North America Equity Issue

To see the full digital edition of the IFR Review of the Year, please <a href="http://edition.pagesuite-professional.co.uk//launch.aspx?eid=24f9e7f4-9d79-4e69-a475-1a3b43fb8580" onclick="window.open(this.href);return false;" onkeypress="window.open(this.href);return false;">click here</a>. Equity capital market volumes in Europe collapsed in the second half of 2011, with fourth-quarter volume a trickle at US$14.75bn. Equity and equity-related issuance in the whole of 2011 was just US$158bn and, as the second consecutive year of depressed activity (2010 totalled US$174bn), banks looked at reshaping their businesses to fit. Goldman Sachs already ran a fairly lean team with 30 staff in cash ECM, which is about half that of five years ago. Cutting the workforce further could impact on coverage, so the focus was on rebalancing the business. “Coming in to the year off a pretty challenging second half of 2011 it was clear that syndicate sizes would continue to increase while fees would fall,” said Alasdair Warren, European head of ECM at Goldman Sachs. “Looking at ECM it is difficult to predict where issuance will come from geographically, but predicting by product is far easier, and with structured issuance you can position yourself with a higher degree of confidence.” For the third year running, Goldman Sachs ended the IFR awards period at the top of the EMEA league table. Previously, that league table position had been secured with large accelerated bookbuilds, usually involving the bank guaranteeing the seller a minimum price per share. This led to both spectacular successes and failures. Competitors argued the bank had bought its way to the top and quality was poor. However, a closer look shows a dramatic difference in the approach to risk in this year’s flow. “For profitability we needed to change the balance of our business,” said Warren. “In 2011, 75% of our accelerated business was on-risk. We felt in 2012 we could do it differently based on our leadership in the product, and look at structuring or derivative components to improve margins.” From mid-November 2011 to early October, Goldman had completed US$11.9bn of accelerated bookbuilds, winning sole mandates on many of its 24 deals. In a dramatic change, which has passed under the radar of competitors, only 54% of that involved any risk for the bank and 46% was agency business. On occasion Goldman was able to persuade clients to shift from risk transactions to agency before launch. “The risk is there if needed, but decisions are backed by advice and colour,” said Warren.Beyond vanilla Structural innovation was core to the theme of providing clients with products tailored for specific needs and dealing with short windows of opportunity. For example, in March the bank ran accelerated offerings in Seadrill, which included shares and puts, and in Erdemir, where warrants were packaged with the shares. Goldman bankers argue that pricing was tighter than would have been achieved through straight equity sales. Norwegian billionaire John Fredriksen wanted to sell 5% of Seadrill, but bankers were concerned about the reaction to him reducing his stake by US$1bn. The solution was to offer 90-day puts with the same strike as the equity sale, allowing pricing on the day at a premium. A fall in the oil price meant the puts were exercised so the 24m share sale was effectively reduced to 18m with an average price just below a 10% discount. Considering this was the worst-case scenario the outcome was satisfactory, as shown by the sole mandate given to Goldman for Seadrill’s debut US$1bn international bond in September. The deal also ranks as one of the most profitable for the bank in the year. The sale of 7% of Turkish flat steel producer Erdemir by ArcelorMittal may not have been possible without the warrants. Accounts indicated during bookbuilding that they would have wanted a discount of 20%. With the warrants bundled this became 11% to raise TL4

To see the full digital edition of the IFR Review of the Year, please <a href="http://edition.pagesuite-professional.co.uk//launch.aspx?eid=24f9e7f4-9d79-4e69-a475-1a3b43fb8580" onclick="window.open(this.href);return false;" onkeypress="window.open(this.href);return false;">click here</a>. When European bankers first began contemplating prospective deals for 2012, it was in the knowledge that no IPO over US$50m had priced since the previous July. Indeed, the market was littered with other companies that had tried to list and failed. Private equity firms Cinven and Warburg Pincus had mandated banks to float Dutch cable operator Ziggo in March 2011, but thought better of braving the market at that time. Instead, they worked with the banking syndicate of joint global co-ordinators JP Morgan and Morgan Stanley and joint bookrunners Deutsche Bank and UBS to introduce the company to