High-yield Bond

Bond House JP Morgan may not be the flow house for Asian bond issues in the same way it is in the US, but its ability to identify the key trends of 2013 won it ringing endorsements from issuers and investors alike. In another record year for G3 issuance out of Asia, the US bank proved a skilled matchmaker between Asian issuers and global investors. Despite running a far smaller team than many of its rivals, it won repeat mandates from Asia’s biggest sovereign borrower and from China’s two biggest overseas issuers, powerful stamps of approval in an increasingly competitive business. The bank designed credit-enhanced structures to allow some of Asia’s less-healthy borrowers to access capital, led the region’s biggest high-yield bond and even held global co-ordinator roles on the two first euro-denominated bonds from China – a feat no European or Asian bank was able to match. “Issuers turn to us for idea generation and a distribution capability that is unmatched globally,” said Murli Maiya, head of debt capital markets for Asia ex-Japan. IFR’s research turned up a number of issuers, and even rivals, who acknowledged JP Morgan’s ability to lead pricing discussions and read market conditions. Investors also labelled JP Morgan as their top pick when it came to supporting new issues and providing liquidity. “It seems to me that JP Morgan is always on the mark when it comes to pricing expectations,” said a Hong Kong-based treasurer, who asked to remain unnamed. JP Morgan married Asian issuers with US-style pricing, helping Chinese internet group Baidu raise US$1.5bn at the lowest spread and yield for any privately owned Chinese borrower. That deal set the tone for a blockbuster year for JP Morgan in China. It was one of four global co-ordinators on Sinopec’s US$3.5bn jumbo in April, before following up in early May with a US$4bn record-breaker for CNOOC, China’s biggest dollar bond. Both companies returned later in the year, and both named JP Morgan as global co-ordinator. The US bank pushed the idea of combining a US dollar deal with a euro tranche, first for CNOOC in September and then for Sinopec. “Given the significant amount of supply of Chinese oil-and-gas paper in the US dollar market in the first half of 2013, we identified the euro investor base as a positive diversification alternative for the second half,” said Mark Follett, head of high-grade DCM for Asia ex-Japan. JP Morgan was a player in the corporate hybrid market, too, bringing the first perpetual bond from a high-yield issuer in IFR’s review period, for Shui On Development in December. It also played a hand in Asia’s first fixed-for-life perpetual bond, a top-of-the-market trade for Reliance Industries in January. The most creative of JP Morgan’s deals came in April, when it launched a US$647m five-year bond for AE Rotor, a unit of Indian wind turbine group Suzlon Energy, backed by a standby letter of credit from Suzlon’s main creditor banks. Remarkably, the bond came to market when Suzlon was still in a restructuring process with its lenders and in default on its convertible bonds. “We have continued to demonstrate our ability to innovate – the trade for AE Rotor was a good example of that,” said Simon Crisp, head of debt syndicate for Asia. JP Morgan featured on a sovereign debut for Mongolia in late 2012, and was twice hired by Indonesia to help raise essential overseas funding – including a US$1bn 10-year in July that funded a widening budget deficit at the height of a global sell-off in emerging markets. One banker involved labelled that deal the “most difficult trade of my career”. The US bank also excelled in high-yield issues, with roles on seven of the 10 biggest related corporate trades during the review period – the most of any arranger. It started 2013 with a bang, completing deals totalling over US$2bn for Kaisa Properties, Country Garden and Shimao by January 7, and co-ordinated the US$1.7bn record-breaker for India’s Vedanta Resources in May. JP Morgan

In a year when Chinese firms accounted for over 30% of all international bonds sold in Asia, China National Offshore Oil Corp 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. CNOOC’s offering priced on September 26 in a resurgent credit market, coming just a week after the US Fed decided to hold off on a curb of 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 4.50% coupon at par to yield 185bp over US Treasuries, inside initial guidance of 210bp. At the same time, the company priced a €500m (US$675m) 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. The tranches drew 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 and the euro paper €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 over 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 co-ordinators on the offering, alongside BOC, Goldman Sachs and JP Morgan. The same banks, along with ICBC International, CCB International, ABC International, BoCom International were joint bookrunners on the dollar tranche. 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 later, 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 strategy worth emulating. To see the digital version of this report, please click here.

