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Monday, 20 November 2017

Asia-Pacific Structured Equity Issue: ABC-Mart’s ¥33bn five-year convertible bond

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Reopening the market

Japan was the most active market for convertible issuance in the Asia-Pacific region this year, with notable activity from small to medium-sized businesses. But it was ABC-Mart’s bond that started it all.

The shoe retailer was the first issuer to test the euroyen convertible bond market in 2013, printing a ¥33bn (US$333m) five-year put-three deal on January 17. As an unrated, debut issuer, it was not an obvious choice to open the market. Yet the deal met with a strong response from investors and the ¥3bn greenshoe was exercised in full, while still securing a 28% conversion premium.

This was the only CB in Japan which did not price at the top of premium guidance, but this was a good indication that the price range was on the money, rather than the bargain-basement pricing seen too often. The bond traded up to around 104 the following day, a far cry from some Japanese issues later in the year which hit 110 on the break as investor exuberance peaked.

As with most Japanese deals this year, the bond carried a zero coupon, with investors paying 102.5 and taking the negative yield for par redemption. The book was around 10 times covered, with an even split between Asian and European demand.

ABC-Mart is more of a multi-national business than many Japanese corporate issuers to tap the market in 2013. It has stores in Japan, South Korea and Taiwan, as well as a production facility and factory store in the US. The decision to issue a CB arose from discussions about FX hedging and risk management over several years.

Proceeds from the bond issue were earmarked mainly for new store openings in Japan and overseas, giving investors exposure to the domestic growth story expected to be spurred into life by Abenomics.

The deal was the largest retail CB from a Japanese issuer since 2010 and the largest sole bookrun deal in Japan since 2011. It showed issuers that offshore arrangers were more than capable of running CB offerings for Japanese issuers, leading to more opportunities for foreign banks this year.

Sole bookrunner Barclays showed the extent of the progress it has made in what is still a relatively new market for the British bank, landing the largest sole deal by an offshore arranger since the global financial crisis.

ABC-Mart’s CB led to a wave of convertible issuance from the mid-cap sector, which was suddenly active after a long absence from the market.

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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