Securities, UBS
Legal advisers: Linklaters; Weerawong, Chinnavat & Peangpanor; White & Case

While the fourth quarter saw an increasing number of new listings out of China, including China Huishan Dairy and China Cinda Asset Management, we feel that BTS GIF stands out as the most innovative IPO this year and the one that looks likely to have the biggest impact on the equity capital markets long-term.

As the first infrastructure fund in Thailand, it offers investors a combination of stable returns, high dividend yields and strong growth, while giving the country’s infrastructure providers a chance to monetise part of their assets to finance future build-outs.

Sure, yield plays have lost some of their shine since BTS GIF’s IPO in early April due to worries about US tapering, but because Thai infrastructure funds are tax free for both issuers and investors, they are expected to play an increasing role in the financing of the country’s infrastructure from now on.

It was also a very large deal. The portion sold to public investors amounted to $1.4 billion, making it the largest private sector IPO in Thailand ever and the second largest listing in Southeast Asia this year. Including the 33.3% taken up by the sponsor, BTS GIF raised $2.1 billion.

The fund is backed by ticket sales from the Bangkok Skytrain, which is operated by its sponsor, BTS Group. Because the fund doesn’t actually own the railway assets, the deal needed some complex structuring and the banks involved worked for a couple of years to get it right.

To ensure a successful outcome, they also lined up 20 high-quality domestic and international cornerstones who agreed to take up 60% of the deal. But there was strong interest from other investors as well. The non-cornerstone institutional tranche attracted more than 200 accounts and the 56,900 retail subscriptions set a new Thai record.

This allowed the price to be fixed at the top of the range for an implied yield of 5.98% for fiscal 2014. The fund gained about 12% in the first month before trading off in line with other yield-focused assets around the world. By early December it was down about 15% from the IPO price, although the Thai benchmark index had fallen 10.6% in the same period.

 

BEST SECONDARY OFFERING
Sinopec’s $3.1 billion H-share private placement

Bookrunner: Goldman Sachs
Legal advisers: Freshfields Bruckhaus Deringer; Herbert Smith Freehills

As private placements go, this deal was big. Considering that the shares had to be placed with between six and 10 investors, each buyer essentially had to invest as much as $300 million. But what made us choose China Petroleum & Chemical Corp, or Sinopec as it is more commonly known, as the top secondary offering in Asia ex-Japan this year, wasn’t just the size. It was the smooth execution.

When the deal was announced to the broader market after it was completed in early February, it took pretty much everyone by surprise. Even though Goldman had been wall-crossing selected investors for a couple of weeks, there had been no leaks about a potential transaction, which allowed the share price to continue to trend higher. The oil refiner also held above the issue price in the weeks after the deal, suggesting the new shares were placed in solid hands.

At the time of the deal, Sinopec’s H-shares were up 45% from their 2012 lows seven months earlier and were trading just off a five-year high.

When the regulatory approval came through after just three weeks – a record for a private H-share placement – Goldman was ready and chose to launch the deal on the very same day, making the most of the positive momentum in the sector following a fuel price reform and stabilising oil prices in the international market.

The shares were sold at a 9.5% discount to the latest close, which some observers have argued was too wide for a bluechip like Sinopec. However, the deal accounted for 17% of the existing H-share capital and about 40 days of trading volume, which is pretty chunky. The fixed price also translated into 7.4% discount to the average close in the past 30 days, which is the tightest among the four H-share private placements above $1 billion so far.

More importantly, the deal allowed Sinopec to achieve its key strategic objectives, which was to improve its financial position, reduce leverage and enrich its shareholder base, at an optimal time. The shares were bought by the maximum 10 accounts, which included existing shareholders, new long-term investors and at least one sovereign wealth fund.

 

BEST EQUITY-LINKED DEAL
CapitaLand’s S$800 million new CB issue and tender offer

Bookrunner and dealer manager: Credit Suisse
Legal advisers: Allen & Gledhill; Allen & Overy; Linklaters; WongPartnership

While this is not an innovative deal per se, CapitaLand’s second tender offer/new CB issue this year did include some notable achievements in terms of pricing that caught our attention.