Domestic Bond House HSBC’s bond business saw an outstanding year across Asia, leading several innovative offerings and bringing more Asian issuers across borders than any of its rivals. The bank topped the domestic currency league tables for the region, leading almost US$20bn in deals in onshore markets in Asia-Pacific, a 10% share of the market if Chinese onshore deals are excluded. That was an improvement on its second place in 2012, thanks to a stronger showing in several key markets, including the Philippines and Australia. Deal volumes aside, HSBC worked hard to deepen Asia’s domestic debt markets in convincing issuers and investors to look beyond their home markets. As well as offering lucrative returns from swap-related business, the ability to complete cross-border financings without relying on US dollar investors helped Asian issuers weather the summer storm in the global markets. HSBC brought Export-Import Bank of Korea to the Thai baht market for a Bt2bn 12-year bond – its longest baht offering to date – in July, at a time when Asian issuers were having difficulty getting competitive funding in the US dollar market. “Local currency markets offered valuable alternative funding sources for domestic and international issuers, especially when the US dollar market was struggling,” said James Fielder, head of local currency syndicate for Asia. The bank brought Korean issuers to Australia, a Russian bank to the renminbi market, and an Indian lender to Singapore. It led the first Hong Kong dollar deal for an Australian developer, GPT Group, and Abu Dhabi’s first ringgit-denominated Tier 2 sukuk. In Thailand, HSBC signalled its determination to deepen the intra-Asian market with the lead role on the first deal to use the Asian Development Bank’s Credit Guarantee and Investment Facility. The Bt2.85bn three-year offering for commodity trader Noble Group proved that the credit-enhancement platform could encourage local investors to look at overseas credits, while it also provided a vehicle for low investment-grade issuers to access an alternative to US dollar funding. HSBC also excelled at bringing its global market knowledge to local currency transactions. That dynamic was evident in its role in helping structure the first Basel III-compliant Tier 1 bond to be issued in Asia. United Overseas Bank’s S$850m (US$674m) perpetual non-call five notes were priced at par to yield 4.9% in July. As well as introducing an essential capital instrument to the region, the transaction showed that Asia’s local markets could offer better terms for issuers than the far bigger international arena. HSBC remained the arranger of choice for inflation-linked government bonds. It was one of three bookrunners on New Zealand’s second and longest inflation-linked bond in over a decade, a NZ$2.5bn (US$2.06bn) offering due in 2030 issued in early October. The bank was also present on Thailand’s longest-dated local currency inflation linker, a 15-year Bt40bn (US$1.25bn) transaction sold in March through a bookbuilding process. HSBC also claimed all three of the Hong Kong Government’s inflation-linkers, firmly establishing its expertise in the structure. HSBC was also the only foreign bank to lead a local currency securitisation for Courts Asia, a Singapore-listed retailer. The offering marked the first time an issuer had sold asset-backed notes in both Malaysian ringgit and Singapore dollars off the same medium-term note programme. In Singapore, HSBC was active in helping small-cap firms access the city state’s bond market for the first time, leading five deals. In doing so, it was at the forefront of a development that was among the most important in the Singapore dollar market this year. HSBC also continued to dominate the offshore renminbi market. The bank ended the review period at the top of the league table for offshore renminbi bonds, having led some of the most high-profile deals of the year. To see the digital version of this report, please click

New standards for bank capital securities left many borrowers and investors befuddled in 2013, but there was no confusion over a landmark Tier 1 offering from Singapore’s United Overseas Bank. UOB’s S$850m (US$674m) 4.9% perpetual bond, launched in mid-July, was Asia’s first public offering of Additional Tier 1 capital under the Basel III regime. It introduced a new format to the region’s capital markets, paving the way for others. It proved Asian investors were comfortable with Basel III’s loss-absorption requirements for subordinated instruments and set a pricing benchmark for future issues. Near the end of IFR’s review period, UOB returned with a second issue, while bigger Singapore rival DBS Bank was poised to complete its own Basel III debut. The new rules require investors to be exposed to losses if issuing banks are declared non-viable. In UOB’s case, the Monetary Authority of Singapore insists that the notes convert to equity or are written down at the point of non-viability. Since