Stealth approach

To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com For structured finance deals using separate special purpose vehicles, credit is attributed to the relevant parent group of the originator of the underlying assets. An exception to the rule of rolling up to the parent level has been made for sovereign borrowers: agency, regional authority and state-owned corporate borrowing has generally been shown separately, regardless of the degree of government liability for the debt involved. Sovereign borrowings include only syndicated capital markets transactions, not borrowing through auctions of treasuries or other similar methods. Loans bookrunner league tables do not include club transactions, but the corresponding borrower tables do. One addition this year is a Schuldschein table on page 24. For any data queries, please contact Ian Willmott (bonds) on +44 (0) 207 542 4376 or Ewelina Jarecka (loans) on 44 (0) 207 542 2246.

For debt investors, this offered the promise of higher returns on their bond purchases – at least those denominated in US dollars. But Treasury yields, after spiking last summer, and again when QE tapering kicked in in December, settled down at a lower rate than many had expected. For market participants, this has meant another year where the hunt for yield grinds on. With cash-rich accounts seeking alternative strategies to optimise their returns, the knock-on effect has been to compress spreads, meaning that the higher-yielding asset classes are not as high yielding any more, thus adding to the downward spiral. While the US has been gradually moving to exit its QE programme, other jurisdictions around the globe have been continuing to play a role, recent pronouncements from the European Central Bank being a case in point that serve to underpin the appeal of the credit markets. The upshot has been high-yield transactions that price at levels historically achieved only by the highest of high-grade borrowers and anything with even a modicum of yield on offer being snapped up in frenzied competition. The boot is firmly on the issuer’s foot, something that has been a boon to banks, for example, which have seen their regulatory-driven capital-boosting exercises welcomed with open arms as investors scour the markets for any sort of meaningful returns.   Yields on Additional Tier 1 paper have ratcheted in and book sizes show little sign of shrinking, as more and more fund managers relent and join in an asset class that was once the preserve of a specialised few. While US tapering concerns hit emerging markets harder than most at first, the wobble was short-lived and buyside aspirations overcame fears of both a regulatory or geopolitical nature. The Ukraine/Russia situation, while not entirely shrugged off, did not cause the ructions it might have done had investors been of a different mindset. The fact that the corollary of the political posturing was that Russian credits – which generally account for some 30% of EEMEA volumes – were, in effect, shut out of the market, merely meant others seized the opportunity to fill the void, thereby addressing their own needs as well as those of investors. The markets, it appears, abhor a vacuum. Another asset class worthy of note for its resurgence is securitisation, a sector partly blamed for causing the financial crisis, both at the time and in the intervening years. Now there has been a move towards reconciliation, and it is seen as a possible way to unlock funding for SMEs. As long as transparency and quality can be assured, it is once again being viewed as a credible funding avenue. With the ECB the latest to add a positive voice – albeit in a manner lacking in detail – hopes are high of continued growth. An area that has already experienced an explosion in activity is leveraged finance; volumes grew 72% in 2013. It has continued in a similar vein since, albeit at a reduced pace, and was sufficiently visible for regulators to fire a few warning shots across its bows. Even Fed Chair Janet Yellen noted the reach for yield and concerns have been voiced regarding the deterioration of terms and structures and a move towards over-leveraged deals. As the pendulum has swung the way of issuers, so lower yields have been accompanied by looser covenants in a win-win for borrowers. A move towards safe and sound lending practices is the order of the day, although such is the need to maximise returns in yield-hungry, cash-rich markets that some will be tempted by situations that they would not normally consider. The truth of the matter is that returns everywhere are lower and that it is the sellside that benefits. To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com Trafigura’s capital requirements include working capital and longer-term development financing. While the capital markets are available for short-term working capital requirements, commodity financing is traditionally the preserve of