The tender, which was done in mid-  to late September, allowed the Singapore real estate company to retire a significant portion of its outstanding convertible bonds, easing a re-financing burden that was previously heavily concentrated to 2015 and 2016.

And it paid for it through a new issue that was pretty aggressively priced and nicely timed to make the most of an equity and credit market rebound the day after the Federal Reserve announced it would not start its expected tapering straight away.

The new issue had a 10-year maturity and five-year put and initially came with a S$600 million base deal and a S$100 million upsize option. It was eventually upsized to S$750 million at the time of pricing and then to S$800 million ($636 million) a week later to match the target size of the tender.

It was priced with a 1.95% coupon and yield, a 30% conversion premium and an implied volatility that was in line with its historic levels – something that has been achieved by only one-tenth of Asia-Pacific ex-Japan issuers since 2009.

Meanwhile, CapitaLand offered to buy back three different CBs to create price competition between bondholders, although the price ranges were set to maximise the tenders of two of them in particular. In the end, the company received tenders for about S$1.05 billion of bonds (face value) and bought back S$826 million worth.

Impressively, the clearing price for two of the issues were at a discount of 2.5% and 3% versus the market price before the tender announcement, while the third CB, which accounted for just over 60% of the total tender, cleared at a price that was flat to the market.

That – a buyback at or below market price – is something that hasn’t been achieved by any other CB tender in Asia in the past five years and is a key reason why we think CapitaLand deserves this award.

 

BEST MID-CAP EQUITY DEAL
KrisEnergy’s $239 million IPO

Bookrunners: Bank of America Merrill Lynch, CLSA
Legal advisers: Allen & Gledhill; Clifford Chance; Latham & Watkins; Chandler and Thong-ek; Khmer Intellectual Law Firm; Makarim & Taira S; Syed Ishtiaq Ahmed & Associates; Vietnam International Law Firm; Walkers

While most of the IPOs in Singapore this year have been yield-focused Reits or business trusts, Kris Energy distinguished itself by being a high-risk growth play.

As a pure oil and gas exploration and production company with a focus on Southeast Asia that is yet to become profitable on the bottom line, it faced a lot of hurdles, especially at a time of highly volatile markets that saw a number of other IPOs being pulled or delayed. It was also the first company to list under new Singapore regulations that allow unprofitable companies in the oil and gas and mining sectors to go public.

But the management and the joint bookrunners broke the challenges down one by one and managed to achieve one of the most impressive new listings in the past 12 months.

The key was to make investors believe in the management and their ability to deliver on their business plan, which is to identify and acquire exploration rights around the region and develop them into producing assets. The fact that the three founders have done this once before with another company that achieved returns of more than 230% from listing to privatisation, clearly helped and so did the support from Temasek-controlled Keppel Corp, both as a strategic investor and as one of three cornerstones that took up 38% of the base deal.

The rest was achieved through extensive marketing, which among other things convinced investors to value the company based on sum-of-the-parts risk-based net asset value, thus allowing for a significantly higher valuation than would otherwise have been possible. One observer noted that investors were basically asked to pay for 100% of the potential upside upfront. And they did.

The deal ended up heavily oversubscribed and priced at the top of the range for a market capitalisation of about $950 million. On top of that, it has outperformed the broader Singapore market by 10% to 20% since the trading debut in mid-July.

 

BEST SMALL-CAP EQUITY DEAL
Xinchen China Power’s $100 million IPO

Bookrunners: Bank of America Merrill Lynch, Deutsche Bank
Legal advisers: Appleby; Fried, Frank, Harris, Shriver & Jacobson; Global Law Office; Jingtian & Gongcheng; Shearman & Sterling

In a year when many small-cap IPOs in Hong Kong has had to rely on large cornerstone and anchor tranches filled mostly with Chinese corporate money to get them across the line, Xinchen China Power is a notable exception.

