BANK OF THE YEAR, EQUITY-LINKED HOUSE, AUSTRALIA/ NEW ZEALAND BOND HOUSE
As markets in Asia continued to outpace those in the west, several banks played important roles in financing the region’s continued expansion. However, one bank impressed across asset classes to retain its top spot. JP Morgan combined solutions, with solid executions in equity, debt and derivatives, and is IFR Asia’s Bank of the Year, Australia and New Zealand Bond House of the Year, as well as Equity-linked House of the Year.
After winning the battle of Wall Street during the 2008 financial crisis, JP Morgan was always going to be under intense pressure to defend its leading position. As competition picked up in 2010, it was not enough to be simply the default counterparty or a safe pair of hands, the bank needed to adapt in order to stay ahead.
JP Morgan’s impressive results across the board in Asia are testament to that ability to respond to the changing requirements of an evolving market. The bank ended IFR Asia’s review period as a real contender for the regional equity, bond and derivatives house awards, while it dominated international debt fundraisings in Australia and led the way in equity-linked capital markets across the region. While competitors excelled in individual products, no other firm boasted such a broad footprint across the region’s capital markets.
In a year of record IPOs across Asia, JP Morgan made sure it did not miss out on landmark mandates in China, Hong Kong, South Korea and Singapore. As debt capital market volumes hit record highs, JP Morgan punched well above its weight with a series of coveted sole mandates and opened new markets with innovative and ground-breaking deals. When investors clamoured for Asian exposure, its response was to design a series of products that combined fixed-income and currency derivatives, and when selected clients needed access to its balance sheet to support an acquisition or a refinancing, it provided.
“In these markets, you have to be nimble and we have managed to do very well in the themes that dominated the key markets this year,” said Gaby Abdelnour, JP Morgan’s Hong Kong-based Asia Pacific chairman and CEO.
JP Morgan’s approach in 2010 was far from a “Big Bang” strategy. Instead, the bank prioritised stability – there were no changes to regional senior management – and focused its efforts on winning deals and growing revenues.
“We are light years ahead of where we were last year,” said Abdelnour. “We have added new clients, extended new credit and posted record revenues, beating last year across the board.”
JP Morgan was one of the few banks that consistently snared mandates in ground-breaking ECM deals across the region. The bank was a bookrunner on three out of five of the largest IPOs in Asia, and featured as a bookrunner on three of the region’s five largest equity-linked offerings. It won a role on the vast majority of Asia’s landmark IPOs, including the world’s largest for Agricultural Bank of China and Hong Kong’s biggest listing for AIA. The bank was a bookrunner on Global Logistic Properties’ US$2.6bn Singapore IPO – the biggest on the SGX since 2003 – and Cebu Pacific Air’s US$537m listing, which set a record in the Philippines in October.
Essar Energy’s US$1.94m UK listing was the biggest-ever overseas IPO from an Indian issuer, while Semen Gresik’s US$1.08bn placement, which JP Morgan solely led, was Indonesia’s second biggest equity offering, representing a hefty 285 days of trading volume in the stock. All these deals, in one way or the other, paved the way for many more to follow, adding depth to the Asian equity-capital markets.
The bank stood fourth in the overall Asia, excluding Japan, and A-share league tables after leading an impressive 70 deals of US$14.16bn.
“We have the broadest geographical footprint in Asia Pacific [during the review period], as we have executed almost all the ground-breaking transactions across the region,” said Kester Ng, co-head of equity capital markets for Asia Pacific.
Above expectations
JP Morgan’s revamped Asian DCM franchise posted its best-ever year in 2010, with a number of innovative deals and sole mandates that pushed it into sixth spot on the league table of arrangers of new issues in dollars, euros and yen in Asia, excluding Japan and Australia, during the review period. Add in Australia, where the bank posted another blistering year, and JP Morgan finished the period on top of the table, having handled deals worth a combined US$15bn.
The DCM business has been reorganised into a joint venture between global emerging markets and investment banking, allowing JP Morgan to integrate its debt platform better with its other investment banking advisory services. That integration led to the installation of senior investment bankers at the helm, with Murlidhar Maiya, formerly head of the financial institutions group for Asia ex-Japan, taking over as regional head of DCM in May 2010 from Rohit Chatterjee, originally an M&A specialist, who transferred internally to run investment banking for India.
The reshuffle reaffirmed the importance of the primary debt markets within JP Morgan and paid dividends in business terms, with revenues up dramatically over 2009.