the bank markets. But as Trafigura has grown, so have its capital requirements, and its ambitions in the capital markets have grown commensurately, offering access to longer maturities useful for capex programmes, project financing or acquisitions. So have its relationships: while many banks are reducing their balance sheets and focusing on core relationships, Trafigura’s relationships are multiplying. In 2007 it had around 40–45 relationship banks and this has now grown to about 130. Trafigura’s only trip to the capital markets in the 12-month period was in November, when it priced a new five-year senior unsecured bond issue. The unrated Reg S issue raised €500m with a 5.25% coupon, drawing €1.5bn of orders. “Our balance sheet is evolving towards more fixed assets and we will continue to be increasingly active in capital markets, which helps us from an asset and liability perspective,” said Christophe Salmon, CFO for Trafigura in EMEA. “We have issued €500m from a €2bn programme, which gives us the flexibility to go back to the market whenever the need arises with a minimal execution period.” However, it is the loan market that supplies the bread and butter of Trafigura’s funding. The past 12 months have seen the borrower make numerous incursions into this market, with some more notable forays into less familiar currencies too. In October Trafigura Beheer completed a US$1.86bn revolving credit and term loan, the first commodities loan with a renminbi tranche, which was upsized due to high demand from US$1.2bn. While Trafigura needed capital for trading and refinancing an October 2012 facility, it was also exploiting high levels of liquidity in the Chinese banking sector. It was also the first time a commodities house had used a five-year tenor since the dollar squeeze of late 2011. The borrowing comprised a one-year renminbi term loan piece with a margin of 160bp over CNH Hibor, and three US dollar tranches: a 364-day US dollar revolving credit with two 364-day extension options, with a margin of 115bp over Libor, and three-year and five-year term loans with margins of 170bp and 235bp, respectively. The renminbi component raised US$150m-equivalent. Its other significant foray into another currency came in March when Trafigura Beheer closed a ¥25.5bn (US$250m), three-year term loan, its first significantly sized yen-denominated loan. Bank of Tokyo-Mitsubishi UFJ acted as sole bookrunner and mandated lead arranger. Trafigura had been the first international commodity firm to tap the yen loan market, with a ¥9bn financing in 2012. This deal established Samurais as a core and recurring funding instrument. “We want to work with lenders or investors who understand our business, so we don’t want to do one-offs, we want to do repeat issues,” said Salmon. This is not a question of currency diversification: commodities are overwhelmingly US dollar-denominated. Instead, Trafigura sought pockets of liquidity in currencies than could be swapped back into dollars relatively cheaply. “As far as currencies are concerned, we want to be selective in the type of markets we tap for swap cost reasons,” said Salmon. Apart from the US dollar markets, the major currencies available are therefore euros, yen and renminbi, he said.

To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com In May, the bank posted a 59% year-on-year rise in first-quarter 2014 profits to €712m (US$964m), increasing faith among investors that Italy’s economy and its financial services sector, crippled by the financial crisis, might now be on the mend. UniCredit chief executive Federico Ghizzoni told IFR in an interview that the latest financial results “confirm the effectiveness of our strategy and demonstrate that the group is heading in the right direction”. It was, he said, a “good quarter, encouraging for future quarters”, noting that the bank’s full-year 2014 net profit target of €2bn was “now closer”. Further signs of hope were found in the lending book, where the total stock of impaired loans fell for the first time since 2008, inching down 1.3% year on year to €1.1bn at end-March 2014. New loans to businesses and individuals jumped by 63% on an annualised basis, and by 14% quarter on quarter, to €2.7bn, spread evenly among smaller enterprises, larger corporates, retail borrowers and home buyers. Ghizzoni pointed to rising income, a “structural decline in the cost base”, a sound capital position, and a level of impaired loans now increasingly “in line with best European peers”. The lender is still struggling to shed legacy assets. It has set up a vehicle with Italian lender Intesa Sanpaolo and US buyout firm KKR to manage bad loans stemming from the financial crisis, and is rumoured to be eyeing the sale of both its asset management business, Pioneer, and its debt collection division, Credit Management Bank. Analysts have highlighted the need for asset sales to boost a Core Tier 1 capital ratio that