the perpetual already counts as equity, UOB did not need to include any additional trigger for that conversion, based on its common equity ratio, allowing for a relatively simple structure. The big question for UOB, as well as the offering’s investors and arrangers, however, was how to price that additional risk. It managed to convince investors that the structure was similar to the old-style Tier 1 format, and ended up paying a premium of only 25bp–30bp over its outstanding old-style Tier 1 preference shares. UOB’s Aa1/AA–/AA– ratings helped attract investors and the lender also included a rate-reset feature to ease investors’ fears over rising rates. At the first call date after five years, the coupon will convert into the prevailing six-year Singapore dollar swap offer rate plus the initial margin. UOB and its five lead managers, ANZ, HSBC, Nomura and UBS and itself, correctly anticipated that institutional investors would expect a higher yield, placing 74% of the issue with private banks. The final yield of 4.90% came inside initial price talk of 5.00%, after orders hit S$2bn. While that looked tight at the time, it had narrowed to 4.3% in early November, when UOB launched a second Basel III-compliant AT1 bond. The second issue, with a longer first call date, priced to yield 4.75% and rallied the following day to 4.5%. UOB proved Asian issuers did not need to pay plenty for new-style bank capital. In the process, it was able to transition into the Basel III standards and raise equity without diluting existing shareholders. To see the digital version of this report, please click here.

Loan House Standard Chartered increased its share of the Asian loan market and revamped its approach to distribution in 2013, winning leading roles on key deals and numerous sole mandates without overloading its balance sheet. The bank managed all that alongside a wholesale change in personnel, underlining the strength of its regional franchise. “The bank is now more focused on distribution in primary and secondary, bringing down hold levels and destroying the myth that we rely on balance sheet to do deals,” said Cristian Jonsson, a career debt capital markets banker, who took over as global head of loan syndications in early 2013. “With the restructuring of the loans team, we took a giant leap without missing a step.” Jonsson’s appointment, announced at the start of IFR’s review period in December 2012, marked the beginning of a shakeup that injected bond-market discipline into the bank’s loan business. At least 10 experienced syndications bankers joined from rival institutions and a number of StanChart’s old guard departed in a matter of months, a revolutionary pace in the usually slow-moving loan market. Despite the staff changes, StanChart’s Asian loan franchise continued to pump out deals and win key mandates. More impressively, it lost none of its appetite for underwriting, and managed to sell down its risk on every occasion – a skill it had struggled to demonstrate in the past.Distribution revolution The approach to distribution marks a change in mindset for a bank that had been happy to hold unsold loans on its books. While that approach worked in previous years, balance-sheet constraints and the emerging-market selloff in mid-2013 had underlined the need for a disciplined approach to risk. StanChart distributed more than US$13bn of loans in the first nine months of 2013. The lender also used its ability to underwrite and distribute to gain market share. During the review period, StanChart was sole bookrunner on over a dozen deals, more than any of its peers, while it picked up mandates ahead of rivals on a handful of other multi-handed transactions. The best example was a HK$3bn (US$387m) term loan for Hong Kong property company Shui On Centre, which StanChart prefunded in May, while convincing the borrower to do a syndicated financing rather than a club. The outcome, less than two months later, was a blowout response from 22 other lenders with StanChart holding just 10% of the debt. Similarly, OUE Hospitality Trust’s S$630m (US$503m) multi-tranche loan raised more than S$500m from the market. It was the only sole underwritten loan for a real-estate investment trust to be syndicated, and StanChart’s 14th mandate from the OUE group. A Rp3trn (US$260m) dual-currency financing for Indonesian telecom tower company Solusi Tunas Pratama underlined StanChart’s domestic currency credentials. The bank prefunded the deal with DBS Bank in March, but was alone in bringing in nine first-time lenders in syndication. StanChart was involved in more high-profile acquisition and leveraged financings across the region than any of its peers, despite missing out on deals related to Alibaba Group and Focus. The bank won key roles on the US$6bn bridge loan for Thai group CP All’s purchase of Siam Makro, the US$4bn term loan for Shuanghui International’s takeover of Smithfield Foods, the US$1.85bn bridge for Malaysia’s SapuraKencana and the US$750m term loan for CT Corp. StanChart’s list of deals spanned a range of industries and covered the entire Asian region, even in traditionally quiet markets such, Malaysia, Thailand and the Philippines. The bank also brought several Chinese borrowers to the syndicated loan market for the first time and these included CIFI Holdings and Zhejiang New Century Hotel Management. Even in India, which remained subdued for most of the review period, StanChart led several deals, including the first US term loan B from the country for Tata Chemicals. It was also joint bookrunner on the US$215m financing for Barin

