Review of the Year 2013

Abenomics looks to be pulling Japan out of its decades-long torpor, but its near-term impact across Asia remains decidedly mixed. While the surge in the Nikkei Index and the stream of Japanese acquisitions in South-East Asia will continue, China and South Korea could unleash their own measures to protect against a devalued yen. The long-term effects of Abenomics on both Japan and the wider Asian region will depend on Prime Minister Shinzo Abe’s ability to deliver on badly needed structural reforms. However, the year-old stimulus programme – a bold attempt to eradicate deflation via currency devaluation, labour policy reform, and spending on infrastructure – is already scoring points for its positive impact on inbound and outbound investments across the region. “Japan was considered a sleepy market until Abe’s arrival,” said Izumi Devalier, a Hong Kong-based economist with HSBC. “That has changed in the past year. Turnover of Japanese equities by foreigners reached a record ¥108trn [US$1.08trn] from April to June 2013.” “Investors have revised their Japan underweight positions. The excitement died down somewhat in Q3 2013, but the investing community is looking closely at Japan again,” Devalier said. The Nikkei had surged more than 40% by the middle of November, although the rally has often given way to doubts that Japan will truly be able to break through decades of stagnation and deliver on the entire suite of structural reforms. The reforms are also prompting Japanese investors to move more capital beyond their borders. Japanese investors’ net outward portfolio investments into Asian equities in the first half of 2013, for example, amounted to ¥305.6bn, up from ¥232.3bn in the preceding six months, according to HSBC’s Devalier. South-East Asia is a particularly popular destination for Japanese funds as investors seek returns abroad. “Trading amounts in both inward and outward [flows] increased, compared with January–September 2012,” said Harumi Taguchi, principal economist at research firm IHS. “By country, Japanese investors are net buyers in the Philippines, Malaysia, Vietnam and Singapore.” Thailand’s equity market also stands to gain from a sustained economic resurrection in Japan. “In Asia, Thailand has the closest trade ties with Japan and I would expect the SET [Stock Exchange of Thailand] would experience the greatest repricing for improved economic prospects in Japan,” said Tim Condon, chief economist, Asia, ING Bank. The outward investment goes far beyond short-term equity portfolios. Newly confident Japanese companies have gone on buying sprees in Asia this year as they pivot away from China, although acquisitions will become increasingly expensive for Japanese buyers if the yen depreciates too much. Two such examples are Sumitomo Mitsui Banking Corp’s agreement to acquire a 40% stake in Indonesia’s Bank Tabungan Pensiunan Nasional for roughly US$1.5bn and Mitsubishi UFJ’s US$5.6bn bid in July for a majority interest in Thailand’s Bank of Ayudhya. QE conundrum The so-called “three arrows” of Abenomics, namely monetary stimulus, fiscal stimulus of ¥10.3trn and growth-enhancing structural reforms, are fairly conventional, yet nonetheless bold initiatives for a country that has slumped under 15 years of deflation and become a “zombie” economy. The first arrow, a vigorous programme of quantitative and qualitative easing, has arrested deflation, but concerns remain that the 1.9% inflation figure projected for 2015 may remain out of reach. Moreover, Japan’s ambitions are not immune to the influence of neighbours, such as South Korea and China, who could blunt the impact of such strident QE if they choose to follow a similar agenda. “Should other central banks now choose to relaunch their own QE programmes, this could overshadow the BOJ [Bank of Japan] and dilute the market impact of their efforts,” said Stefan Hofer, emerging market economist at Julius Baer. “However, this seems very unlikely under current circumstances

Markets have done rather well in 2013. Equities have returned handsomely, quite in line with predictions, and bonds will come out of the year significantly better than had been forecast. Issuance is booming across the world, so equity and debt capital market folks have good reason to pour themselves a stiff one and look back on a year with some satisfaction. Down on the coalface of sales and trading, however, things look less cheerful. I recently had dinner with a friend who is a country head for debt and rates at one of the main US firms. In a truly miserable mood, he said he felt like a hamster in a wheel, having to run just to stand still. I have known him for many years and hold him in the highest regard, both in terms of professional ability and personal integrity. The latter probably damaged him in the easy times and now, in his mid-40s, he has a big mortgage which didn’t look that big when he took it out, children at school and management breathing down his neck. “Oh, X has just done this deal and Y has just done that one. Why aren’t you doing that too?” “Because, sir, we don’t have the risk