stands at 9.5%, below that of its leading global and European peers. UniCredit in late March took steps to address concerns, selling its first tranche of additional Tier 1 bonds, a US$1.25bn print of perpetual non-call 10-year notes. Ghizzoni said neither the bank, nor the broader banking sector, were yet out of the woods, warning that “caution” was needed for the next few quarters, given that “recovery fragility is still very evident”. Italy’s economy, which still lies at the heart of the lender’s operations, remains brittle, its recovery unsettled by global crises and fears of eurozone deflation. The outlook within UniCredit’s portfolio is also mixed. The lender is a major player in the Czech Republic, whose fortunes are improving, and also in Turkey and Russia, two markets under severe strain. In Turkey, profits from its stake in Yapi Kredi slumped by more than 50% in the first quarter to €50m, on the back of political turmoil. Russia, another market vital to the bank’s future, faces the looming threat of extended economic sanctions from Europe and the US if Moscow continues to undermine eastern Ukraine. In a May 12 research note, Deutsche Bank pointed to a trio of challenges still facing the lender, including a worsening in Italian asset quality and a deteriorating outlook across emerging Europe. Yet despite the risks and uncertainties, this has so far been a good year for the dominant lender in a country finally emerging from crisis and showing encouraging signs of life. Data in the first three months were “encouraging” and “undoubtedly positive”, said Ghizzoni. “It is difficult to say whether this is already a trend, but I believe we are headed in the right direction.”

To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com If debt capital markets are on the verge of a major structural transformation, the evidence is unlikely to be seen in IFR’s list of the world’s Top 250 borrowers. What the tables show this year is that the world’s leading borrowers are broadly the same sophisticated set, many with programmatic borrowing needs, that has graced the list for years. That’s unlikely to change, even if current bond market conditions are as tempting as they’ve ever been. The tidal wave of investor liquidity unleashed by monetary stimulus and its resultant ultra-low rates, which set in train a frenzied hunt for yield, created – by definition – a near-perfect set of conditions for borrowers. It’s a seller’s market out there, an element not lost on the issuer community. While this is something of an old story, it’s one that has nonetheless seen everything catch a frothy bid, from peripheral European government bonds, all corners of the global credit and high-yield market (including issuance at the more shadowy ends of the capital structure) to CLOs/CDOs; covenant-lite loans; distressed debt, commercial real estate and more. “You used to be able to get a return on your money by buying a risk-free asset; now it’s very hard. In the safest of the so-called risk-free markets you may well be earning negative interest rates,” said Charlie Berman, chairman of EMEA DCM at Barclays. “The markets are more transparent and there is clearly less layered complexity [than before the crisis]. Investors have risk appetite as long as they can understand what they’re buying. That’s what’s driving the desire to push out into places like Africa and elsewhere.” Berman believes the current conditions will be with us for some time, although he does sound a note of caution, saying: “I think it would be a brave person who would call a return to rate volatility any time soon, so from an investor’s point of view, how are they going to make money? They’ve got to make money by taking a view, whether it’s in corporate or sovereign markets, or whether it’s with the banks, where we’re seeing all forms of capital now being enthusiastically purchased. “But I think the system has a number of issues that people need to be very wary of. The fact that the ECB is talking about QE is a measure of the problems out there, so I’m not saying everything is fine and we’re off to the races and anybody can buy anything they want. Far from it. What I’m saying is that people have to get on with their lives. Investors are typically responsible for other people’s money and they have to apply that money to get a return because cash rates are zero.” On current technicals, high, and in some cases unseemly, levels of oversubscription for new issues and super tight spreads suggest we’re close to or in bubble territory. Bearing this in mind, we should perhaps be less impressed by the US$3.2trn quantum of debt raised by the IFR Top 250 over the 12-month qualifying period (May 1 2013 to April 30 2014), which in this context can be seen as rather unremarkable; certainly unsurprising. By borrower type, about 29% of IFR’s 2014 Top 250 hail from the SSAR sector, 23% from FIG and the rest – 48% – are corporates, with debt totals related both to general corporate purposes and refinancing as well as event-driven activity. Speaking to the latter point, Verizon leads this year’s IFR Top 250 with US$140bn of borrowing to its name over the qualifying period. Changes afoot So far so good, but there are a number of seminal changes afoot that could drive a potentially permanent sea-change in the make-up of the capital markets in terms of who the borrowers are – certainly in Europe – but also what the debt capital markets are actually used to finance. If current technicals represent the old story, the new story is whether and how DCM can