The manufacturer of branded automotive engines and associate of Chinese auto maker Brilliance China signed up no cornerstones and the deal wasn’t fully covered at launch. Instead, the order book was built mostly while the management was on the road, albeit with support from a targeted pre-launch marketing that eventually resulted in more than $200 million of international orders.

In all, the institutional portion of the deal was more than six times covered by a mix of long-only investors, hedge funds and some existing Brilliance China shareholders, while retail investors ordered more than 20 times the number of shares set aside for them. This triggered a clawback that increased the size of the retail tranche to 30% of the total deal.

The price was fixed close to the bottom of the range at HK$2.23, or about seven times this year’s earnings, for a total deal size of $90 million – later increased to $100 million as the greenshoe was partially exercised.

At the end of 2012, Xinchen entered into an agreement to make engines for BMW, but since that deal wasn’t yet finalised when the IPO launched in late February the management and the bookrunners were only able to refer to BMW as “a leading European car maker” during marketing, thus denying it full credit for a very positive development.

The BMW deal has helped support the share price since the listing, however, as has the fact that the company has delivered on its promises. By early December the stock was up 135% since the IPO, making it one of the top performers this year across market categories.

 

BEST INVESTMENT GRADE BOND
Hutchison Whampoa €1.75 billion perpetual

Joint bookrunners: Bank of America Merrill Lynch, Goldman Sachs, HSBC
Legal advisers: Allen & Overy; Freshfields Bruckhaus Deringer

Hutchison already has euro-denominated senior bonds and is a name that European investors are familiar with made. This made it easier for the conglomerate to issue the first ever euro-denominated hybrid from an Asian borrower in May.

The most exciting part is the fact the €1.75 billion ($2.3 billion) perpetual offered a coupon of 3.75% – the lowest for a euro-denominated corporate hybrid offering globally – and the issuer managed to obtain this without an investor roadshow.

Investors ploughed into the transaction, resulting in a high-quality and well-diversified order book of over €6.5 billion from more than 300 accounts, broadening Hutchison’s investor base in the European investor community.

The structure was also appealing. Hutchison opted for a staggered step up, or so-called “cliff structure” similar to the structure used for Li & Fung and Agile Properties. There is a 25bp step up from the tenth year and an additional 75bp step-up from the 25-year mark.

And, unlike its dollar hybrid in 2012, there is no replacement capital covenant, which requires the borrower to replace the hybrid with an instrument of similar equity content if it calls the hybrid.

The issue gets 50% equity credit from the three rating agencies but Standard & Poor’s equity credit falls away after five years, which investors viewed as a strong incentive for Hutch to call the bonds.

In the end, the question boiled down to how important S&P’s equity credit is to Hutch and, based on the tight pricing, investors clearly took the view that Hutch would call the bonds at the fifth year.

The bond’s strong structure from a good credit like Hutchison made this a landmark deal that effectively opened the euro hybrid bond market for other Asian issuers. It deserves our award for Best Investment Grade bond.

 

BEST HIGH-YIELD BOND
Country Garden $750 million 10-year bond

Joint bookrunners: BOC International, Goldman Sachs, ICBC International, JP Morgan
Legal advisers: Commerce & Finance Law Offices; Conyers Dill & Pearman; Iu Lai & Li; Jingtian Gongcheng Law Firm; Sidley Austin; Skadden Arps Slate Meagher & Flom

Asian debt markets got off to a blazing start this year. In past years, issuance has been kicked off by seasoned borrowers such as the Philippines or Hutchison but it was the Chinese high-yield sector that set the ball rolling in 2013.

The timing of Country Garden’s $750 million deal on January 3 was impeccable as it was launched immediately after uncertainties regarding the US debt crisis were resolved, becoming one of the first dollar bond offerings to price in 2013 globally.

“Country Garden expedited the preparation process and successfully seized the optimal market window,” said a source close to the deal.

This 10-year deal – with a callable option in the fifth year – helped open the floodgates for other issuers to tap global debt capital markets, including other Chinese property companies such as Kaisa Group, Shimao Property and Sun Hung Kai Properties.