Focus Media Holding’s US$1.725bn LBO financing overcame several hurdles to play a crucial role in ensuring the completion of the Nasdaq-listed company’s US$3.7bn buyout – the largest involving a Chinese target – and successfully passed a vital test for the country’s leveraged finance market. Two of the biggest challenges the buyout faced were allegations from Muddy Waters in November 2011 that Focus overstated assets and paid too much for acquisitions, as well as a US SEC investigation into the Chinese display advertising firm’s possible securities violations. Adding to the deal’s complexity was the fact that, besides seeking the largest buyout financing for a Chinese company, the loan market debutant lacked name recognition among foreign lenders and had no hard assets in its underlying business. As such, prospective lenders had to approach not only their risk committees to get credit approvals, but also their respective boards to take into account reputational risk. “The deal was severely complex and had significant challenges in that it featured a debut borrower with an asset-light business, an offshore holdco structure for a Chinese credit, regulatory challenges – and still achieved a great outcome in syndication,” said Benjamin Ng, head of debt syndicate, loans and acquisition finance at Citigroup. Another concern was the presence of multiple sponsors in the buyout consortium, as evident in the withdrawal of CDH Investments from the sponsor group. This forced lenders to rework documentation and apply again for credit approvals. Despite the challenges, the original three-member arranger group, comprising Citigroup, Credit Suisse and DBS Bank, expanded to nine after a strong response from lenders at the underwriting stage. The strong response also led to a change in the financing structure, as a US$200m standby letter of credit facility from DBS replaced a US$200m–$300m bridge-to-bond. The SBLC and a US$450m 12-month bridge-to-cash were not syndicated, leaving only a US$1.075bn five-year term loan to sell down. Excluding the US$450m bridge-to-cash, the net opening leverage amounted to 1.95x, which, combined with the fact that the entire LBO debt represented less than half of the total US$3.7bn funding required for the buyout, made the debt structure conservative. The loan launched into senior syndication in January 2013 and the momentum that had built up at the underwriting stage continued, with nine more lenders joining before the end of March. Pricing was structured to make the financing as attractive as possible to lenders, with the top-level all-in at 611.45bp, based on an initial margin of 525bp over Libor and an average life of 3.47 years. To see the digital version of this report, please click here.

Equity House UBS showed itself to be not just the busiest equity house in Asia this year, but also the most innovative. It led in South-East Asia, introducing pioneering structures and landmark deals in multiple countries. It dominated in a resurgent Australian equity market, and continued to print big deals in Greater China and beyond, putting it in good stead when market sentiment shifted to North Asia around the middle of the year. “If we had a mission statement it would be to raise capital for clients and get paid a fee,” said Sam Kendall, global head of equity capital markets. “Of course, the business model continues to evolve, but, in essence, we see ourselves as a facilitator of liquidity for our clients.” UBS is no stranger to being in the top of the league tables in Asian ECM, but its entrepreneurial formula was especially apparent in a year when market opportunities were often fleeting. It shifted resources and chalked up successful deals in Indonesia and the Philippines before the summer selloff, and helped Chinese clients take advantage once investors’ attention shifted further north. Innovation came in many forms throughout the year, notably in its joint bookrunner role on the US$2.1bn IPO of BTS Growth Infrastructure Fund, Thailand’s first infrastructure trust. Coming in a year when business trust listings had struggled in Asia, the deal’s 7x coverage ratio was remarkable. It was also notable for introducing the first full-fledged cornerstone process to Thailand, and was the Kingdom’s largest private sector IPO on record. The bank’s most lucrative equity-related deal of the year also originated in