limits, we don’t have the technology and we can’t deliver the product. Apart from that, I could do it tomorrow.” My friend was thoroughly depressed. Most of his bonuses of the past few years are locked up in deferred stock. No other employer is going to buy him out of them and if he resigns, he forfeits the lot. The only viable option for him is to wait to get fired, at which point all deferred compensation vests instantly. This is not a good place to be and certainly not an environment that motivates. And all the while his income is dropping. On the other side of the coin, I spoke to another salesman, in his early 30s who bats for one of the other US institutions. He admits he is very lucky not to be five or 10 years older. He never experienced the fat years with the big compensation packages, hence hasn’t found himself lumbered with a cost base which he would now be struggling to fund. He doesn’t live in Chelsea, doesn’t collect fancy cars and has no illusions of ever being able to.  Struggling to stay afloat The sharply diminished liquidity of credit and government bond markets – even some of the latter are beginning to trade “by appointment only” – has supposedly turned old market-makers into agency brokers. But, trust me, even those brokers who can, by the nature of their set-up, produce at a significantly more efficient cost than the big banks, are struggling to keep afloat. Unless regulators take a more sensible approach to trading and inventory, another major wave of cost-cutting will be upon us. Bond markets tend to be all bid or all offer and they need the buffering ability of the banks’ balance sheets to keep them working. Former Fed chairman and fully paid-up guru Paul Volcker might have meant well when he railed against proprietary trading, but sadly he forgot to tell anyone where market-making ends and speculative proprietary trading begins. As the last ripples of 2007–08 fade away, this has become the big unanswered question and one which is best measured with that famous piece of string. Without the revenues from secondary trading and the carry from inventory, it is hard to finance not just DCM operations, but other areas such as European ECM and M&A which always seem just about to pay off. As a result, many banks will soon give up on their efforts to be omnipresent one-stop shops – and that means a large-scale resizing of the industry. My chum has grasped that once you’ve passed 45 and you’re not on a trajectory towards top management, bonuses begin to become a luxury – so do, truth be told, paycheques once you’re over 50. However, chances of “making your pile”, “being done”, at that age is a diminishing prospect and as such, working in an industry which is prone to spit you out just when you you’re beginning to understand what you’re doing, is mightily depressing.  Withering on the vine Persistently low yields

Property is one of the most important sectors for Singapore banks when it comes to lending. In a country that has seen exponential price appreciation for residential developments in the past decade, being able to finance more buildings is a key focus. However, local banks have been reaching their limits on lending to individual developers and to the sector as a whole, especially since the local government has started moving to curb property price appreciation by forcing banks to lend less to the sector. Amid that backdrop, securitisation sounds like the obvious solution. Yet for the past five years there has been almost nothing in the South-East Asian structured market related to property. Singapore developer TG Master’s Orchis Capital ABS changed that. The deal updated an old idea of securitising progress payments to free up capital trapped in the project account. That allowed banks to reduce their lending to the company as it works to finish the ongoing project, freeing up balance sheet to lend to other developments. It also helped TG Master get money upfront that would otherwise only be seen after its project is completed. The structure is yet to be followed by others, but bankers at sole-lead DBS received lots of enquiries about it and they expect to reproduce it soon for other developers. Investors, on their side, have also proven that they are keen on buying securitisation bonds again. “People are finally warming up again to securitisation, and we expect the market-opening trades to have follow-on trades,” said Peeyush Pallav, vice-president, structured debt solutions at DBS Bank. The deal saw TG Master sell S$200m (US$160m) senior secured bonds privately. The offering, denominated in Singapore dollars, is legally due in March 2018, but has an expected maturity of March 2017 and was sold to yield 2.5%. The bonds are backed against proceeds from presales of units in Skies Miltonia Property, a high-end project being developed in Singapore’s Yishun Avenue. “For the client, they have got access to unencumbered capital, which they would not have been able to get in any other structure, and the cost is comparable to a loan-type instrument,” said Colin Chen, head of structured solutions at DBS. “For the banking systems it allows what is potentially a choke-point, the ability to continue lending to real estate, as Singapore has real estate limits for each bank,” he said. Under the structure, the issuer was able to securitise future payments of buyers who have already made a downpayment and use the proceeds to start other projects, while it manages the Skies Miltonia completion. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