investors. Initially, there were to be three bookrunners, but the importance of UBS’s research saw the bank upgraded. Advising the sponsors was STJ Advisors. Also on the syndicate were ABN AMRO, HSBC, Nomura and Rabobank as joint lead managers with Societe Generale as co-lead manager. By early 2012, the pre-work made the listing much easier to pull off. ”By the time the company came to market, management had met substantially all of the key opinion formers on the buyside, many of them on multiple occasions,” said Simon Begg, managing director, capital markets at Warburg Pincus. The dialogue between banks and investors, and the steady stream of cable assets to market in Europe over previous years, meant banks were optimistic the asset could sell. “We told the sponsors ‘forget what you read about the market in the press, this deal will fly. The general market sentiment doesn’t matter in this case, investors want cable, and they want Dutch assets’,” said Henrik Gobel, co-head of European ECM at Morgan Stanley. The IPO launched on February 29, a week after the SIX Swiss Exchange float of outsourcing company DKSH, but a compressed timetable meant Ziggo finished just hours after the Swiss deal. The groundwork ensured the €577.5m–€647.5m deal was covered after just one day. From then on, it was a matter of building momentum. It became a case of managing demand. The deal was due to price on March 20, but was brought forward by 24 hours as the book grew. Perhaps more importantly, the decision to price at the top of €16.50–€18.50 was made and communicated to investors a few days before. On the final day of bookbuilding, the base deal was upsized from 35m shares to 43.4m to raise €804.3m. Once the greenshoe was exercised, a deal that began at potentially €577.5m had raised €924.9m. Step-by-step the deal had grown once there was clear market appetite. “We structured the IPO with a relatively small initial free-float with the objective of showing the market that we continued to believe in the growth trajectory of the company,” said Matthew Sabben-Clare, a partner at Cinven. “Even after the upsize, we still only floated 25% of the company, showing that we as sponsors would be aligned over time with public investors buying the stock.” Banks in 2011 allocated as many investors as possible to reward them for participating in deals in difficult markets, but that strategy often backfired as investors dumped their meagre allocation. Lesson learnt, this time they were brutal as more than half the book received nothing – the upsize saw allocations increase, but not the number of investors involved. The aftermarket supported the decision with an opening print of €21.20 – some 14.6% above the IPO price – before closing at €21.25. Continued gains allowed for the early release of the six-month lock-up at the end of July for the first follow-on. Again sellers and bankers worked together to match the deal to market demand, this time using a greenshoe to remove concerns about summer trading volumes. In late October another lock-up, complete

To see the full digital edition of the IFR Review of the Year, please <a href="http://edition.pagesuite-professional.co.uk//launch.aspx?eid=24f9e7f4-9d79-4e69-a475-1a3b43fb8580" onclick="window.open(this.href);return false;" onkeypress="window.open(this.href);return false;">click here</a>. Negotiating Asia-Pacific’s equity capital markets in a volatile year required all the adaptability and strength of a champion fighter. UBS showed it had both the muscle and agility to counter any challenge, building on its heavyweight reputation in Asian equities with a flurry of smart and innovative transactions. With market conditions changing at a moment’s notice, bookrunners were constantly at risk of being caught off-guard by tanking share prices, or of missing opportunities by being too cautious. UBS showed an impressive sense of determination that kept it busy – and revenues flowing – throughout a year when new listings remained exceptionally challenging and many of its competitors stayed away from primary offerings. It also played a leading role in the explosion of block trades during the year, coming up with innovative solutions to mobilise international capital for its Asian clients. “Markets have been difficult, but we have continued to provide solutions for clients,” said Sam Kendall, UBS’s head of equity capital markets for Asia. “Our overwhelming focus has been on putting the client first but we have also sought to be proactive and entrepreneurial. In addition, having benefited from an uninterrupted deal flow has allowed us to assess investor appetite and needs accurately.” In China, UBS extended its dominance in the domestic markets to offer a full range of services to Chinese issuers. The Swiss bank was the only foreign arranger to work on both the A and H-share tranches of the US$1.89bn Hong Kong