Asian Issuers: Timing it right

Source: REUTERS/Steven Shi Employees hold a meeting inside the headquarters of Alibaba (China) Technology on the outskirts of Hangzhou. Alibaba Group has yet to file any listing applications to any stock exchange, but the Chinese e-commerce giant’s IPO is already the most anticipated since that of Facebook. It is no exaggeration to say that the proposed float of Alibaba is the single hottest mandate for any stock exchange around the world. The IPO, however, has sparked a fevered debate in Hong Kong and looks most likely to end up in the US. Bankers estimate an Alibaba IPO could total at least US$15bn, based on a group valuation of US$80bn–$100bn. However, going on a recent financial statement from one of its major shareholders, the fundraising size could even be bigger. US Internet firm Yahoo, which holds a 24% stake in Alibaba, said in its latest earnings report that, in the second quarter through June, Alibaba’s net profit more than doubled to US$707m from US$273m a year earlier. PrivCo, a provider of private company financial data and independent research, said the latest numbers valued Alibaba at US$110bn and implied an IPO size of US$18bn–$25bn. Still, these numbers have not moved Hong Kong Exchanges and Clearing, the operator of the Stock Exchange of Hong Kong. After months of preliminary discussions, Alibaba’s talks with HKEx broke down in late September after the company failed to win approval for a boardroom structure that allows management to maintain close control of the firm after it goes public. The partnership structure that Alibaba had proposed would allow the company’s key managers to nominate a majority of board members. Shareholders would then have to approve the nominees. If rejected, the management could nominate other candidates. “Hong Kong’s listing rules are clear and, if there is a need to change them, we should do it via due process. If we chop and change our regulations to fit whoever comes along, we will lose all credibility.” Such a structure would allow Alibaba founder Jack Ma to retain tight control of the company after it went public, even though he and his top executives own only about 10% of the firm. Besides Yahoo’s 24%, Japan’s SoftBank owns 37% of Alibaba. There are currently 28 partners in the company. The proposal, however, aroused hot debate in Hong Kong. Many said the proposed structure was unfair and would hurt the interests of minority shareholders. In response, HKEx CEO Charles Li, in a rare move, recounted an imaginary debate about listing standards in the city on his blog. “Hong Kong’s listing rules are clear and, if there is a need to change them, we should do it via due process,” he wrote, on the same day as reports that Alibaba was likely move its IPO to the US. “If we chop and change our regulations to fit whoever comes along, we will lose all credibility.” Door closing While the HKEx has closed its doors to the Alibaba listing, US stock exchanges have welcomed the mammoth transaction with open arms. The US market has no precedent for the exact boardroom structure Alibaba has proposed, although it allows dual-class shares that give some investors preferential voting rights. According to Alibaba, the New York Stock Exchange and the Nasdaq have confirmed in letters that the company’s partnership structure, including its nomination to the board, is fully compliant with the listing rules. Although the US regulators have given the management setup the green light, Alibaba has yet to file a listing application to any stock exchange. A US listing appears to be the favourite option, but an IPO is now unlikely to materialise until early next year. Business as usual The delay to Alibaba’s listing plan, however, does not appear to be putting substantial financial pressure on the company’s operations. It even made a few acquisitions recently. For instance, the online payment affiliate of Alibaba is to acquire a 51% stake in Tianhong Asset Management for Rmb1.18bn (US$193m) in a bid to acc

Source: REUTERS A Chinese group performs at the Sino-US Water Skiing Dual Meet in Nanjing. China National Offshore Oil Corp’s blockbuster purchase of Canadian energy firm Nexen in February was part of the PRC oil giant’s sophisticated plan to gain a foothold in the global energy sector after its 2005 failure to buy Unocal in the US. The purchase also demonstrated CNOOC’s ability to use the financial markets to its advantage. CNOOC’s whopping US$15.1bn acquisition of Nexen required the Chinese company to make the Canadian Government comfortable with the purchase – something it failed to do when it attempted to buy Unocal for US$18.5bn. The acquisition also required CNOOC to line up financing to make the sale go smoothly. It achieved both objectives. The Chinese oil giant showed its muscle more recently, when it orchestrated a somewhat smaller, yet equally interesting, financing exercise for its US$1.93bn agreement with the UK-based BG Group to acquire a 