Blackstone’s Invitation Homes division, with the help of lead structurer Deutsche Bank, created a new US residential real estate ABS asset class with the first REO-to-rental, or single-family rental bond, in early November. The most hotly anticipated deal in 2013, the US$479m Invitation Homes 2013-SFR1 surprised some by being rated Triple A, but it was an absolute blowout, attracting scores of investors desperate for access to any aspect of US residential mortgage credit after a five-year drought. The Triple A tranche tightened roughly 35bp from initial price whispers to final pricing at 115bp – and proved to be the first step for a market potentially worth hundreds of billions of dollars in coming years, according to analysts at Keefe, Bruyette & Woods. Robert Shiller, the Nobel Prize winner and housing markets expert, tweeted on the day the transaction priced that it could mark a revolution. And Blackstone could drive that trend: this deal was backed by rental income from only 3,207 out of more than 40,000 foreclosed US properties that the private equity firm snapped up over the past two years. “The success of this deal is clearly a positive for the continued housing recovery,” said Carl Bell, a managing director at asset manager Amundi Smith Breeden. “The transaction established that the capital markets are ready for this new asset class.” The deal resulted in much better execution than the bank financing which Blackstone and other private equity firms typically use to fund their purchases. Deutsche and a syndicate of several banks had bankrolled Blackstone via loans and more than US$3bn in debt facilities. But securitisation represented a much lower cost of capital, and Deutsche always saw a term deal as the ultimate goal. The deal was the culmination of nearly two years of work and a massive campaign by Deutsche and co-leads Credit Suisse and JP Morgan to educate the ratings agencies and convince them that rental income from thousands of tenants in foreclosed homes across the country could be securitised safely. At first this seemed like a longshot. At least six agencies published methodologies or reports over the past year indicating they would likely cap SFR deals at A– due to structural reservations. Morningstar, Kroll and Moody’s then shocked the market by upgrading the deal to Triple A. Part of the reason was that, at the request of the agencies, the deal was structured conservatively with a real estate mortgage investment conduit structure, with mortgages taken out on each of the homes in order to improve investors’ legal protections. Invitation Homes has definitely set the wheels in motion. American Homes 4 Rent said it would have its first REO-to-rental ABS by early 2014, and Colony Capital is rumoured to have a deal circulating with the rating agencies as well. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

Taurus (GMF) 2013-1 had a huge impact on the post-crisis European CMBS market, thanks to its broad, open syndication. There was no obvious clearing spread for new European CMBS before Taurus priced in May, but it has since become the reference point. Leads Bank of America Merrill Lynch and HSBC sold bonds to 40 accounts, meaning the notes are regularly quoted in the secondary market, and have anchored the spreads of another €3.2bn of Germany multifamily CMBS. While other trades, notably Florentia, Merry Hill or Chiswick Park, showed that deals could be done, they were sold to specific accounts (JP Morgan’s CIO) or done as small clubs. As a result, the bonds rarely trade. Taurus, at heart, was a simple trade. BofA Merrill lent multifamily property owner Gagfah €1bn at 240bp for the fixed portion of the loan and 225bp on the floating, securitised it in the bond market at a blended spread of 140.6bp, and pocketed the difference. Little wizardry went into it (the biggest innovation was the structure of the deferred arrangement fee certificates, allowing the bank to capture the spread difference between bonds and loan) but that was the point. Relative simplicity, however, does not mean the deal was easy. “We were working on this deal for a matter of years, not months,” said Matthias Baltes, an MD in BofA Merrill’s securitisation team. “It’s easy to say that once secondary got to a certain level you could get a new deal done, but the fact was, nobody had tried – for years. We structured the deal so we could have gone for a syndicated loan exit if the bond market was not there.” To make things extra challenging, BofA Merrill was in the public eye – Gagfah told the market about the loan refinancing with possible CMBS exit in February, two months before the deal actually priced. The leads announced the deal in late April with only