It also led to JP Morgan’s capturing more than its fair share of mandates in Asia’s primary markets. The strength of the bank’s relationships with Asia’s top companies – many existing investment banking clients – helped it win sole mandates from some of Asia’s best-covered investment-grade issuers.
“We have redone our DCM business and we are now seeing the results,” said Maiya. “What differentiates us from the competition is the type of business we have done in a market that is becoming increasingly commoditised.”
The US$1bn issue of perpetual capital securities for Hong Kong blue-chip Cheung Kong Infrastructure was the highlight of the year. JP Morgan left rivals stunned when it announced the deal in mid-September, launching, what was, the first corporate perpetual for an Asian issuer since 1997 – and as sole bookrunner.
The deal captured many of the themes of the year, responding to investors’ calls for higher-yielding paper to boost returns in the face of rock-bottom yields on US Treasuries and pushing maturities on investment-grade debt beyond the 10-year standard. It also tapped a growing pool of capital in Asia’s private banks, while, at the same time, allowing the issuer to fund an overseas expansion without harming its credit ratings.
The deal was a resounding success, showcasing JP Morgan‘s ability to offer unique solutions and complex structures, as well as the breadth of the bank’s distribution platform. Execution was quick and flawless, with the bonds allocated to a wide range of retail and institutional investors.
JP Morgan also handled a US$750m fundraising deal for Noble Group, the Singapore-listed commodity trading company, as sole bookrunner in July. The deal was split into a five-year note priced below 5% and a 10 non-call five with no coupon step – an unusual structure in the high-grade market.
Closer integration with JP Morgan‘s substantial derivatives platform allowed the DCM team to lead a number of local currency issues that brought Asian exposure to global investors.
Demand for Asian currency investments was a driving force in 2010, as global investors looked to diversify their portfolios and the US dollar continued its slide. JP Morgan was well-placed to respond to that growing demand, using its relationships and structuring capabilities to match investors and issuers with a series of access trades.
The bank placed MTNs for the Export-Import Bank of Korea, one of Asia’s best-known issuers, in a variety of currencies, including Indonesian rupiah, Indian rupees and Philippine pesos.
“This year was about using products in their simplest forms to service clients,” said Mahesh Bulchandani, head of fixed- income sales and structuring, credit and rates markets, Asia Pacific. “By combining an MTN and a non-tradable swap, we were able to get issuers better funding than in the US dollar market and respond to investors’ demand for Asian currencies.”
Those deals followed on from the globally distributed peso benchmark for the Republic of the Philippines, which highlighted the international demand for Asian currencies from global fixed-income investors. JP Morgan was a joint bookrunner on the Philippines sovereign trade.
The derivatives team also placed over US$1bn of Indian access products during the review period, responding to international demand for quasi-sovereign risk with efficiently structured instruments.
The bank also ticked the high-yield box with a number of solid deals for Chinese issuers. Property developer Country Garden, another repeat client, handed JP Morgan two mandates in 2010 – on its US$550m placement of 11.25% seven non-call four notes in April and its US$400m 10.5% 2015s in August. The April trade coincided with a tender for the company’s CBs, also jointly arranged by JP Morgan, which marked the first concurrent high-yield and tender offer in Asia.
It was lead left on a US$350m offering of 9.5% five-year notes for Road King Infrastructure in September and came in as a joint bookrunner on the US$400m placement of 8.625% bonds due 2015 for coalminer Hidili Industry in October.
On top Down Under
For Australian issuers looking to access bond-market funding, JP Morgan remained the bank of choice in 2010, reinforcing the leading position it established during the previous year.
The bank was in a lead role on almost every important offshore transaction – working on deals across the credit spectrum from top-rated financial institutions to high-yield miners. At the same time, JP Morgan more than held its own in the Australian dollar market with a series of big domestic benchmarks as well as a selection of Kangaroo issues.
One highlight was Fortescue Metals Group’s issue in October of a US$2.04bn five-year non-call two-year high-yield bond. This was the biggest high-yield issue from any Australian company and an essential step in Fortescue’s ambitious expansion plans. JP Morgan took the lead left position, earning 75% of the hefty bookrunner fee on the Reg S/144a deal, after the company redeemed outstanding bonds that came with higher coupons and onerous covenants.
Despite a confusing split rating of BB+ from Fitch, B1 from Moody’s and just B from S&P, the deal caught the imagination of the high-yield market, attracting an order book of US$14.5bn with 420 accounts, and was priced at 7%, nearly 100bp inside the initial guidance.