40% stake in the Queensland Curtis LNG project in Australia. Arranging financing for the Nexen acquisition began in July 2012, seven months before the takeover closed. CNOOC had enough money on its balance sheet to make the purchase outright – Rmb99.19bn (US$15.54bn) of cash and short-term investments as of December 31 2011 – but the world’s biggest energy explorer decided to raise some of the acquisition price through a multi-dollar bridge loan that it would repay later with bonds and borrowings. CNOOC received financing proposals from more than 30 banks. It ended up arranging a US$6bn 12-month bridge financing with 20 banks, closing the facility in February 2013. The margin on the bridge opens at 80bp over Libor for the first six months, before it steps up to 100bp for the next three months and to 120bp thereafter. There was an upfront fee of 25bp. With all the loan subscriptions on offer from the banks, CNOOC could have raised as much as US$20bn, but it did not want to add to its gearing and jeopardise its Aa3/AA–/A+ (Moody’s/S&P/Fitch) ratings. The rating agencies had expressed concerns with CNOOC’s debt after the Nexen acquisition was announced. To repay a portion of this financing, CNOOC sold a US$4bn four-tranche bond in May. It was the biggest conventional G3 offshore primary market issue in Asia since Hutchison Whampoa sold a US$5bn bond in 2003. The offering attracted orders of $24bn. That was CNOOC’s largest foray in the international bond markets and its first since April 2012. It was also the largest bond from a Chinese state-owned enterprise and CNOOC’s first SEC-registered print. “Knowing its ongoing financial needs, CNOOC deliberately leaves something on the table when executing deals. That is a smart move as that can keep investors happy and ensure secondary performance.” The final price of the bond was at the tight end of guidance that had been revised twice. The bonds were priced to yield 95bp over three-year Treasuries, 120bp over five-year Treasuries, 155bp over 10-year Treasuries and 150bp over 30-year Treasuries. The successful four-tranche print not only rallied in secondary trading, but also prompted the prices of other outstanding SOEs bonds from China to tighten. Just four months after that, CNOOC was back in the bond market with a US$1.3bn 10-year bond, priced to yield 185bp over Treasuries, and its first euro-denominated piece, a €500m (US$687.5m) seven-year bond priced to yield mid-swaps plus 115bp. Both offerings were to fund the Australian project. The maiden euro deal was undertaken to mitigate CNOOC’s currency risks because part of the Australian acquisition had to be settled in Eurodollars. Euro investors flocked to the deal, in part because the seven-year maturity offered yield without introducing too much risk. CNOOC took the oversubscription crown in Europe that week, raking in US$7.8bn from 320 accounts and a final book of €3.2bn. “It was clearly intended as something of a showpiece for China Inc,” said a syndicate head not involved i

Source: REUTERS/Jason Lee A five-year-old girl performs some basic skills during a training session at a Peking opera art school in Beijing. Kaisa Group deftly managed its debt portfolio this year and the popular property developer did so from the very start of 2013. Based in the southern Chinese city of Shenzhen, Kaisa was the first foreign issuer in Asia to offer dollar bonds this year, beating Korean investment-grade issuers and sovereigns – usually the first out of the gates with such offerings. It is not just the speed with which it came to the market that made Kaisa stand out, but also the fact the developer managed to extend its debt maturity profile, while achieving cost savings through three visits to the international markets. The moves were designed to aid the Single B rated company to refinance debt with call options, according to Dr LL Tam, Kaisa’s vice chairman and executive director responsible for the group’s financial strategy. “The theme for this year was liability management,” Tam said. “About three years ago, we did a number of transactions and some of the debt will come due in 2014 and 2015. Therefore, we wanted to do refinancing. In particular, we have options to call them earlier, so we utilised the window to time the maturity profiles of our debt.” Kaisa’s trailblazing offering on January 3 2013 was a US$500m seven-year non-call four-year Reg S offering priced to yield 10.25%. A 144A/Reg S issue followed in March, where it was able to leverage the demand for the first transaction to attract US investors. The five-year non-call three bonds of US$550m were priced to yield 8.875% Finally, there was an offering of Rmb1.8bn in Hong Kong this April, when it priced three-year Dim Sum bonds to yield 6.875%, after drawing an order book of Rmb22bn, the largest for a high-yield issue at that time. In addition to securing financing, the offerings allowed Kaisa to lengthen the duration of its debt to almost four years from 2.2 