the Class E and DAC notes placed, though with some protected orders in all tranches. The remaining bonds sold well. “We had 40 names in the book, which is as good as any structured finance deal, and a substantial subscription level of almost €3bn,” said Baltes. Bonds went all over Europe – the UK, Italy, France, Germany, Switzerland, the Nordics, the Netherlands – and 9% was non-Europe. Many seasoned structured finance accounts – including M&G, BlackRock, Swiss & Global, European Credit Management, Insight, and HSBC Asset Management – bought bonds, according to Thomson Reuters data. This kind of roster helps the “example effect” of the deal. European CMBS is now unequivocally open. German multifamily CMBS trades inside some Dutch RMBS, and growing confidence means banks are preparing deals from tougher jurisdictions in the periphery. But when these deals hit the market, they, like 2013’s CMBS roster, will be benchmarked against Taurus. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

Deutsche Bank made the call after the crisis to focus its fixed-income business on flow, branding itself a “flow monster” and setting its sights on the top of the volume table. But it has focused its structured finance division firmly off-the-run, mixing principal finance with ABS to powerful effect, making it IFR’s EMEA Structured Finance House of the Year. Ever more products seem to fall into the structured finance bucket at Deutsche Bank, but this means the bank keeps its seat at the top table in every sub-market of a diverse business line. Deutsche  has not always had a reputation for being a seamless organisation – what is now called structured finance, in particular, touches on a huge range of businesses. In the past two years, however, these have all been pulled together under group head Elad Shraga, with the creation of a new structured finance vertical focused on the profits the asset class can deliver to the bank, not just volumes. “The ideas of breadth, diversity, quality, innovation and consistency are real – we want to be the leader in high-value transactions,” said Daniel Pietrzak, co-head of structured credit at Deutsche. Shraga is a prop trader by background, and the business he runs now seeks out the juiciest principal finance opportunities on offer, combining balance-sheet appetite with structured finance exits like in Consumer Auto Receivables Finance, backed by a portfolio of Irish auto loans bought from Permanent TSB. The main benefit of this vertical seems to be keeping many balls in the air. A lot of banks have excellent franchises in ABS trading, private market structured finance, flow ABS, RMBS, structured CRE lending, CMBS, CLOs, structured project bonds and WBS; but none except Deutsche have a top-tier EMEA presence in all of them. In Europe, the two biggest market developments in 2013 were the full revival of CLOs and CMBS, and Deutsche has punched its weight in both. Before Taurus priced in May (see EMEA Structured Finance Issue), Deutsche already had three post-crisis CMBS to its name – and it printed three more, spanning the range from flow (GRF 2013-2) to unrated notes (Chiswick Park refinancing) to private (Monnet). In CLOs, Deutsche priced two deals – for GSO Capital Partners and for CQS Investment Management. CLO arrangers have all been anxious to parade their commitments to broad distribution, transparent, equal pricing and public bookbuilds, but Deutsche, to its credit, has delivered, publishing pricing alongside coupons on its deals. The newest string to Deutsche’s bow comes in the form of whole business securitisations, traditionally a fiefdom of the UK banks (who do most of the bank lending to sponsors) and especially of RBS. In the awards period, Deutsche was joint global co-ordinator on The AA, which applied whole business securitisation to an asset-light issuer for the first time, nudging the Class A notes over the investment grade line to a BBB– rating. Across flow ABS, Deutsche has seen plenty of action too – though missing out on mandates for repeat high-volume programmes Orange Lion and Storm has cost it league table position. But doing auto deals backed by UK, German, French and Norwegian assets, RMBS from the UK and the Netherlands (selling some of Achmea’s deal to Asia), and consumer loans from Italy and Spain (Banca Etruria and the €600m store card deal from El Corte Ingles) demonstrates the bank’s diversity. It backs this flow up with balance sheet. Doing Etruria’s debut consumer loan deal meant buying it – but it gave a small Italian lender access to term liquidity, in a format that nobody else said could be done. Deutsche put its rating to use too. For instance, it took on the swap counterparty role on the €5bn BBVA RMBS 2 – an essential role in a market where willing swap providers are scarce. Deutsche is also leader in the secondary market. The team was regularly cited as a top house by the buyside, usually along with the US banks. It trades an average of €3.4bn original