JP Morgan also executed a number of successful international deals for debut issuers, including a US$500m Yankee for Sydney Airport Finance Co in the first from the airport sector in the 144a market. That followed a US$1bn debut offering for ports and rail infrastructure entity Asciano a few days earlier, a strategic refinancing that allowed the company to diversify its investor base and, simultaneously, term out its debt with a 10-year benchmark. The same month, JP Morgan helped Woolworths raise US$1.25bn from a 144a deal, its first since 2005.
Earlier in March, the bank was a joint bookrunner on a US$750m debut Reg S/144A offering for support services provider Brambles, which beat both size and price targets after investors swarmed to the deal.
That is not to say that every offshore deal was a guaranteed success. Dalrymple Bay Coal Terminal, another debut issuer, pulled back from the Reg S/144a market after a roadshow and, instead, went ahead with a fundraising in its domestic market.
JP Morgan’s roster of US private placements included a US$350m deal for Baa1/BBB rated ElectraNet in March and the US$85m and C$65m USPP for Campbell Brothers in October.
It also notched up some key deals for Australian financial institutions, including a US$1bn three-year FRN and US$3bn dual-tranche deal for Westpac. In the euro market, JP Morgan was a bookrunner on the €1bn 10-year Lower Tier 2 deal for National Australia Bank and a €750m-seven-year deal for Bank of New Zealand.
Australia’s domestic market returned to business as usual after a turbulent 2009. On the domestic front, JP Morgan targeted its efforts on key deals rather than league table trades.
For instance, the bank was sole bookrunner on parent JP Morgan Chase’s A$1bn Kangaroo in March. It was the first Kangaroo to come to market since the global financial crisis.
JP Morgan won repeat mandates from frequent issuers, such as Queensland Treasury Corp, while it also brought Bank of Scotland Australia to the domestic market in April with its first non-guaranteed offering since mid-2008 with a A$500m two-year deal, alongside ANZ and Macquarie Bank.
JP Morgan also won a top-line ticket on the A$1.25bn 20-year inflation-linked bond that the Commonwealth of Australia launched in September, adding another funding product to its resume.
Supporting clients
In the regional loan markets, JP Morgan made significant progress, leading a variety of transactions, despite its selective approach to lending. In Asia, the bank has always taken a niche approach, committing balance sheet to M&A situations or where it has led to ancillary business.
This was best exemplified in CVC Asia Pacific’s buyout of the Asian operations of Acument Global Technologies, which led to a US$190m five-year LBO financing. It was one of the first LBO financings to emerge during the review period and was well received in the market when it closed in late July.
JP Morgan ended up backing losing bidder KKR in Healthscope’s buyout a few months later and missed out on the resulting blowout A$1.55bn LBO financing.
Corporate M&A also presented financing requirements, and JP Morgan featured as one of eight lenders committing to Vedanta Resources’ US$6bn underwritten loan. Although the M&A process was still in progress at the end of the review period, the deal underscored the bank’s targeted approach to lending, driving ancillary business and supporting key clients.
Another example was Fortescue Metals Group, for which JP Morgan, along with RBS, put together a US$2.03bn five-year loan in mid-October 2010. The loan refinanced existing debts and freed the borrower from restrictive covenants on higher interest-bearing senior secured notes issued in 2006.
Within a week of putting the loan in place, the two banks launched a like-sized Reg S/144a bond that was a blowout success and took out the loan.
JP Morgan was sole bookrunner on a US$550m three-year loan for South Korean coatings group KCC Corp, which marked a stellar debut in the loan markets in June. The bank followed that up with a sole mandate on KCC’s tender offer of its US$250m exchangeable bonds in Hyundai Heavy Industries in early December.
The bank was one of the leads on a US$850m five-year loan for MGM Grand Macau in August. It is now one of five global coordinators on a proposed IPO.
Despite being a selective lender, JP Morgan managed to win a seat at the top table on other multi-handle deals for Glencore International, Origin Energy, Tata Steel UK and Vedanta Resources.
It also led deals for other second-tier debut borrowers, such as Hong Kong-listed Parkson Retail Group and Indonesia’s Trans Media, and featured at the top in transactions for Axis Bank, Syndicate Bank and Tata Motors-owned Jaguar Land Rover.