years, according to Tam. The developer’s swift moves in the debt markets – all within the first four months of the year – showed the way to other Chinese property developers. “Kaisa is a very savvy issuer and very proactive in monitoring markets. It also did a very smart thing by broadening the investor base and selling bonds in the US,” said a banker close to the deals. “The company can read markets well, as it gave investors duration when they were looking for duration.” In addition to moving first and lengthening maturity profiles, the issuer also substantially lowered its funding costs. Three years ago, Kaisa sold five-year bonds to yield 13.5%, while its five-year dollar transaction in April yielded only 8.875%. The demand for all three bonds – not just the Dim Sum paper – was also quite strong. The seven-year bonds attracted an order book of US$9.9bn for a US$500m offering with asset managers buying 84% of the transaction. The second dollar bond attracted a book of US$10bn for a US$550m offering. US investors bought 27% of the bonds and, within that, fund managers purchased 76%. “Back then, the paper from Latin America was yielding around 3%–4%. So, anyone who was willing to offer high single digit was very attractive to US investors. I got a remark from them – why don’t you come often?” said Kaisa’s Tam. The issuer not only achieved lower funding costs through its dollar issue, but the huge order book for the Dim Sum offering also allowed Kaisa to price that offering cheaper than the dollar funding cost, bankers said. However, the issuer is not planning to come to the market often, however, as it is cognizant of managing its leverage ratios. The three bonds this year increased Kaisa’s net gearing ratio to 82.4% from 66.8% at the end of the 2012, according to Haitong Securities. Also, Kaisa does not have any immediate funding needs. The next maturity date on its bonds is in 2015. Still, the company did not rule out taking advantage of the right market opportunity, Tam said. Meanwhile, t

Source: REUTERS/Edgar Su Workers install CapitaMall Trust signage on the facade of a new shopping mall in Singapore. Singapore’s CapitaLand has been this year’s most active issuer of convertible bonds in Asia, but its commitment to remaking its capital structure has meant the property developer has not added to net supply of convertible bonds since July 2009. CapitaLand, South-East Asia’s largest developer, showed a timely reading of the markets on May 20 this year, when it sold a S$650m (US$525m) seven-year CB through Bank of America Merrill Lynch and Credit Suisse days before comments from the US Federal Reserve sent yields soaring. Investors thought the Fed was signalling an imminent slowing of the US’s bond-buying programme and began to change their pricing demands, based on expectations of rising rates. Fortunately, CapitaLand also had launched a concurrent tender offer for some of its outstanding CBs to bring down its interest costs. Through the tender offer, the developer bought back S$432.5m of the more than S$1bn outstanding in higher-paying 3.125% bonds due in 2018, slightly more than the S$425m it had first planned to buy back. The Credit Suisse-managed deal was one of the largest tender offers from an Asian issuer – certainly the largest in the region in five years – and came at a tight premium to its price in the secondary market. High net-worth investors, who have always been good buyers of CapitaLand’s bonds and tend to hang on to the paper, needed some persuading to give it up. The company had to market the offer heavily to reach all its bondholders. CapitaLand paid 111.5% of par for the tender, or about S$486.1m in cash. The bonds were trading at a price of about 110.5 at the time of the deal, putting the final offer at a premium of about 1.0%, or an annualised premium of 0.2%. Bondholders tendered S$619.75m. CapitaLand had indicated it would pay a minimum of 109% of face value, but, on May 30, the company adjusted its pricing guidance to a range of 109%–112% and said it had received valid tenders for a principal amount of S$302.5m at an average price of 111.5%. There was S$617.5m in face value of 2018 CBs outstanding following the buyback. Then, separately, CapitaLand bought back another S$60m of its 2018 CBs in the open market, reducing its outstanding paper to S$557.5m. Meanwhile, CapitaLand’s new seven-year CB paid a coupon of just 1.85%, the lowest for a real-estate name in the region. The offering also allowed the issuer to push out its debt-maturity profile. If its CB move was timely, CapitaLand showed on September 19 it could also act rapidly, reacting swiftly to a bounce in bond prices as the tapering that investors had feared did not come to pass. At the time, the company was ready to launch a S$600m bond with a S$100m greenshoe, in case the Fed’s decision went its way. In the wake of the Fed’s announcement, CapitaLand imposed a trading halt on its shares to pave the way for an offering of the bonds