EMEA Structured Equity House
On the march: As volumes in the EMEA structured equity market fell once again, one bank saw its market share surge after shaking off the shackles of a Franco-centric perspective. For internationalising its business and becoming by far the most active firm in the region, BNP Paribas is IFR’s EMEA Structured Equity House of the Year.
In November 2009 European structured equity bankers were, for once, happy. For years the market had been shrinking, as had the number of bankers employed. Yet at that point eight months of solid issuance had taken the market back to what was achieved in the full 12 months of 2007.
Unfortunately the level of activity did not last, with crises in Dubai and various eurozone sovereigns leading to periods of inactivity. The awards period in 2009 (the 12 months to November 15 2009) saw US$34.7bn raised from 68 deals, but the subsequent 12 months managed only US$22.5bn from 54. It is therefore little surprise that four out of the top five firms in 2009 saw their market share drop year-on-year.
The real surprise was that there was one bank that didn’t. BNP Paribas managed to internationalise its business so quickly that the fall in French issuance was not reflected in its deal roster.
“We needed to be more international so moved the equity-linked team to London,” said Thierry Olive, global head of ECM at BNP Paribas. “To reflect the increasing importance of unrated issuers in the convertible market we added Alain Dib as global head of equity-linked, capitalising on his experience running high-yield and distressed groups at BNP.”
By the end of the awards period, BNP had earned league table credit of US$2.6bn, just US$200m behind Morgan Stanley. Yet by the number of deals completed BNP Paribas had no peer. A total of 13 transactions were priced by BNP in the awards year – nearly one in four of the whole market. Its nearest contenders priced just nine.
Seven of the 13 deals were for companies outside France, several of which represented new geographies for the team. The trick was to leverage the large outright convertible bond investor base in France and emphasise the importance for issuers across EMEA that they have deep access to those funds. On average 64% of convertible issues by BNP ended up with long-only investors, illustrating the importance of access to key investors in the UK, France and Switzerland.
You again
As the various crises unfolded, the frequency with which the bank was in the market became increasingly important, as it provided an accurate gauge of investor sentiment.
“We have been in the market consistently through the year ensuring we are always current. Our sales team is talking to investors – on deals – all the time,” said Thierry Petit, a director in the equity-linked team. “Being strong in the market is crucial and we have been there even when the market is difficult or, for some, closed. By always being there, we monitor the market through transactions.”
In the four-month period of May through to the end of August, only two deals priced. The market was deemed to be closed. A deal of just €70m from French oil company Maurel & Prom did not lead to a reopening, but at least provided sole bookrunner BNP with a clear insight into investor interest. This knowledge of investors’ aspirations was invaluable when the bank came to schedule the deals it had lined up for post-summer.
The bank’s pipeline included two repeat issuers – Artemis and Steinhoff. Steinhoff was moving into the euro market for the first time, while Artemis’s deal included an investor unfriendly change in terms.
“We went with Artemis first as it was the most difficult structurally, but last year’s Artemis/Vinci trade [where BNP was a bookrunner] had received a good response,” said Olive.
“In the euro market [Steinhoff] was completely unknown after issuing in rand previously. Though some characteristics made Artemis more difficult, it was a known issuer and had size in its favour, and would allow Steinhoff to follow,” said Alain Dib, global head of equity-linked origination.
At €690m the exchangeable bond from French investment company Artemis into PPR was large enough to ensure it would receive investors’ attention. But the lack of an issuer pledge for the underlying shares was a rapid return to a structure abandoned by corporates in the previous two years.
Artemis is both unlisted and unrated and was reopening a market that had in effect been closed for four months. Consensus prior to launch was that a highly-rated issuer and plain structure would be required to reopen the market. Artemis did not fit that profile.
Artemis had been in the market in October 2009 with an exchangeable into Vinci that included a pledge over the underlying shares. The initial exchange property was pledged and any adjustments to the exchange price due to dividends would see this topped up, so 100% of the exchange property was pledged at all times.