In a year when Chinese companies accounted for over 30% of all international bonds sold in Asia, China National Offshore Oil Corporation stood out as the first PRC issuer to win over investors in the euro market. The euro tranche of CNOOC’s US$2bn-equivalent offering drew particular attention for being the first euro-denominated benchmark from any Chinese issuer, setting a template that others were quick to follow. Its offering priced on September 26 in a resurgent credit market, coming about a week after the US Federal Reserve sprang a surprise in deciding to hold off from reducing its quantitative-easing programme. Although CNOOC subsidiaries had previously issued overseas debt, the offering was also the first to come with a full guarantee from the group’s mainland parent. That ensured the bond was the first from a Chinese state-owned enterprise to be eligible for JP Morgan’s Emerging Market Bond Index, helping drive tighter pricing. CNOOC, rated Aa3/AA–, priced US$1.3bn of 10-year 144A/Reg S bonds with a 4.5% coupon at par to yield 185bp over US Treasuries, well inside initial guidance of 210bp over Treasuries. At the same time, the company priced a €500m seven-year Reg S bond to yield 115bp above mid-swaps, again a lot tighter than initial price talk in the area of 140bp. The lack of comparables for the first of its kind euro bond made it difficult to come up with a fair value. Yet investors in Europe did not hesitate to buy the bonds from China’s top offshore oil explorer. Both tranches attracted huge order books, which proved resilient even as price levels on the bonds tightened over comparable securities. The dollar bonds drew orders of US$7.8bn, while the euro paper pulled in orders of €3.6bn. The offering also came with an unusual execution strategy, with the dollar tranche announced in the morning during Asian hours and the euro portion unveiled later, when London markets opened. “The 24-hour around-the-clock parallel bookbuilding for the US dollar and euro tranches spanned Asia, Europe and North America, which proved highly successful and covered the most locations in the shortest period of time,” said Paul Au, head of Asian debt syndicate at UBS, one of the global co-ordinators on the offering, alongside Bank of China, Goldman Sachs and JP Morgan. The same banks were joint bookrunners on the dollar tranche – alongside ICBC International, CCB International, ABC International, BoCom International. Barclays, Citigroup, Credit Suisse and HSBC joined as bookrunners on the euro tranche. Proceeds went towards the financing of CNOOC’s acquisition of the Queensland Curtis LNG project in Australia. A few weeks after CNOOC’s offering, fellow PRC oil major Sinopec Group Overseas Development sold a US$2.75bn multi-tranche bond in US dollars and euros. The move was a sign that CNOOC had uncovered a fundraising strategy worth emulating. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

In a year when Chinese issuers started to live up to their size and importance in the debt capital markets, HSBC came into its own, expanding its business into other parts of Asia and dominating a record year of US dollar issuance. HSBC is IFR’s Emerging Asia Bond House of the Year. The year 2013 will go into the books not only as one of record issuance in G3 currencies for Asia excluding Japan and Australia, but also one in which Chinese issuers started to play in the big leagues. It all started in unusual fashion. For the past decade, the first dollar bonds of the year were traditionally issued by one of South Korea’s policy banks, or by a sovereign – usually the Republic of the Philippines. Not so this time. To the surprise of many, high-yield Chinese property developers kicked off proceedings in 2013. HSBC quickly caught on to the trend, leading (alongside Standard Chartered, UBS, Goldman Sachs and JP Morgan) a US$800m seven-year bond for Shimao Property Holdings in early January and then playing a part in a sequence of property-related China deals. The bank, whose DCM team is led by Alexi Chan, featured in the line-up of bookrunners for almost every single deal from Chinese state-owned companies in 2013. Overall, it was a bookrunner for more than US$19bn in bonds from China. These included the first multi-tranche deals by Chinese state-owned companies, such as the three, five and 10-year US$2bn bond transaction done by oil and gas company CNPC on April 9, which was followed by another multi-tranche US$1.75bn by Sinopec just a week later. HSBC was also part of the first two deals out of Hong Kong in 2013, from Sun Hung Kai Properties and Hysan Development, proving that it still maintains its stronghold in what is in some ways its home market. Increasing market share But it also worked hard to expand beyond its captive markets. “We have demonstrated a very strong track record this year in Korea, for the first time we are at the top of the G3 league table for the country,” said Stephen Williams, head of capital financing for Asia-Pacific. “We have also done a lot of the ancillary transactions in Korea.” Indeed, HSBC was one of seven shops leading Shinhan Bank’s five-year transaction in late January, the first one from a South Korean issuer this year in the US dollar market. The bank participated in