Thailand, with a complex financing package that funded the acquisition of a stake in Ping An Insurance by Dhanin Chearavanont’s CP Group. The fee from the combination of margin loans and equity derivatives was so significant that it earned a special mention in the UBS quarterly report. When CVC and Lippo Group monetised an investment in Matahari Department Stores in March, UBS was one of three bookrunners. The US$1.5bn re-IPO was a blowout success that revalued the entire Indonesian retail sector, raising the valuations of other listed retailers. Again, cornerstone commitments got the offering off to a strong start, with books covered on the first day. UBS remained streets ahead of the competition in the Philippines, where capital raising burst into life this year as conglomerates injected new assets and boosted their free floats with re-IPOs. Among several sizable deals was the US$920m re-IPO of Lucio Tan’s LT Group, the largest Philippine equity deal and the first to use cornerstone investors. UBS also explored new territory as joint bookrunner in a Singapore placement for Myanmar-focused Yoma Strategic Holdings, timing the deal to coincide with US President Barack Obama’s visit to Yangon. In Australia, the bank reopened the IPO market after an extended lull, as joint lead manager on the A$339m (US$320m) float of Virtus Health. The deal went so well that it was increased in size and its private equity sponsor was able to divest completely, removing any overhang. It also continued to print overnight deals for companies in a variety of sectors, from property to resources. UBS also featured on six of the 10 biggest Chinese IPOs, including the largest four, in IFR’s review period. That list of jumbo Hong Kong IPOs included the US$3.6bn listing of PICC Group, the US$1.8bn listing of Sinopec Engineering, the US$1.1bn listing of China Galaxy Securities and the US$1.3bn listing of China Huishan Dairy. Big Chinese issuers mandated huge bookrunning syndicates last year, but UBS managed to win the more lucrative top-line positions on many of these transactions. The bank was joint global co-ordinator on both the Huishan Diary and Sinopec Engineering deals. The Rmb20bn (US$3.3bn) A-share convertible bond from China Minsheng Banking Corp was also notable. It was, at the time, the world’s largest CB offering since April 2011 and the

For investors looking for a combination of stable returns and growth, the Bangkok Skytrain network presented one such opportunity. BTS Rail Mass Transit Growth Infrastructure Fund’s IPO of Bt42bn (US$1.3bn) was Thailand’s largest private-sector float and its first infrastructure fund, opening an entirely new market and deepening the region’s capital markets. The format allowed sponsor BTS Group Holdings, the operator of the Skytrain, to raise money to expand the network without either increasing its leverage or diluting current shareholders. The deal also put Thai IPOs on the map for global institutional investors, proving that jumbo deals were possible in another South-East Asian market. More importantly, it set a template for many more infrastructure fund IPOs in sectors as diverse as power, telecommunications and technology. The IPO was two years in the making and had its share of hiccups, including a legal challenge to one of BTS Group’s concessions, which delayed the launch at the start of 2013. When it came to market in April, the benign global interest-rate outlook and optimism for Thai economic growth were still working in favour of BTS. Foreign institutional participation, however, was crucial for an issue of this size from Thailand, where domestic investors have traditionally been key drivers. Attracting global investors, however, was far from straightforward due to the fund’s unusual structure. BTSGIF’s only asset is ticket revenue from a core stretch of the city’s monorail network, and the concession will end in 2029. Unlike a standard business trust, the assets are not in the fund and only the cash passes through. However, to provide comfort to foreign investors, the fund has a step-in right for a claim over the asset, in case the BTS Group went bankrupt. The management conducted extensive prelaunch cornerstone marketing and a nine-day international roadshow for a strong response to the IPO. The overall book was 7x covered and the institutional tranche 30x, excluding cornerstone investors. The fund also received 56,900 retail applications, the highest for a Thai IPO. Around 20 cornerstone investors took 60% of the total offering, institutional investors 20% and retail investors 20%. Long only investors bought 61% of the deal, and 80% was distributed outside of Thailand. At the top end of the Bt10.40–Bt10.80 price range, the fund raised Bt42bn, excluding the sponsor’s own portion. The final price implied a 2014 yield of 5.8% and a 2015 yield of 6.5%. Morgan Stanley, Phatra Securities and UBS were the joint global co-ordinators. To see the digital version of this report, please click here.