in the afternoon and catch investors before a Hong Kong holiday the following day. Not only was the deal increased to S$750m that night, it was increased again the following week to S$800m. That offering, too, was intended to fund a tender offer for some of CapitaLand’s outstanding CBs at an even larger size. As the response to the offering proved better and faster than anticipated, CapitaLand decided to increase the size of the new deal so as to buy back more bonds, bringing the deadline for tendering forward a week in the process. This time, CapitaLand announced a tender for three series of bonds that were maturing or putable in 2015 or 2016, creating price competition between investors and, theoretically, a lower clearing price for the issuer. The offer drew tenders of more than S$1bn from bondholders, through an offer process that Credit Suisse also managed. The clearing price for its 2.875% bonds due 2016 was set at 105% of par, against guidance of 102%–106%. For the 3.125% bonds due 2018, the price

Source: REUTERS/Yuya Shino A woman walks past a ticket shop displaying prices in Tokyo. As Japanese real estate investment trusts, or REITs, have been on a rampant equity spree this year, it raised some eyebrows when Croesus Retail Trust, a business trust of Japanese shopping malls, took in S$365.3m (US$294m) from a Singapore IPO, instead. Some questioned why CRT chose to list in Singapore, given the trust will focus on an entirely Japanese portfolio for at least the medium term after listing. However, the issuer expects the Singapore market to put in place an efficient and competitive payout structure for the trust, and it found it easy to work with the Singapore Exchange. “Singapore’s real estate and REIT environment has grown exponentially in the past decade,” said Jeremy Yong, co-founder and managing director of Croesus Group. “The SGX was very engaging with us. They worked around the clock, turned things around very quickly and we engaged with them on a regular basis, addressing all their questions.” The growth of the real-estate sector has made Singapore home to a strong and knowledgeable pool of investors. “Singapore has attracted an investor base, not only of foreign investors domiciling themselves here, but local investors have become extremely savvy and sophisticated,” Yong said. “Our top three shareholders are Singaporeans and I am very proud of that.” The trust raised equity in Singapore dollars even though all of the initial assets it owns are denominated in yen. All of CRT’s loans are denominated in yen, however, through sole lender Mizuho Corporate Bank, which, according to Yong, agreed to lock in attractive terms. “We have no refinancing risk or interest-rate risk for five years,” Yong said. CRT paid a forecast dividend yield of about 8%, based on its IPO price of S$0.93 per share. Some market participants considered that generous considering Japanese REITs yielded 3%-4% at the time. DBS was sole financial adviser on the IPO, as well as joint global co-ordinator and bookrunner with Citigroup. However, the pricing took account of Singaporean investors’ traditional caution towards overseas assets, with many trust IPOs, based on foreign assets, either struggling in the secondary market or closing undersubscribed in recent years. CRT had secured its initial portfolio of investments at attractive prices a couple of years ago, before Japanese property began its hot streak, and was aware that it needed to build an investor base in its first visit to the market, Yong said. “CRT is not fly-by-night [operation]. We are here for the long term, so if we come back to the market for the second or third time, we want you to come back with us,” he said. “We left enough meat on the bone.” Investors flocked to the deal, which hit the market shortly after Abenomics had given a huge boost to Japan’s equity and property markets. The deal was covered 45 minutes after launch. The institutional tranche was approximately 20x covered after the Hong Kong leg, and the retail book closed around 50x covered. The IPO benefited from commitments from high-quality cornerstone investors that subscribed to about 40% of the deal. In all, 11 cornerstones signed up, including Eastspring Investments, Citadel and Myriad Asset Management. The stock gained an impressive 23% on its debut, lowering its yield to around 6%, although a subsequent spike in US Treasuries in late May brought the yield back to around the IPO level. Retail J-REITs now yield around 4%. In retrospect, CRT’s timing looked perfect, but planning for the IPO began in the autumn of 2011 and the original plan was to list by summer 2012. “In Q12012, Japan was not in vogue,” said Yong. “There was deflation and no growth.” An attempt to complete an IPO in November 2012 was cut short after other trust deals struggled in Singapore. In a way, CRT was lucky not to have completed its IPO then as the yen subsequently began to depreciate rapidly against the Singapore dollar. “Our book value would