a good chunk of the nearly US$20bn printed by Korean issuers in 2013. According to a person close to the deal, it was HSBC’s ability to bring in large orders from key accounts that allowed the bank to claim a sole lead on a US$250m reopening of Korea Development Bank’s three-year bond in September. That deal came less than a month after HSBC acted as sole lead on Kexim’s US$300m tap of its 3.75% bonds due 2016s. HSBC was also one of the six leads to be involved in the Republic of Korea’s return to the US dollar bond markets in September after almost a decade without a meaningful dollar deal from the sovereign. “HSBC showed they were able to bring key accounts to the conversation,” said the head of funding for a key borrower in Korea. The bank showed the breadth of its business in Asia when it participated in the first US dollar transaction of the year for a Thai issuer, being one of the three banks leading Thai Oil PCL in its two-tranche deal in late January. The bank also strengthened its position in other markets. “The Philippines might go unnoticed as we haven’t seen so much supply from the sovereign, but it was quite an interesting year for the corporate sector and I think that will continue now that they are fully investment grade,” said Williams. HSBC was present in the sovereign deal done in November 2012, which achieved the tightest coupon to date for the Republic. Then HSBC participated in the US$750m bond due 2023 by Philippines conglomerate JG Summit in January, which at the time was the largest corporate 10-year deal ever printed by a company from the country in the US dollar markets. It was also present on the US$750m

America Movil proved itself to be a capital markets innovator once again in 2013, when the telecoms firm issued a US$2.8bn-equivalent three-tranche issue denominated in both sterling and euros. It was the first ever broadly distributed corporate hybrid from a Latin American issuer and the largest such trade done on an intra-day basis. Bankers had been pitching America Movil on the idea for quite some time, but the need to issue this type of subordinated capital arguably took on a greater sense of urgency in September as ratings agencies fretted about the company’s leverage ratios ahead of a possible acquisition of Dutch rival KPN. The KPN purchase in the end never took place. But the deal nonetheless ensured that America Movil fortified its capital base at a time of market concern, helping protect the company’s A2/A–/A credit ratings. Indeed, the hybrid debt readies the company’s balance sheet nicely for further acquisitions and is likely to set a new benchmark for Latin American corporates that are increasingly on the hunt for M&A opportunities outside their borders. “They made a strategic judgement on how to manage their business and balance sheet,” said Marcelo Delmar, managing director for DCM at BNP Paribas, which along with Barclays and Deutsche Bank acted as leads. “They were being very proactive and worked well with ratings agencies to take care of their senior debt and investors.” Mexican company Cemex had previously experimented with its own brand of hybrids, as it sought to avoid breaching covenants with banks. But America Movil took such structures a step further, gaining a 50% equity treatment from ratings agencies. The deal also needed sign off from local regulators. “It required talking to the Mexican CNV about what this type of subordinated debt meant and where to put it under law,” said Alberto Ardura, head of Latin America capital markets and treasury solutions at Deutsche Bank. The hybrid tranches comprised 60-year issues – two denominated in euros callable in years five and 10, and a sterling issue callable in year seven – marking the first time a LatAm corporate had truly tested this asset class in size. Timing was key. A window was open but would close quickly. Demand for higher-yielding hybrids was on the rise, most notably among UK accounts that had been staying clear of this asset class. But talk of a mega-bond from US rival Verizon was already spooking the market. The company wasted little time, getting leads to quickly resolve structural issues and educate local regulators on this new asset class. Already known to many investors, America Movil was able to avoid a lengthy roadshow process and address investor questions through calls. The non-call five instrument was priced at 99.463 with a 5.125% coupon to yield 5.25% (mid-swaps plus 385bp), the non-call 10 at 98.98 with a 6.375% coupon to yield 6.517% (plus 430bp). The sterling issue priced at 99.437 with a 6.375% coupon to yield 6.478% (plus 410p). To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