Country Garden’s deal was also the first 144a/Reg S China property high-yield bond transaction in nearly two years, which helped attract new long-only investors to the credit.

High quality buy-and-hold investors received 75% of the allocation while US investors represented 31% and European investors 21% of the distribution. As a result of the positive acceptance towards the transaction, the company’s stock price rose to a 12-month high.

Final pricing of the bond was 75bp tighter than the initial price guidance of 8.25% area, indicating that the transaction priced through the theoretical implied curve, and establishing a new benchmark for the entire BB-rated sector. Good timing and quick execution has always been Country Garden’s forte, which is why we believe it deserves recognition as the Best High-Yield bond of the year.

 

BEST SOVEREIGN BOND
Republic of Indonesia $1.5 billion 5.5-year sukuk

Joint bookrunners: Citi, Deutsche Bank, Standard Chartered

It was a close call between the Korean and Indonesian sovereign issues but we felt the latter stood out  as it was not an easy year for the Southeast Asian nation, and yet it was able to pull-off a successful deal.

In fact, the Republic of Indonesia (ROI) was the first Asia ex-Japan issuer to successfully launch and price a benchmark transaction in the international bond markets after a summer lull in primary market activity for the region. Credit markets had gone into a tailspin since May 22, when US Federal Reserve chairman Ben Bernanke signaled that the central bank’s asset purchase programme may taper soon.
Despite headwinds – domestically and internationally – ROI announced in September that it would be pricing a new $1 billion 5.5-year senior unsecured sovereign bond offering. In order to increase the appeal of its paper, it told investors this would be its last dollar issuance for the year and it also opted to shorten the tenor amid general aversion among investors to taking on longer duration risk.

Although ROI had to pay up as the country’s funding costs have risen sharply, the sovereign was very pleased with the execution of the transaction. The deal attracted an order book of $5.7 billion from 290 accounts. What stood out was that US investors took up a sizeable 24% of the offering. According to a source, non-sukuk investors from the US were keen to buy the deal even though it is not included in some credit indices, because it offered a premium over conventional bonds.

Secondary performance is clear cut evidence of the continued investor interest in the bonds traded up from 101 shortly after being priced to 105 on December 3, despite challenging times.

 

BEST LOCAL CURRENCY BOND
United Overseas Bank S$850 million Basel III Tier 1 perpetual

Joint bookrunners: ANZ, HSBC, Nomura, Standard Chartered, UBS, United Overseas Bank.
Legal advisers: Allen & Gledhill; WongPartnership

Asian local currency markets are deepening and widening, and UOB’s S$850 million ($677 million) perpetual capital security with a callable option in the fifth year reflects this theme and stood out as a significant transaction.

It was Asia’s first Basel III-compliant Tier-1 capital and effectively profiled the Singaporean bank as a regional forerunner in embracing changes within the rapidly transforming regulatory environment.

Given the unprecedented structure, this trade – issued in mid-July – naturally became the most prominent transaction and opened up the market after a dearth of issuance.

Additionally, the deal was skillfully navigated through the choppy rates environment and unfavourable news flow over the summer to achieve competitive pricing, a premium of 45bp to existing old-style comparables.

However, investor unfamiliarity towards such notes was a key challenge. This is because Basel III requires banks to have full discretion to cancel coupon payments on Tier-I perpetual securities and that investors must absorb losses while the bank is still a going concern.

Step-up coupons after the first call are also banned. But the likelihood of UOB defaulting is minimal based on the fact that it has a stable AA- rating from all three rating agencies.

The Singaporean market precedent generated substantial investor attention, offering the deal traction and support to achieve a successful execution. The bond drew an order book of S$2 billion across around 80 participants even under such challenging market conditions. The good appetite allowed the deal to be upsized from S$750 million.

The issuance was so successful that UOB decided to return with a second one in November, shortly before DBS sold its first Basel III-compliant Tier-1 note. Evidently the Basel III story has just begun, with UOB setting the clear-cut benchmark for others to follow suit.