Source: REUTERS/Darren Whiteside A woman sorts freshly harvested grains of rice in Solano. LT Group, a holding company under the control of Philippine tycoon Lucio Tan, took advantage of global investor interest in one of the world’s fastest-growing economies and in one of the best-performing stock markets in Asia, to broaden its investor base with a 37.7bn pesos (US$874m) offering. The 1.84 billion share offering was the largest equity deal, excluding rights offering, to come from the Philippines after a US$610m IPO from Cebu Air in October 2010. The sale benefited from a bit of good fortune for the Philippines. Traditionally one of the most illiquid markets in South-East Asia, the nation got a boost just a month earlier when Fitch increased its rating for the Philippines to BBB-, a low investment grade rating. Stock investors noticed, pushing the market up 14% for the year through October 21. The change in sentiment meant there were plenty of investors around for LT Group’s follow-on stock offering when it was launched on April 17. LT Group is the new name for Tanduay Holdings, which had traded on the Philippine stock exchange for some time, but was highly illiquid, with a free float of only 10.4%. The new name came about after Lucio Tan added his family’s stakes in several unlisted firms to the holding company. Tan then reduced the stake of Tangent Holdings, his main family holding company, in the newly named LT Group. Tangent now owns 74.4% of LT Group, down from 89.6%. “Tangent Holdings wanted to put its shareholdings in various companies in one listed holding company (LT Group) to make efficient use of capital,” said LT Group president Michael Tan. “The management’s view was that, as a restructured group, it would be able to get significant funding from investors in the short to medium term,” said Tan, who is Lucio’s son. The sale gave investors an opportunity to gain exposure to privately held companies with significant businesses in the Philippines, including tobacco company PMFTC, beverage company Asia Brewery, distillery company Tanduay Distillers, Philippine National Bank and property developer Eton Properties. Holding companies usually have to offer investors a discount because the diverse natures of the various businesses they house make them difficult to value. Often, the businesses within a holding company are also individually listed, so shareholders can gain exposure to them directly. The discount for LT Group “was not very pronounced because it was the only vehicle through which investors could have accessed the group’s unlisted businesses,” according to the younger Tan. “On the first few days of the roadshow, we were selling the company and, in the last few, the investors were marketing themselves to us and explaining why we should allocate shares to them.” Also, the different components of LT Group have large market shares in their respective businesses. In 2012, PMFTC had a 90.7% market share of the tobacco business in the Philippines and Tanduay Distillers had a 29% share of the domestic spirits market, according to the offer document. PNB is the fourth-largest private commercial bank in the country, and Asia Brewery is among the top beverage makers in the Philippines, the document said. LT Group’s main challenge was that it was not well known to international investors. To address this factor, the management conducted a non-deal roadshow several months ahead of the actual launch of the offer. “On the first few days of the roadshow, we were selling the company and, in the last few, the investors were marketing themselves to us and explaining why we should allocate shares to them,” Tan said. Positive investor feedback gave the company confidence to go ahead with a sizable offering. “The issue size was based on the different businesses the group owns,” Tan said. Investor feedback also played a part in determining which of Tan’s assets would go into the newly created LT Group. The management dropped the

Source: REUTERS/Chaiwat Subprasom Thai market vendors pull back awnings and their produce off a railway track to allow a cross-country train to dissect through the middle of the town of Maeklong. PTT Exploration and Production is trailblazing Thailand’s corporate expansion beyond its shores, leaving an indelible mark with last year’s purchase of Britain’s Cove Energy for nearly US$2bn. The largest offshore acquisition in Thailand also triggered landmark fundraisings for PTTEP. Raising funds, however, was not all smooth sailing for the oil-and-gas explorer. PTTEP encountered a number of challenges at each step as it juggled financing needs to meet its large appetite for capital. Each time, though, the company was able to overcome barriers, the key of which was continuous dialogue with all stakeholders, whether they were shareholders or creditors. “We engage openly with our stakeholders to listen to concerns and expectations in all areas of the business,” said Penchun