In a year that saw a record number of CEEMEA deals hit the screens, one stood out for its sheer bravery. On June 18, Israel Electric (Baa3/BB+) stated its intention to price an intra-day dual-tranche offering consisting of five and 10-year tenors. In normal times there would be nothing unusual about the announcement, but these were far from normal times. Following the release of the FOMC’s minutes on May 22, which mooted the possibility of a slowdown in the US Federal Reserve’s quantitative easing policy, emerging markets asset prices had borne the brunt of a huge sell-off in credit markets. Panic had gripped the asset class. For three weeks no emerging markets issuer anywhere had sold a bond in the US dollar market except for China’s Huaneng, whose paper was largely placed with three Chinese-owned banks that were added as bookrunners late in the day. Israel Electric needed no such support from its leads – Barclays and Citigroup – as it sold a US$600m 5.625% 2018 note and a US$500m 6.875% 2023 bond. Rothschild was independent adviser on the deal. Critics will gripe at the price paid. While deals earlier in the year had printed with minimal or even negative new issue concessions, Israel Electric had to pay hefty premiums as both notes priced in line with initial guidance, with the issue spread on the 2018s at 438bp over mid-swaps and the 2023s at 453bp over. That meant a new issue premium of about 60bp for the five-year tranche and 40bp for the 10-year. But big concessions were becoming prevalent across all bond markets. For example, Chevron, rated Aa1/AA, paid a 20bp–25bp premium on a deal it priced the day before, a level which was roughly 25% off where its spreads were, albeit raising US$6bn in the process. Israel Electric’s order book of US$2.36bn from over 200 accounts showed that investors were willing to buy emerging markets bonds at a time when some doomsayers were proclaiming the end of the asset class. And the deal looked increasingly prescient after guidance from the following day’s FOMC meeting added to market jitters, leading to a further Treasury sell-off. Both notes, which priced at par, performed well despite the volatility. The five-year traded above re-offer, while the 10-year was down less than half-a-point in the 48 hours after pricing. And to prove it was no fluke, Israel Electric returned to the market just two weeks later to tap each note for a further US$150m each, locking in cheaper yields in the process. In total, the state-owned company raised US$1.4bn – its biggest debt issuance ever – through two transactions at a time when few others even dared contemplate a deal. It was a gamble, but one that paid off. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

Deutsche Bank returned to form last year showcasing its versatility across products and geographies. The German firm was involved in the year’s biggest deals and, crucially, guided clients through the turbulent summer months. It wins IFR’s Emerging EMEA Bond House of the Year. It is remarkable that in a year of such vicissitudes, bond issuance from Central and Eastern Europe, the Middle East and Africa could still hit record levels. Rates volatility was the dominant theme after hints in late May from US central bank policy makers about a potential slowdown in their asset purchase programme sent the markets spinning. And yet, through all this, the CEEMEA primary market barely shut. Competition between the leading arranging banks has never been more intense, with the big three of Citigroup, Deutsche Bank and JP Morgan consolidating their grip at the top of the league tables. In addition, BNP Paribas proved it is now a real force to be reckoned with following several high-quality deals. The award for Best Emerging EMEA Bond House, however, goes to Deutsche Bank, which bounced back after an indifferent 2011–12 and fought off strong competition from its rivals. Momentum was with the German institution as it increased its market share by more than any other leading bank in the 12 months under consideration, according to Thomson Reuters data. Deutsche also executed deals in more countries (at least 23, arguably more, as some clients, such as Tullow Oil, cannot easily be defined by geography) and more currencies in international format (seven) than its nearest rivals. Anywhere, anytime Crucially, too, Deutsche was involved in deals for more borrowers in more currencies than any other bank during the year’s most turbulent period between May 23, when early tapering seemed likely, and September 18, when the Fed surprised the market by continuing the pace of its purchases at US$85bn a month. In that period, Deutsche led deals for all issuer types across the entire CEEMEA region in US dollars, euros, Swiss francs and sterling. No other bank can point to such variety over those four months, though Citigroup was also very active. ”The story of the year has been the resilience of emerging markets,” said Martin Hibbert, head of CEEMEA origination debt capital markets at Deutsche. Deutsche has played a part in every big theme of the year, bar Russian bank capital (though it has executed Middle East bank capital trades). After ending 2012 with deals for a raft of issuers, including Rosneft, Latvia and BankMed, the bank began 2013 in fine form. It was, together with BNP, a lead manager on the year’s first two transactions – a euro offering from Poland and a US dollar note from Turkey, which both came on the same day. Indeed, in the sovereign space Deutsche is peerless, having worked on nearly all of the year’s key transactions: