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Friday, 24 November 2017

Asia-Pacific Structured Equity House: JP Morgan

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  • Skills for all seasons

Skills for all seasons

One bank consistently maintained leadership across sectors as convertible bond issuance revived and it showed success in pricing at the top and bottom of markets and for issuers in sectors deemed untouchable. JP Morgan is IFR’s Asia-Pacific Structured Equity House of the Year.

Convertible issuance volumes rebounded across Asia-Pacific in 2013 as Chinese issuers returned, and JP Morgan shone as it took a clear lead in the market.

The US bank played a leading role in every issue in which it participated this year – no guarantee in a market where lenders are often given a free ride – and it was sole bookrunner on four deals from Asian issuers, with just three of those raising US$1.6bn.

One of those, a US$800m convertible bond from Chinese travel booking website Ctrip.com International, was undoubtedly the most lucrative deal from an Asian issuer this year in terms of fees, and it also locked in attractive terms for the company. The underlying stock had, at the time of issue, risen 144% since the start of the year, yet it achieved a conversion premium of 42.5%, the highest for a Chinese issuer since 2007 and for an Asian issuer outside Japan so far this year. A call spread raised the effective conversion premium even higher.

The 1.25% coupon was much lower than Qihoo 360 Technology’s CB, which had priced through a different bookrunner a few weeks earlier.

Other sole mandates were a US$500m offering for ENN Energy in January 2013 and a US$300m deal for biopharma company Celltrion in Korea the following month. JP Morgan showed its commitment by making a market in Celltrion’s bonds after the chairman’s comments about a possible sale of the company had caused wild swings in the price. The fourth was the US$60m issue for Wisdom Marine Lines late in the year.

A novel high-yield issue raised Rmb975m (US$160m) from Fufeng Group in November using the same security package as existing straight debt and with a short-term investor put. To provide investors with the certainty that proceeds would be used to pay back a loan, a clause was inserted allowing investors to put the bonds if the syndicated loan had not been taken out within 30 days.

Highs and lows

JP Morgan quickly adapted to a changing market sentiment. As a joint bookrunner on the HK$5.4bn (US$700m) bond for paper manufacturer Hengan International on May 20, it exploited investor demand to achieve the best terms at the peak of the market in a partially upsized deal, before yields spiked less than a week later on the first talk of the US tapering its quantitative easing programme.

Then, just over a month later, JP Morgan played a joint bookrunner role on a HK$1.4bn convertible offering from office software developer Kingsoft, the first public deal in Asia ex-Japan since tapering talk. Kingsoft was by no means an obvious choice to test the new market environment as it had never issued any form of bonds and the bond floor of just under 90 was the lowest on a new Asian issue for 10 months.

When Semiconductor Manufacturing International printed a US$200m zero-coupon CB in October, with JP Morgan again in a leading role, the issuer secured such attractive terms that it prompted a rush to market by other Asian corporates in the following weeks.

It also showed how the instrument can help companies lower down the credit curve raise capital effectively.

Taiwanese shipping firm Wisdom Marine Lines – operating in an industry that investors had generally spurned in recent years – was able to raise a combined US$100m through a concurrent CB and GDR offering managed solely by JP Morgan. The US$60m convertible allowed it to limit dilution, while the GDR offering enabled it to keep its gearing in check. Asset swap was offered for around half the CB size rather than the whole deal, to ensure that local banks were not full on exposure to Wisdom Marine in case it needed to borrow in future.

The team is led by Aloke Gupte, head of equity-linked origination, who is supported by Gaurav Maria, a vice president.

To see the full digital edition of the IFR Review of the Year, please click here.

To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

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