Jarikasem, PTTEP’s chief financial officer. “We believe that our transparent communication and our response to stakeholders’ concerns have demonstrated our commitment to deliver our strategy and promises, and have imparted greater confidence amongst investors.” The flexibility allowed PTTEP to avoid trouble when it quickly changed tack in September to issue a US$500m five-year senior security instead of a US dollar perpetual bond, as first planned. PTTEP, a unit of Thai energy firm PTT, had marketed the US dollar corporate hybrid during a roadshow in April this year. Perpetual securities were the flavour of the month in the US dollar markets last spring, since the interest rate and market environment were favourable for companies to raise debt with an equity treatment and avoid dilution to existing shareholders. PTTEP was keen to issue one of these hybrid securities, having put out Thailand’s largest and only corporate hybrid in the baht bond market last year. “It was an attractive opportunity to add non-dilutive equity to PTTEP’s balance sheet at an attractive cost,” said Penchun. Soon after the roadshow, however, investors began to fret over a possible US pullback in its long-time accommodative monetary policies. As the ensuing volatility in the markets made it difficult to go forward with a hybrid, PTTEP changed course and issued the senior unsecured notes. The move was well timed as the company sold the senior notes at US Treasuries plus 200bp, 10bp inside the bonds estimated fair value. This same flexible approach proved significant last year, when PTTEP refinanced the £950m (US$1.5bn) bridge loan it used to buy Cove Energy. To refinance the bridge, PTTEP planned to undertake offerings of stock of US$3bn-equivalent and perpetual securities of Bt5bn (US$159m). The local currency hybrid meant PTTEP was the first Thai corporate issuer to offer a new investment option to institutional and retail investors seeking to deploy cash. The hybrid immediately ran into trouble. The Securities Exchange Commission of Thailand, concerned that retail investors could not differentiate between hybrids from banks and those from corporate issuers, sent out a warning to retail investors. Perpetuals are undated bonds often with deferrable coupons under certain conditions. Under the hybrid terms, PTTEP would have sole discretion over when it deferred a coupon, unlike bank hybrids, with which investors were more familiar. With these, banks can only defer coupons either when they post financial losses or when they register sharply lower profits. This meant PTTEP had to work doubly hard with its lead managers to educate individual investors and, at the same time, alleviate the SEC’s concerns. It paid off as retail investors bought the bulk of the issue. Other problems beset the stock sale portion of the financing. Initially, the company had planned to sell up to 650m shares, of which parent PTT would take the bulk to maintain its 65.29% stake, leaving 214.44m for the public. Minority

Source: REUTERS/Ferry Latif A view of drainage canals, which are supposed to be developed for farming, in a peat area in Mangtangai in Indonesia’s central Kalimantan. The Republic of Indonesia has something of a mixed reputation in the international debt capital markets, having been criticised for drawn-out deal execution and paying up on primary issues. As the country wrestles with a growing current account deficit and a weakening currency, however, it is likely to rely more than ever on offshore funding. Investors’ exit from emerging market offshore bonds in May on fears the US Federal Reserve would soon begin scaling back its quantitative-easing programme hit Indonesia hard as fast-money investors sold the currency of countries with high current-account deficits. The most damage was inflicted on the Indian rupee and Indonesian rupiah. With Indonesia’s current-account deficit hitting 3.2% of GDP in August and its currency in a freefall, it was no surprise yields on the sovereign’s 10-year bonds hit the highest since 2009 over the summer, while, at the same time, the country’s credit spreads ballooned 100bp over US Treasuries. The country began bleeding hard currency foreign-exchange reserves in July in a bid to stem the rupiah’s decline. At the end of July, its reserves fell to US$92.67bn from US$98.1bn in June, and were on their way to US$91bn, which would have been the lowest level since 2010. This backdrop woke Indonesia to the reality it needed to issue in US dollars urgently if it was to stem the rupiah’s decline and bring back a measure of confidence among international investors. “Everyone knows that Indonesia needs the money,” said a Hong Kong-based syndicate banker, in the midst of the currency’s decline. To this end, it swiftly priced in mid-July a US$1bn 10.25-year Global that went some way to altering the perception of the issuer as a bit of a foot dragger when it came to execution. Indonesia’s typical modus operandi of conducting long, drawn-out