To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com CITIC, the China state-owned conglomerate with businesses across the financial, real estate, manufacturing, telecoms and energy sectors, traces its roots to the early days of the country’s transformation from a command to a free-market economy, having been established by reformist leaders Deng Xiaoping and Rong Yiren in 1978. A radical proposal to overhaul the company will provide a blueprint for China’s state-owned enterprises. The Chinese authorities plan to list Beijing-based CITIC on the Hong Kong bourse in a deal that will hold the company up to greater market scrutiny, given the greater disclosure and regulatory environment than the SOE faces in China. CITIC Group will not list through an IPO, but instead Hong Kong-listed CITIC Pacific will buy the parent’s assets for US$37bn. CITIC Pacific will issue US$29bn of shares to help fund the purchase, in the process increasing its market cap around five-fold. The hope is that this will force international standards on the company, although the Chinese government will retain 82%. “If the transaction is completed, we believe it should help to improve corporate governance for the group. If the CITIC Pacific acquisition does materialise and this is accompanied by a significant equity injection, then we would view it as a clear credit-positive for CITIC Pacific,” wrote Goldman Sachs analysts in a research note soon after the plan was announced on March 31. From a banker’s point of view it should be business as usual: engage with the company at subsidiary and holdco level and attempt to leverage up banking relationships into the bond cross-sell, of which CITIC and its subsidiaries have become the leading exemplar in Asia-Pacific. The most notable knock-on effect from CITIC’s restructuring plan was the surge in secondary pricing of CITIC Pacific’s perpetual bonds, which rallied by more than seven points in just five trading days on the view that corporate governance would improve at the group. CITIC Pacific’s US$800m perp was something of a landmark when it was priced just over a year ago, coming as it did after a string of flops in the perp space. CITIC listened to the market and included an investor-friendly structure comprising a 100bp coupon step-up after 10.5 years and a replacement capital covenant. Unusual step Meanwhile, subsidiary CITIC Telecom hit centre stage last year in a classic case of the cross-sell when it took the highly unusual step – for Asia – of issuing bonds to fund an M&A purchase. It issued a US$450m 12-year unrated bond offering to help purchase a 79% stake in Companhia de Telecomunicacoes de Macau, the SAR’s monopoly fixed-line and broadband provider. The purchase was originally planned to be funded through a US$1.25bn loan and the outcome, involving the partial drawdown of the loan-mired CITIC Telecom, attracted controversy. Rumours abounded that the bond had been hard underwritten by leads CITIC Securities International – handily, a part of the CITIC conglomerate – Deutsche Bank, Standard Chartered and UBS. Meanwhile, many investor balked at the odd tenor and relatively low yield of 6.1%, which saw the bonds come tight to the most appropriate comp – the CITIC Pacific due 2021s, which offered a 60bp pick-up for a two-year duration shortening. Still, although the paper barely traded the following day, adding fuel to the talk that it had either been retained in large part by the leads or effectively privately placed with a handful of investors, nevertheless the deal got done. And done in the “style” that has often been CITIC’s trademark: leveraging off banking relationships to squeeze the last basis point out of term funding and often closing in a less than transparent manner. Indeed, terms on the US$1.25bn loan to fund the CTM purchase were not disclosed, with th