and Shanghai dual listing of New China Life Insurance, the third-largest insurer in China, in December 2011. The deal was done at a time when many other companies were delaying their jumbo listing plans. Fundraising for China Minsheng Banking Corp also demonstrated UBS’s ability to capitalise on its presence in both markets. In March, the bank, alongside Haitong International, completed a H-share placement of HK$11.2bn (US$1.44bn) for China Minsheng at a tight discount of 5% to the last traded price. The two bookrunners are now looking to raise as much as Rmb20bn (US$3.2bn) in the domestic Chinese market through a jumbo sale of convertible bonds. UBS was also joint global co-ordinator on the HK$13bn Hong Kong IPO of Haitong Securities in March. The deal, postponed from November 2011 due to difficult market conditions, priced at a higher valuation on its second attempt. Other jumbo transactions on the bank’s playbook during IFR’s review period included the Rmb8.8bn A-share private placement of Chinese train manufacturer CSR Corp and the HK$7.01bn Hong Kong IPO of Inner Mongolia Yitai Coal, the first Chinese company with only a B-share listing to sell shares in the city.A new playbook The block business also yielded some signature deals that differentiated UBS from its competitors, including the HK$5.85bn selldown in Macau gaming company Galaxy Entertainment on August 28. Leveraging on the bank’s exclusive working relationship with certain investors, sole bookrunner UBS gauged interest from a small group of institutional investors with strong support from a large US long-only investor. Having secured the support of some distinctive anchors, UBS structured the deal as a club placement, instead of a traditional bookbuild. US investor Waddell & Reed, a repeat client for UBS as both a vendor and investor during the review period, was said to have bought shares worth US$550m in the transaction. The limited distribution minimised market risk without leaving the vendor, private equity firm Permira, at a disadvantage. The block of 278.8m Galaxy shares was sold at a fixed price of HK$21 per share,

To see the full digital edition of the IFR Review of the Year, please <a href="http://edition.pagesuite-professional.co.uk//launch.aspx?eid=24f9e7f4-9d79-4e69-a475-1a3b43fb8580" onclick="window.open(this.href);return false;" onkeypress="window.open(this.href);return false;">click here</a>. More than two years after Swire Pacific first tried to spin off its property division, the Hong Kong conglomerate finally completed the task through a listing by introduction and two accelerated trades from the group’s controlling shareholder. While that unusual combination clearly met the group’s objectives, the first HK$5.02bn (US$645m) sale from John Swire & Sons stood out as a defining moment. In effect a re-IPO, it required banks to take a leap of faith, as it accounted for 130 days of trading and came at an extremely aggressive price. Swire’s approach paid off, and the solid performance of the more liquid stock allowed JSS to complete its exit less than two months later, recycling capital for investment elsewhere within the group. The block trade matched market conditions in a year when investors were reluctant to take the kind of market risk required to complete an IPO. It also allowed Swire to take advantage of growing risk appetite among arrangers, with underwritten block trades replacing jumbo Chinese listings as a major source of business. Swire shelved plans for a US$2.7bn IPO of its property division in May 2010 when market conditions deteriorated. Instead of returning with a scaled-down deal – as many other issuers have done – Swire took a different route. A year later, it sold Hong Kong shopping centre Festival Walk for US$2.43bn, bringing in much of the money it had intended to raise from the IPO. Six months later, in January 2012, Swire listed on the Hong Kong bourse by introduction, without raising any funds. With no selling effort and distribution involved, listing by introduction allowed Swire to establish a separate funding platform in a difficult market. However, like many other companies that listed by introduction, Swire Properties’ shares were thinly traded as only shareholders of parent Swire Pacific – including controlling shareholder JSS – were able to participate in the original listing. The first selldown of the JSS stake, on August 13bn transformed the liquidity of the stock and introduced a host of global funds to the shareholder register. The deal was marketed at an indicative price range of HK$21.46–$21.94 and priced at the bottom, for a discount of 10% to the pre-deal spot. JSS, however, had sold the 234m-share block to the three bookrunners – BOC International, HSBC and Morgan Stanley – at HK$21.53 each. In other words, the banks re-offered the shares to investors at a 0.33% discount, absorbing