roadshows was viewed as becoming a thing of the past. Still, the sovereign paid 200bp more on the deal’s coupon than it did barely three months earlier, when it issued a US$1.5bn 10-year Global, underlining the sense it was backed into a corner. In the meantime, global investor sentiment returned to securities that were perceived to be safer. As Indonesia overshot its budget deficit in August by 0.8% over the government’s target, it was more or less forced to revisit the offshore dollar market again. The sovereign began marketing a US dollar sukuk in early September. The time could hardly have been worse, with markets anticipating US military intervention in Syria and a scaling back of US bond purchases. This shaky backdrop and the damage done to Indonesia’s credibility among offshore investors prompted the country’s treasury officials to bring the sukuk deal, arguably as cheap as any offshore paper it had marketed in the last five years. With a 6.375% yield, the US$1.5bn 5.5-year issue offered a 77bp new-issue concession at initial guidance versus the country’s seasoned dollar curve, including 20bp of concession against the seven-month extension of Indonesia’s sukuk due November 2018. The new bond was priced to yield 6.125%, a new-issue concession of roughly 50bp. That was in marked contrast to deals the sovereign printed over the past five years, when it had succeeded in pricing flat or through its seasoned curve. The result brought home the new reality Indonesia faced in approaching the offshore debt markets. Still, the deal was something of a success and remarkable as it priced a day after the rupiah had shed another 3% of its value against the dollar, bringing the loss, since the start of the year, to more than 16%. It might be argued that Indonesia’s funding officials and lead managers Citigroup, Deutsche Bank and Standard Chartered erred on the side of caution with the offering. After all, it traded up to 101 bid a day after being reoffered at par. The risk of be

Source: REUTERS/Arko Datta People look at a large screen displaying India’s benchmark share index on the facade of the BSE building in Mumbai. Reliance Industries is one of the most sought-after and savviest borrowers in Asia for a reason. Whether the market is raining deals or in a shutdown, Reliance goes about its business of raising funds in a methodical and meticulous manner. In the past 12 months Reliance has successfully raised more than US$5bn through loans and bonds amid challenging market conditions for Indian credits. Often, where other borrowers find it hard to get traction, Reliance has easily attracted lenders and investors to its transactions. The best example is the recently concluded US$1.75bn dual-tranche loan signed earlier this month. When the deal first emerged in late July as the borrower sent out a request for proposals, few, including Reliance, would have anticipated the rocky road ahead. In mid-August, the Indian rupee went into freefall and flirted with all-time lows before regaining ground a month later. The ensuing mayhem caused jitters among global investors and lenders as financiers shunned India Inc. Reliance, of course, went about putting together the arranger group for the loan as it had always done, roping in 19 banks – the most it has mandated for its loan market borrowings and proof of its relationship pull. “We nurture long-term relationships with several international and Indian banks with a view to match their strengths with our needs,” said Vineyesh Sawhney, senior vice president, finance at Reliance. The large number of banks in the arranger group is nothing new for Reliance. However, it has included more banks at the top this time in a reflection of the current market conditions. “The game has changed. Previously, Reliance would bring together 12–15 banks to form the arranger group on its loans. On the latest deal, it has brought in 19 banks in a reflection of the current market conditions, as well as the fact that some lenders have elevated their relationships with the borrower,” said a loan syndications banker in Hong Kong. While this move expanded Reliance’s core group of lenders, it diminished liquidity in the retail syndication market. Nonetheless, despite negative sentiment among foreign lenders, Reliance still managed to attract banks to its deal, including commitments from Taiwanese lenders, which had exhausted their country limits for Indian credits. The US$1.75bn loan drew US$50m combined from four Taiwanese banks. While it pales in comparison with Reliance’s previous borrowings, in the context of the near-absence of Taiwanese lenders on other loans from India this year, the response was commendable. Loan market conditions have not necessarily been healthy for syndicated deals from India. Moreover, pricing on this latest loan is not the most generous among the deals in the market and yet it features 30 lenders in total. The loan pays all-in pricing of 170bp on the US$1.2bn five-year portion