Hong Kong Loan House
Despite its well deserved reputation for excess liquidity and cut-throat competition, Hong Kong’s loan markets had a banner year in 2006, with vastly increased deal volume. Standard Chartered Bank captured a decent chunk of this business, arranging a variety of transactions across the credit spectrum. It is IFR Asia’s Hong Kong Loan House of the Year.
Judging by the volumes in the year ended mid-November 2006, it would be fair to say that Hong Kong’s loan markets were on fire. Hong Kong topped the regional (ex-Japan, ex-Australia) tables with volumes of US$33.12bn from 90 deals – a 51% increase over the US$21.88bn registered in the corresponding period in 2005. Few bankers would have imagined such numbers when budgets for 2006 were being proposed in late 2005.
But despite the record volumes, Hong Kong’s loan markets continue to be uninspiring with most deals being top-heavy clubs or self-arranged by borrowers. But while very few houses can claim to have arranged deals worthy of mention, Standard Chartered demonstrated its ability to lead a variety of financings, including those for blue-chip names as well as small and mid-tier credits.
The bank distinguished itself from rivals with two acquisition financings that it led on a sole basis. The first was an A$193.75m-equivalent (US$143.53m) three-tranche loan for PRC government-owned China National Chemical Corp to back the latter’s acquisition of Qenos, a major Australian polyethylene manufacturer.
The deal featured a watertight security package including first legal charge over all assets of Qenos and a cash-sweep regime. It was structured to satisfy the public offering test in Australia, which enabled onshore and offshore lenders to participate in the facility without any need for withholding tax. The deal closed hugely oversubscribed in August with 11 other lenders joining.
StanChart also sole led a US$85m two-year bridge financing it advanced in March to Hong Kong-headquartered, privately held record management, relocation and logistics company Crown Worldwide. The bridge funded the £50m (US$92m) acquisition of the business services division of Sirva UK. StanChart was the sole adviser to Crown on the acquisition. This financing closed in August following participation from 10 other lenders.
Another highlight of StanChart’s performance in the review period was the number of sole mandates – seven in all – including the two acquisition financings mentioned above and a HK$3.5bn (US$450m) five-year loan for Swire Pacific, one of Hong Kong’s bluest of blue chips. The deal was upsized from HK$3bn following commitments from seven other banks, but more importantly it was a significant coup for StanChart given that Swire was returning to the loan markets after three years.
The other sole mandates that StanChart won were from MGP Asia Fund, a unit of Macquarie Global Property Advisors. StanChart arranged two non-recourse property loans for MGP that funded the purchase of commercial buildings in Hong Kong. The first was a HK$1.6bn three-year loan for Foxhill, while the second was a HK$1.5bn three-year term loan for Millennium (BVI) No. 2. Both deals were secured by the property purchased and marked rare financings in Hong Kong by such property funds.
The bank was also joint books on three of the four REIT financings that were the hallmark of Hong Kong’s loan markets in 2006.
StanChart featured prominently on financings for blue and red-chip borrowers such as Kerry Properties, Sun Hung Kai Properties, Lenovo Group, Citic Pacific, Hongkong Land, Hang Lung Properties, Cheung Kong, Hutchison Whampoa, Henderson Land and PCCW among others. In the mid-tier space it arranged deals for the likes of Leo Paper Bags Manufacturing, Chinese Estates Holding and Apple Daily.
However, it missed out on Ocean Park’s HK$4.16bn loan in May, Champion REIT’s HK$7.2bn financing in July and Hongkong Electric’s HK$5bn loan in September. HSBC arranged all of these in addition to sole bookrunning roles on Shun Tak Finance’s HK$5bn loan in March and Shanghai Industrial Investment Holdings’ HK$3.5bn financing in May, both of which were well-received.
HSBC topped the bookrunner league tables with US$5.28bn in credit from 35 deals compared with second placed StanChart’s US$4.65bn from 38 transactions. However, HSBC’s portfolio lacked acquisition financings, even if it was joint bookrunner with Citigroup on Johnson Electric’s US$530m five-year bullet that refinanced a bridge loan provided by Citi in October 2005.
Prakash Chakravarti