Slovenia’s dual tranche, which was almost sabotaged by a Moody’s downgrade while the Balkan nation was bookbuilding; Hungary’s dual-tranche, which was its first deal in two years; and South Africa’s first deal in 18 months, which came at a crucial time for the troubled country. Yet Deutsche is more than just a sovereign house. In a big year for corporate supply, it’s the only bank to have sole-led any corporate transactions over the past year – a US$1bn bond for The State Oil Company of Azerbaijan Republic and a R5bn (US$490m) offering for South African logistics firm Transnet. While execution on that latter deal was tough – it became the only transaction from the region to price wide of guidance – it was also the first rand offering sold internationally by an emerging markets issuer. And though Citigroup and JP Morgan head the overall corporate league table, Deutsche edges Citigroup for corporates rated below investment-grade in terms of both number of tranches and issuance volumes, according to IFR data. Its deals for Bulgaria’s Vivacom and Poland’s TVN and PTH are emblematic of one of the big themes of the year as the l

While most bank commodity businesses fell into disarray and retreated in the face of unprecedented regulatory scrutiny in 2013, one bank found itself in a position of strength having already opted for a more streamlined approach. For bucking the trend by expanding its capabilities through financial innovation and improved content Societe Generale is IFR’s Commodity Derivatives House of the Year.  It wasn’t just the regulatory environment that proved a headache for commodity businesses in 2013. Price performance was sluggish, volumes were low and a deluge of outflows left bankers scratching their heads over how to deliver profitability in a shrinking market. “It’s been a pretty tough couple of years in commodity derivatives. We’ve all been hit by low volume and a tidal wave of regulation, but the important thing for us is that the current regulatory trends are all moving in the direction of our pre-existing business model,” said Jonathan Whitehead, Societe Generale’s global head of commodity markets. That model was put in place in 2011, when widespread deleveraging across the French banking sector saw SG exit the physical gas business to create a more streamlined franchise, which flourished while the bank’s larger rivals came under intense pressure to hive off their physical assets. A regulatory onslaught put the final nail in the coffin of the full-service commodity house, opening the door for those banks that had already reoriented themselves towards a content and financing model. The French bank’s commitment to research allowed it to make bold calls on price expectations – and remain relevant. “We believe we have the best research on the Street, and our call on gold was well ahead of the others. Our research works hand-in-hand with clients in a way we’ve never seen before,” said Whitehead. Assets under management across the sector slumped, primarily as a result of the exodus from gold-related exchange traded funds. But SG saw AUM in its investment products increase. “We managed to grow AUM in our index business, mainly due to product development,” said Whitehead. One such development was the Supply and Demand Commodity Index that addresses the crucial issue of timing commodity investments. SG’s analysis showed that, despite the macro-driven performance after the financial crisis, fundamental factors remained the key long-term drivers of commodity prices. Launched in October, the index identifies more than 20 supply and demand factors that drive the prices of 12 commodities to time entry and exit. Soon after launch, it completed the first OTC transactions linked to the index with European private banks. For institutional investors, SG became a pioneer of commodity variance swaps, bringing liquidity to a broad array of products linked to energy, metals and agricultural assets, as well as commodity benchmark indices and subsectors. “People haven’t been talking so much about trading commodity volatility, but it makes a lot of sense. Hedge funds have been trading variance swaps for the last three years, but we’re bringing the products to an increasing number of pension funds,” said Alexandre Cosquer, global head of commodity investment solutions. SG has also been at the forefront of technological developments to launch live index trading for commodity swaps over electronic platforms in early 2014. Around the same time, commodities will be added to the existing suite of assets for structured products. “Investors can easily buy a reverse convertible on an equity, but soon they will be able to do it on crude oil – and the client will be able to design that product and receive pricing on request,” said Cosquer. SG also successfully developed a solution for utility clients to sell surplus inventory with an option to repurchase at a future date, allowing the client to reflect a genuine sale of the gas inventory– and a corresponding cash effect on its balance sheet. This solutions-driven approach saw the bank finalise a Sharia-compliant