 

BEST OFFSHORE RENMINBI OFFERING
Province of British Columbia’s Rmb2.5 billion offshore renminbi bond

Lead manager: HSBC

Province of British Columbia (BC) stands out in this year’s offshore renminbi bond market by pricing a Rmb2.5 billion ($409 million) 2.25% one-year bond, the first offering in the currency from a government entity outside of China.

The deal, the largest dim sum bond from an AAA issuer and from an issuer outside of Greater China, is set to open doors to new issuers and to diversify a market which that was previously limited to Chinese companies and large multinationals.

It also allows the issuer to enrich its investor base, access new sources of global liquidity, and increase financial and economic ties with China, the second largest trading partner of BC after the US.

The book attracted orders of more than Rmb4 billion from 42 accounts. It was priced at 2.25%, 10bp tighter than the guidance of 2.35% at deal launch.

Asia dominated the allocations, accounting for 59%, while 1% went to Europe. What’s interesting is that US investors bought 40%, a rarely seen proportion from the US in a traditional renminbi bond issue, which proves the deal expanded the investor base for the renminbi market. By type of investors, central banks and official institutions bought 62%, fund managers 18%, corporate 10%, banks 7% and private banks 3%.

 Some argue that the moderate size and the one-year tenor is more about establishing a trade relationship than about raising funds. However, for a borrower that was testing a new structure for its debut in the renminbi market, it is reasonable to play it cautiously. By early December the notes were trading above par at 100.1 resulting in a yield of 2.14%.

 

BEST ISLAMIC FINANCE DEAL
Sime Darby $800 million
dual-tranche sukuk

Joint bookrunners: Citi, HSBC, Maybank, Standard Chartered
Legal advisers: Linklaters; Allen & Overy; Zaid Ibrahim & Co

Aside from Petronas, there have been few dollar sukuks from Malaysian companies. But Sime Darby was able to break that custom by issuing an $800 million dual-tranche Islamic note in January that was evenly split into a five- and 10-year tranche.

This deal certainly set several new records in the Islamic debt realm. It is the first dual-tranche sukuk from an Asian corporate and the first 10-year sukuk issue from a privately owned corporate in Malaysia.

Moreover, thanks to its scarcity value, the company was not only able to lock-in cheap funding but it attracted a blowout order book of $8.7 billion via 192 accounts. In fact, a high quality order book developed quickly post-launch, reaching in excess of $1 billion an hour after opening, which is a smashing success.

The coupons for the five- and 10-year bonds were 2.053% and 3.29% respectively after having tightened by 20bp from initial guidance for both tranches. These were the lowest coupons achieved by any company globally in the US dollar sukuk market for the respective tenors and also the lowest coupons by a Malaysian issuer in the US dollar market.

The deal was a debut trade for Sime Darby and the company sought ratings for the bond, making it the first ever issuance off an internationally rated multi-currency sukuk programme by an Asian conglomerate. Additionally, Sime Darby is the first privately owned company in Malaysia to achieve first time ratings that were higher or on par with Malaysia’s sovereign rating.

All these factors have led to Sime Darby receiving extra brownie points for being a new leader in setting a benchmark for a five- or 10-year dollar corporate sukuk.

 

BEST PRIVATE EQUITY DEAL
Carlyle’s investment in Yashili

Advisers on exit: HSBC, Standard Chartered Bank, UBS
Legal advisers: Linklaters; Sullivan & Cromwell

Carlyle acquired a 29.2% stake in Chinese infant milk formula company Yashili in 2009 and 2010. The private equity firm then worked closely with Yashili’s management team to rebuild its image following the 2008 melamine-laced milk scandal in China and help the company raise production standards.

Steps taken by Carlyle included:

  • Recruited a head of research and development and a chief quality officer to oversee its product quality controls; a chief R&D officer; and a chief financial officer.
  • Improved corporate governance through a Hong Kong listing and implemented a management stock option plan.
  • Switched to imported raw milk powder.
  • Introduced a committee comprising international and domestic experts chaired by former US Food and Drug Administration director Robert Brackett.
  • Invested in an infant formula production facility in New Zealand.