The adoption of this structure was deemed crucial after holders of the Arcandor/Thomas Cook exchangeable bond struggled to secure the stock underlying the bonds when Arcandor collapsed.
Yet when coming to market post-summer Artemis abandoned the pledge. The change dissuaded many hedge funds, having a significant negative impact on the credit assumption. But outrights had suffered losses from a secondary market sell-off since the last major deal, and seeing their perspective was crucial in taking this decision. Its earlier €70m deal allowed it to ascertain the appetite and timing for a deal nearly 10 times the size.
The bonds were the first exchangeables to have premium redemption since August 2008. Despite the structural challenges, the deal ended 3.5 times covered on tough terms.
The Steinhoff €390m convertible followed a week later, marking the first ever euro-denominated convertible from a South African company, and BNP’s first issue from the country. Steinhoff was known to domestic accounts and hedge funds from two earlier convertibles, but the move into the euro space meant a switch to an entirely different audience of outright investors.
The benefits of consistently being in the market were again clear. Steinhoff used a premium redemption structure to reduce the running cost of the bond and capitalised on the response to Artemis road testing the structural tweak.
The year was never going to be about innovation, but small structural tweaks to suit a company’s specific needs were possible, featuring frequently on BNP deals.
The Maurel & Prom transaction was the first French issue to be listed only on the Luxembourg MTF market, removing the need for a public offer in France and avoiding the usual delay caused by getting French regulatory approval. Considering the speed with which the market could open and close, avoiding this three-week AMF process was attractive, and was quickly copied by other French issuers, including Silic, which raised €175m in November through BNP and Morgan Stanley.
The bank’s creativity took other forms too. The £230m convertible bond in November 2009 by Cable and Wireless preceded a demerger into two separate entities, ensuring the leads had to estimate most metrics, such as volatility and credit spread.
The fundraising by Italian real estate firm Beni Stabili in April was not structurally innovative, but was a clever piece of marketing: the €225m bond issue was completed alongside an €89m accelerated bookbuild of treasury shares. The sale of treasury shares underlined the company’s commitment to achieve SIIQ status – Italy’s equivalent of a REIT – which when achieved during the five-year tenor will have a massive impact on dividends and bondholders’ returns.
Iberian opportunity
BNP has even made international inroads into Iberia, where corporates’ traditional reliance on funding from local banks has ensured limited opportunities in equity and debt markets in recent years. With Iberian banks now struggling, BNP leapt on the opportunity to expand. By the end of January 2010 convertible volumes from Spain were up 80% over the full-year 2009, and BNP Paribas was on both deals that caused this volume spike.
Abengoa raised €250m and two days later Pescanova had secured €110m, with both firms capitalising on their recently improved profiles. Abengoa had completed its debut convertible issue less than seven months earlier in a difficult trade. BNP was the only bookrunner retained for the return visit. Pescanova had completed a rights issue in October 2009, with BNP as a joint bookrunner, and used its higher profile for the convertible, which represented a massive 25% of the company’s market capitalisation.
The blot on BNP’s copybook comes from its lead role on the Portuguese government’s latest issue through its Parpublica vehicle. The €889m exchangeable into Galp was one of the hardest fought mandates of the year, with three banks ultimately selected in a process that required banks to show terms. Unfortunately Portugal was rapidly losing its sheen as a sovereign in September, and Parpublica was even worse: a government-owned entity without an explicit government guarantee.
The desired deal therefore became increasingly unlikely to clear and the banks had to revise terms repeatedly during pre-sounding. In the end one of the mandated banks, Bank of America Merrill Lynch, walked away at the last moment after deciding the deal was too big to sell. The remaining banks, BNP and Barclays Capital, said they managed to distribute the bonds on the first day, though this was questioned when even investors praised BofA Merrill’s decision.
Yet the final pricing of the bonds was very cheap on a theoretical basis, assuming investors were comfortable holding Portuguese risk. Soon after the deal, investors (and potentially banks) were holding paper changing hands at 108.
Owen Wild