Structured Equity House JP Morgan grabbed a clear lead in the resurgent market for convertible securities this year as a return of Chinese issuers to the sector sparked a rebound. The US bank played a leading role in every issue in which it participated – no guarantee in a market where lenders are often given a free ride – and it was sole bookrunner on four deals from Asian issuers and just three of those raised a combined US$1.6bn. One of those, a US$800m convertible bond from Ctrip.com International, was the most lucrative from an Asian issuer this year in terms of fees, and it also provided attractive terms to the Chinese travel booking website. The underlying stock had risen 144% since the start of the year until the deal was priced in mid-October, yet the company achieved a conversion premium of 42.5%, the highest for a Chinese issuer since 2007 and for an Asian entity year to date outside Japan. A call-spread overlay raised the effective conversion premium even higher. The 1.25% coupon was much lower than Qihoo 360 Technology’s CB, which had priced through a different bookrunner a few weeks earlier. JP Morgan also sole managed a US$500m offering for China’s ENN Energy, a clean energy distributor, in January and a US$300m issue for biopharmaceutical company Celltrion in South Korea the following month. The bank continued to make a market in Celltrion’s bonds after comments from the chairman on a possible sale of the company caused wild swings in the price. The fourth was the US$60m issue for Wisdom Marine Lines late in the year. A novel high-yield issue raised Rmb975m (US$160m) from Fufeng Group in November, using the same security package as existing straight debt and with a short-term investor put. To provide investors with the certainty that proceeds would be used to pay back a loan, a clause was inserted allowing them to put the bonds if the syndicated loan had not been taken out within 30 days. An added plus for JP Morgan was its ability to adapt to changing market conditions. As a joint bookrunner on the HK$5.4bn (US$700m) deal for paper manufacturer Hengan International on May 20, it achieved top-of-the-market terms for a deal that partially increased in size, less than a week before yields spiked on the first talk of the US scaling back its quantitative-easing programme. Then, just over a month later, JP Morgan was a joint bookrunner on a HK$1.4bn CB offering from Chinese office software developer Kingsoft, the first public issue in Asia ex-Japan since the US tapering talk. Kingsoft was, by no means, an obvious choice to test the new market environment as it had never issued any type of bond, and the bond floor of just under 90 was the lowest on a new Asian issue for 10 months. When Shanghai’s Semiconductor Manufacturing International Corp printed a US$200m zero-coupon CB in October, with JP Morgan again in a leading role, the issuer secured such attractive terms that it prompted other Asian corporations to rush to market in the following weeks. The bank also showed how the instrument could help lower-rated companies raise cost-effective capital. Taiwanese shipping firm Wisdom Marine Lines, operating in an industry that investors had spurned in recent years, was able to raise a combined US$100m through a concurrent CB and global depositary receipt offering that JP Morgan solely managed. The US$60m CB allowed it to limit dilution, while the GDR offering kept its gearing in check. Asset swaps were offered for about half the CB size rather than the whole deal, to ensure that local banks did not have too much exposure to Wisdom Marine in case it needed to borrow in the future. To see the digital version of this report, please click here.

Singapore’s CapitaLand has always had a reputation as a savvy issuer, but the property developer had a standout year with two new convertible bonds and tender offers, both of which had a strong claim to be the Structured Equity Issue of the Year. In the end, it was the second deal, launched on September 19, which took the honours. While there was an element of luck to its earlier financing, coming just days before the US Federal Reserve sent bond yields soaring with plans to slow its government bond purchases, CapitaLand’s return to market showed smart timing and execution, resulting in an even bigger deal. Many market watchers had expected the Fed to announce the first details of the tapering programme at its September policy meeting, but CapitaLand was ready to go if the tapering amount was lower than expected. In the end, the tapering announcement did not come, and the issuer pounced on the bounce in the market to launch a S$600m (US$480) 10-put-five bond, increased in size the same day to S$750m. The bond priced with a coupon and yield-to-put/maturity of 1.95% and a healthy conversion premium of 30%. The bond traded up to a respectable 101 the following day, showing that the issuer had not pushed too hard on pricing. With a public holiday in Hong Kong the following day, only a limited number of Asian issuers could have taken advantage of the boost in sentiment. CapitaLand moved quickly to put its stock on hold, launching the deal at midday to reach Hong Kong investors before they left for the long weekend. Credit Suisse, as sole bookrunner and tender agent, caught the market by surprise. Alongside the new issue, CapitaLand launched a tender for three series of its outstanding bonds due or put-able in 2015 and 2016. The idea was to create competition between bondholders and achieve more price tension, since there was a possibility the clean-up call could be exercised, if enough bonds were tendered. It worked as S$603.75m of tenders and commitments were received within five days and the timeline was accelerated by a week. The new issue was subsequently increased a second time, to S$800m, allowing the tender offer amount to be increased, too. The prices paid for each series of outstanding bonds were either flat or at discounts to the market price, a rare achievement in Asia. For cutting its interest costs with flawless timing, smart execution and strategy, CapitaLand’s S$800m new issue and tender offer is IFR Asia’s Structured Equity Issue of the Year. To see the digital version of this report, please click here.