Carlyle’s stake was diluted to 24.4% post the company’s IPO in Hong Kong in 2010. This year Carlyle exited the company via a sale to China Mengniu Dairy, a dairy product manufacturer. Carlyle made almost two times its original investment on the sale for limited partners.

The sale to Mengniu was the first milestone case after the government called to reinforce efforts to consolidate China’s infant formula industry.

Yashili has achieved industry-wide quality standards, such as ISO9001 and HACCP, as well as certifications by various national authorities, including the China Food Safety Committee andChina’s General Administration of Quality Supervision, Inspection and Quarantine.

Yashili’s revenue increased from Rmb2.75 billion in 2008 ($176 million) to Rmb3.66 billion in 2012, while the company’s net income rose to Rmb468 million in 2012 from a loss of Rmb614 million in 2008.  The Carlyle-Yashili partnership set an example for the industry to raise product quality to international standards.

 

BEST LEVERAGED LOAN
Focus Media’s $1.73 billion leveraged buyout financing

Financial advisers: Citi, Credit Suisse, Deutsche Bank, JP Morgan, Morgan Stanley, UBS
Mandated lead arrangers: Bank of America Merrill Lynch, Bank of Taiwan, CDB, China Minsheng, Citi, Credit Suisse, DBS, Deutsche Bank, ICBC, Taishin Financial, UBS, BNP Paribas, Bank of East Asia, China Citic Bank, China Development Financial, CTBC Bank, Hang Seng Bank, Mega International
Legal advisers: Sullivan & Cromwell

The acquisition of advertiser Focus Media for $3.8 billion marked the largest-ever leveraged buyout and privatisation of a US-listed Chinese company.

The deal was financed by an equity injection from a consortium of investors comprising Carlyle, FountainVest, Citic Capital, China Everbright, Fosun International as well as Focus Media’s founder Jason Nanchun Jiang.

The $1.73 billion financing was notable for its size, speed and participation by Chinese banks relatively new to leveraged loans.  Chinese banks’ growing familiarity with such deals could lead to more Chinese LBOs in future.

The investors and banks worked on the privatisation amid allegations by short-seller Muddy Waters of fraud at Shanghai-based Focus Media and an investigation by the SEC, conducting their own investigations until they were satisfied the company was on a sure footing and that they would be repaid. 

A $450 million bridge loan was fully repaid in July ahead of deadline, indicating the company’s outperformed investors’ expectations. Lenders also consented to loosen covenants and increase the size of the $1.08 billion term loan by $200 million to $1.28 billion and included a $300 million standby letter of credit. Focus Media used the proceeds to pay the Carlyle-led private equity firms a special dividend, one of the fastest recapitalisations in Asia.

 

BEST LOAN
Alibaba’s $8 billion loan

Mandated lead arrangers: ANZ, Citi, Credit Suisse, DBS, Deutsche Bank, HSBC, JP Morgan, Mizuho, Morgan Stanley
Legal advisers: Freshfields Bruckhaus Deringer; White & Case

Alibaba’s IPO may leave Asia but its $8 billion loan truly tested the depth of the region’s loan market. As the largest US dollar syndicated loan out of Asia, it was impressive because of its heft and the fact that it set new benchmarks in terms of what can be raised in the region’s loan markets.

It was also impressive from the perspective that the e-commerce company has an asset-light business model, and essentially broke the traditional Asian barrier towards lending to such businesses.

It can be argued that the company’s previous loan helped pave the way but, notably, that loan was heavily taken up by China Development Bank. In contrast, Alibaba’s $8 billion loan which closed this year, was far more widely syndicated, with $3.8 billion raised in general syndication, a blowout response.

The facility was structured as an investment grade corporate credit, and lenders took comfort in the fact that Alibaba has grown in size and scale and become a recognised name in the loan market.  The loan, which comprised a $6.5 billion senior term loan and a $1.5 billion revolving facility, was executed with speed, signing completed in a record five weeks after the kick off.

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