the US$2.1m difference through their underwriting fees. The deal was comfortably distributed at the lower price, and Swire Properties’ shares fell just 4.19% to close at HK$22.85 the following day, holding well above the HK$21.46 placement price. The option to increase the size by another 54m shares was not exercised. The book was well covered, with more than 90 investors participating. More than 50% of the demand came from Asia, 35% from the US and the rest from Europe. By investor type, long-only funds, including property-dedicated funds, accounted for more than half the book, while hedge funds made up 35%–40%. Swire’s share price continued to rise, and JSS completed its disposal on October 3 after the bookrunners waived a 90-day lock-up period to remove the overhang on the stock. In that transaction, JSS took in HK$4.88bn from the sale of 217m shares at the bottom of the indicated price range of HK$22.51–$23.23, or at a discount of 6% to the pre-deal spot. The selldown was yet another blowout. The book was many times covered, with about 140 investors participating. More importantly, the block raised the public float to 17.99% from 14.28%, allowing Swire Properties to

To see the full digital edition of the IFR Review of the Year, please <a href="http://edition.pagesuite-professional.co.uk//launch.aspx?eid=24f9e7f4-9d79-4e69-a475-1a3b43fb8580" onclick="window.open(this.href);return false;" onkeypress="window.open(this.href);return false;">click here</a>. It was the roadshow to end all roadshows – a fortnight long, encompassing 35 cities, 12 countries, and more than 150 one-on-one meetings. And when all was said and done, Grupo Financiero Santander Mexico attracted US$22bn in demand for its US$4.1bn deal. With that kind of investor interest, the bank could have pushed pricing but showed restraint instead. The deal was priced on September 25 at Ps31.25 – the mid-point of the indicative range of Ps29.00–Ps33.50 – with the ADS, representing five ordinary shares, at US$12.18. “Instead of more money, we wanted to be aware of pricing with investors in mind, along with wanting strong secondary trading,” Santander Mexico chief executive Marcos Martinez said. “We are happy to have priced it at the right level and right value.” “We left upside for buyers while also being extremely mindful of what happened with Facebook,” said Elias Ehrlich, head of the Latin American equity syndicate at Santander. Not everyone agreed with that pricing, though. An equity banker on the deal called it too conservative: “But they were intent upon making sure it traded well in the secondary market in order to set a solid precedent for more spin-offs of its Argentine and British units. It makes sense, but I do think they could have comfortably gone to a higher part of the range.” Indeed, the new issue was the most actively traded stock on both the New York Stock Exchange and Mexico’s Bolsa de Valores after the debut, with an offer to a one-day increase of 5.99%. The offering was 100% secondary, with 1.7bn ADSs placed in its New York offering, and 319m in Mexico, with the full overallotment option exercised. The offering implies a market capitalisation of US$16.5bn, and the multiples are impressive. It carries a 7% premium when it comes to price-to-book value, looking at 2013 estimates. Price-to-net income for 2013 is estimated at 10.78x, or a 12% discount to Banorte. The number of international investors can’t be overemphasised: in the end, 19% of the deal was sold in Mexico and 81% was sold in the US. The bulk of investors came from the US, with European and Asian funds coming into the fold, Martinez said. The international tranche was placed in the hands of quality accounts, with the allocation split between long-only accounts (70%) and hedge funds (30%), with over 300 institutional accounts involved. The bank’s return on equity is 22.5% – “the best in the country”, according to Martinez. In 2010, Santander bought back a 25% stake from Bank of America Merrill Lynch for US$2.5bn, which translates into a 65% profit versus the US$4.1bn of this offering, according to a New York analyst. The spin-off is crucial for parent Banco Santander, Spain’s biggest bank, as it shores up its own finances. It will retain a 75% interest, increasing its core capital ratios by 50bp from 10.1% under Basel II regulations. “There were a few [deals] this year [that] bankers were saying would reopen the Latin American equity market, but they never really did,” said an equity banker away from the trade. “Now we see deals launching and pricing, with more coming from Mexico every day.” Santander, UBS, Deutsche Bank and Bank of America Merrill Lynch were global co-ordinators, with joint international bookrunners Barclays, Citigroup, Credit Suisse, Goldman Sachs, JP Morgan, RBC and Itau. Joint local bookrunners were Santander, Accival, BBVA Bancomer and HSBC.