Steve Garton, Shankar Ramakrishnan, Manju Dalal and Prakash Chakravarti
EQUITY-LINKED HOUSE
Structuring brilliance
JP Morgan’s performance across the Asia Pacific equity-linked markets showed its ability to stay on top of developing trends during the review period. The bank was consistent in leading market-opening deals and, at the same time, helped a number of issuers with their liability-management exercises. It led five of the 10 large-cap deals during the period and dominated the deal flow in a busy China market, achieving a complete all-round performance.
“This was a year when large-cap issuers returned to the equity-linked markets and JP Morgan dominated the market in grabbing a strong share of these issuances,” said Achintya Mangla, co-head of equity-capital markets for Asia ex-Japan at JP Morgan. “At least three of the 10 deals done this year [at sizes of more than US$500m] were back-to-back deals that opened the markets after a lull and paved the way for further issuance – JP Morgan was a joint bookrunner on all of them.”
According to Thomson Reuters Asia-ex-Japan league tables for the period between November 16 2009 and November 15 2010, the bank placed second behind Credit Suisse. It led 10 deals for a total credit of US$1.68bn, compared with Credit Suisse’s 12 deals for US$1.95bn.
What mattered most, however, was the bank’s flawless execution of a wide array of transactions in a market where execution mishaps were again a feature.
“We have been able to outperform other major banks in the depth and breadth of our services during this review period,” said Aloke Gupte, head of equity-linked markets for Asia at JP Morgan. “We were in the thick of the action throughout the year in being actively involved in large-cap deals and participating in liability management transactions across the region.”
JP Morgan displayed its skill and diversity throughout the year, leading some interesting trades on a solo basis, such as the S$200m (US$142m) five-year put three convertible bonds for Ying Li International Real Estate, a Chongqing-based property developer, which came with the highest conversion premium for any Chinese real-estate company since February 2008.
In August, JP Morgan acted as a sole global co-ordinator and joint bookrunner on Acer’s US$500m CB – the biggest zero-coupon CB from an Asian issuer since January 2008 and a deal that paved the way for other Taiwanese issuers, including Hon Hai Precision and AU Optronics, to tap the market.
JP Morgan also led five-year put three CBs for Maoye International Holdings and Hengdeli Holdings, which capitalised on growing investor demand for exposure to the Chinese consumer growth story and were both increased. It also featured as a bookrunner on London-listed Indian mining company Vedanta Resources’ US$805m CB, the biggest ever for an Indian issuer.
Passing the test
There were also deals that tested the bank during the year. Joint books JP Morgan and Platou Markets in February priced a larger-sized US$100m five-put-three CB for Indonesian shipping firm Berlian Laju Tanker that rivals quickly criticised for being priced too generously. However, the deal was structured to please investors amid volatile markets and in a notoriously difficult sector, with a 12% coupon and 10% premium.
The bank also came up with creative liability management solutions during the year. Along with Citigroup, Credit Suisse and Standard Chartered, JP Morgan managed carmaker Tata Motors’ conversion offer for its ¥11.76bn (US$126m) zero coupon CB and US$300m 1% CB. Holders of 93% of the yen CBs and 76% of the US dollar CBs opted to convert to shares, allowing Tata to retire US$345m of debt.
JP Morgan also helped China Nickel Resources Holdings and Lion Diversified Holdings to restructure exchangeable bonds, as well as handling Country Garden’s US$114m CB tender offer as part of a total refinancing solution funded with a concurrent high-yield bond offering, which the bank also led. The Country Garden deal was the ninth Asia equity-linked liability management transaction that JP Morgan led in the past 24 months, pointing to its dominance there.
JP Morgan also played a key role in the structuring of two private placements of perpetual CBs. The first one, for Sino-Ocean Land, was soon followed with a similar issue for Franshion Properties (China). The SOL deal was the first perpetual CB from an Asian corporate issuer outside Australia and Japan since 1993, and was designed with a structure that met many issuers’ objectives. The perpetual format allowed these companies to raise cost-effective funding without issuing straight equity at a big discount or without diluting their majority shareholders. It also avoided additional gearing, coming in the form of an equity-like instrument that would be given equity treatment on the balance sheet.
In October, along with Barclays Capital, JP Morgan helped Paladin Energy raise US$300m through five-year CBs, proceeds of which were used to fund a concurrent tender offer for the company’s US$250m CBs due in December 2011. The 2015 CBs paid a coupon of 3.625%, while the premium was fixed at 32.5% – the lowest coupon and highest conversion premium an Australian CB achieved in 2010.
Shankar Ramakrishnan