Property is one of the most important sectors for Singapore banks when it comes to lending. In a nation 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 government started forcing less lending to the sector to curb the appreciation of property prices. Against that backdrop, securitisation sounds like the obvious solution. Yet, for the past five years, there had been nothing related to property in the South-East Asian structured market until Singapore developer TG Master’s Orchis Capital ABS. The deal updated an old idea of securitising progress payments to free up capital trapped in the project account. That allowed banks to reduce lending to the company as it works to finish the ongoing project, freeing up balance sheets to lend elsewhere. It also brought TG Master money upfront that would otherwise only be seen after its project’s completion. Although others have yet to follow the structure, bankers at sole-lead DBS have received lots of enquiries about it and expect to reproduce it soon. Investors have also proven keen to buy 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 through a special purpose vehicle called Orchis Capital. The Singapore dollar- denominated offering 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 along 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 debt solutions at DBS. “For the banking system, 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 from buyers, who had already made a down-payment, and use the proceeds to start other projects, while Skies Miltonia was being completed.  To see the digital version of this report, please click here.

A Malaysian issuer, ironically, made the largest contribution to innovation in Singapore’s Islamic finance market this year, when sovereign fund Khazanah Nasional issued the first exchangeable sukuk denominated in Singapore dollars. Khazanah, a repeat issuer of exchangeable sukuk after having pioneered the asset class, was looking to raise Singapore dollars to fund some projects with its South-East Asian neighbour. The fund, having considered four stocks to underlie the offering, settled on a sukuk exchangeable into shares of IHH Healthcare, the largest hospital operator in Asia. IHH Healthcare listed its shares in Singapore and Malaysia in a dual IPO in July 2012. The zero-coupon five-year put-three offering was lifted to S$600m (US$480m) on strong investor demand, from a base size of S$500m, and closed more than 4x subscribed at the larger amount. That allowed it to price at the aggressive end of terms, with a strike price 17% above IHH Healthcare’s last trade and a negative 0.25% yield. The pricing stood out in that it was the first equity-linked deal to achieve a negative yield in Asia ex-Japan this year. The exchange premium was also impressive, given that IHH Healthcare’s stock price had run up 24% in the year to date before the deal. Joint bookrunners CIMB, Deutsche Bank and Standard Chartered distributed the sukuk to more than 100 investors, comprising a mix of multi-strategy funds and outright investors. Allocations were split evenly between Asia and Europe. The bond traded up from par to about 100.875 the following morning, showing the leads had gauged demand accurately. IHH Healthcare is not the most liquid stock, since Khazanah holds a 45% stake and there are other long-term shareholders. As such, Deutsche Bank arranged a stock borrowing facility for up to 60% of the underlying shares. Standard Chartered sweetened the deal in providing an asset swap for about S$100m at a spread of 140bp, partially as a reference point for investors. The success of the deal was all the more impressive because a European Union directive on alternative investment funds, implemented in July, had complicated efforts to market the sukuk to European investors. Since only the UK and Switzerland had clarified that sukuk structures were not affected, there was a fair amount of ambiguity as to how other markets would apply restrictions on collective investments. The sukuk bonds are issued through offshore vehicles and have different elements that can be substituted, potentially bringing the structure under the alternative investment rules. As a result, European marketing concentrated almost entirely on the UK. To see the digital version of this report, please click here.