and 186bp on the US$500m six-year part. The outcome on the latest loan is a tad better in terms of number of lenders than Reliance’s previous syndicated facility signed in September 2012. That US$1.5bn-equivalent dual-tranche loan had 28 banks participating and paid top-level all-ins of 245bp and 265bp on the US$1bn 5.5-year average-life tranche A and the US$500m 6.75-year average-life tranche B, respectively. Interestingly enough, even as the majority of India Inc sits on the sidelines, refraining from capital expenditures, Reliance appears to be the lone ranger to raise funds offshore for its capex plans. “We have increased up our borrowing programme in the last 12 to 18 months. We are currently in the midst of our largest investment cycle,” said Sawhney. The latest loan caps Reliance’s borrowings, which included a US$800m fixed-for-life senior perpetual note in late-January. It is the first and only dollar bond from an Indian issuer without a final maturity. Reliance appeared to offer t

Source: REUTERS/Daniel Munoz International Rugby Board referee Steve Walsh gets his eyes tested as part of a publicity event in Sydney. National Australia Bank cast its net far and wide this year to attract new investors and diversify its sources of funding, selling the equivalent of A$12bn (US$11.34bn) in bonds to overseas buyers in six jurisdictions. In contrast, NAB’s peers – Australia’s three other major banks, all with identically solid ratings – focused on fewer markets for their overseas offerings, notably leaving out New Zealand and China. “We value the benefits of diversification in our funding profile and are constantly looking for opportunities to increase this where it makes sense,” said Richard Coyne, senior manager, group funding at NAB. Australian banks have long had to rely on foreign bond markets for financing, since the domestic market is not big enough to meet their term-funding requirements exclusively. Indeed, year to date, NAB’s overseas bond offerings have far outstripped the A$4.55bn in domestic senior unsecured bonds it issued this year. This offshore dependence is widely seen as the Achilles Heel of the Australian banking system, one that NAB has sought to address with bond offerings in more currencies and, consequently, increasing its funding options if and when individual markets close down. The problem of relying on international funding became a reality during the global financial crisis, when Australian Government guarantees were needed to unblock access to frozen credit markets. Those risks have diminished, however, according to a Sydney-based DCM manager. “Australia’s major banks had a relatively successful global financial crisis because they emerged, alongside the Canadians and Scandis, as the world’s strongest banks and, so, will be the first in queue in the event of future freezes, especially as they now have access to the ultra-safe Triple A covered bond space,” the DCM manager said. Perhaps, the standout deal for the Aa2/AA–/AA– rated NAB was the NZ$350m (US$276.5m) it raised on July 17 from the country’s inaugural, 5.59% 10-year covered Kauri bond, as foreign offerings sold in New Zealand are known. That issue was priced to yield 105bp more than New Zealand swaps. The Kauri offering also marked the seventh currency that Australian banks had accessed in this format since local legislation was passed in October 2011to allow covered bonds. Australian majors ANZ, Commonwealth Bank of Australia, Westpac and NAB had previously issued covered bonds in US dollars, euros, Australian dollars, sterling, Swiss francs and Norwegian krone in that time. NAB issued three other covered bonds this year. The bank priced a US$1.75bn 1.25% five-year bond to yield 42bp over mid swaps on February 29 and it extended its euro curve with a €750m (US$975m) 12-year bond at mid-swaps plus 33bp on May 28. “Not only has NAB been willing and able to do the necessary legwork to enter new markets, it has also been quick to act when attractive opportunities present themselves in core markets,” said Grant Bush, head of debt capital markets, Deutsche Bank Australia and New Zealand. For example, NAB capitalised on a strong bid for secured bank paper at the short end of the sterling curve to issue on August 6 a tightly priced £500m (US$766.5m) covered three-year floating-rate note at three-month Libor plus 30bp. In the senior unsecured market, NAB drew plaudits for its debut syndicated public bond in the offshore renminbi market on May 31. The bank raised Rmb400m (US$65.6m) from the two-year note priced to yield in line with guidance of 2.40%. NAB paid a small premium over ANZ, the only other Aussie major to have previously visited the offshore renminbi market. ANZ’s London-listed 2.9% August 2015s (issued in August 2012) were quoted to yield 2.314% in the secondary market when NAB priced. A 2.4% coupon for a two-year renminbi bond represented an “outstanding result” for NAB, Sean Henderson, head of debt capital markets Aust