To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com There are advantages to Triple A status, even if it sometimes means that you are left in the corner at parties. Susan Love, deputy treasurer at Export Development Canada, speaks of attending an international conference several years ago and being taken aback at first that delegates appeared to show no interest in talking to her. They kept running off to talk to Greece. “We have many more questions for them,” they said to her when she questioned them. That same sense of stability, reliability and conscience has been seen in EDC’s debt issuance this year. It is looking to borrow around US$11bn in the capital markets in 2014, though it might end up being a little bit higher. At the end of May EDC had already raised US$6.6bn and was, as Love said: “a little ahead of schedule”. EDC showed what it intended to do in early January with its first Green bond issue. It sold US$300m of 0.875% global Green bonds maturing in January 2017 through JP Morgan and SEB. What was noteworthy about the paper was the demand, which showed that it is hardly a niche product. Orders topped more than US$500m and in the end went to 27 CSR-conscious investors, such as Andra AP-fonden, Tredje AP-fonden, Calvert Investment Management, CalSTRS, Praxis Intermediate Income Fund, Rockefeller & Co, TIAA-CREF Asset Management and Trillium Asset Management. “EDC’s Green bond programme is an area where the interests of investors and EDC converge, one that we’re looking to develop and grow into a regular part of our funding programme,” said Ken Kember, EDC’s chief financial officer. Love explained that the thinking behind the bond was to show commitment to the clean tech sector. “We wanted to get our feet wet and we have made a commitment to investors to print at least one Green bond a year,” she said, pointing out that global revenues for the sector were expected to reach US$3trn by 2020. Rarity drives demand In the traditional market, EDC has sold only one US dollar benchmark so far – though Love said that EDC might consider three in total before the end of December – a US$1bn 1% May 2017 at 3bp through mid-swaps at the end of March, making it the tightest three-year SSA issue this year. Rarity drove investor demand, which is why books reached US$1.4bn and the majority of the paper was lapped up by central banks. This followed two deals in the US dollar market last year – a US$1bn 0.625% three-year at mid-swaps minus 4bp in November and a US$1bn 1.5% five-year at the end of September that was priced at mid-swaps plus 2bp. Where EDC has been more active so far this year has been in Australia. At the moment, it stands in 12th place on the Kangaroo issuer table, with A$3.9bn outstanding. At the end of May it sold A$400m of new 3.5% June 2019s at equivalent govvies plus 41.25bp. So successful has its fundraising been in Australia, with consistent demand, that EDC’s shortest-dated outstanding Kangaroo doesn’t mature until August next year. What drives many European issuers to issue Kangaroos is the swap. That from Australian dollars to euros in particular has been generally favourable, allowing issuers to sell paper with a pick-up over Australian government bonds and flat swap back to euros. While there is some of that dynamic with US dollars, it has not been the prime motivator for EDC. “We have an ongoing commitment to the Kangaroo market,” said Love. “The swap doesn’t have to be working for us to issue.” Looking beyond tradition The other currency that EDC traditionally supports is sterling and providing investor demand is there, EDC plans to issue in the currency this year. “We’ll examine how it swaps back to floating US dollars and decide whether to swap or leave the funds in sterling to offset assets,” said Love. EDC last sold a sterling bond issue in July last year – £3

To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com A tug of war has emerged in the CLO markets as managers look to meet requirements aimed at reining in dicier parts of the securitisation market and keep themselves in business. The fear driving the market is the advent of the so-called risk-retention rule, which would require CLO managers to hold on to 5% of the fair value of each new deal they sponsor. With the implementation of the rule still a few months off, CLO issuance has surged in the three months since March. Many deals have already scrapped risky features prohibited by parts of the Dodd-Frank Act, but as both small and large issuers try to carve out territory before the rules of the game are set, some are doing so by courting volatility and increased risk. “There is still a window of time before the new rules take effect,” said Yvonne Fu, a managing director at Moody’s. “But the pending rules have propelled managers into moving some new CLOs forward on the calendar.” March’s US$11.1bn of new CLO issuance was topped by US$12.3bn in April, according to Wells Fargo data, while May’s tally dipped slightly to US$11.4bn, according to JP Morgan analysts. There is concern that many managers would not or could not deal with the looming restrictions on their business, and a November study from the Oliver Wyman consultancy warned that the overall CLO market could be slashed by 60% to 90%. “The consequences could be pretty dire,” Paul Forrester, a partner at Mayer Brown, told IFR. “The market is going to react in ways you didn’t expect. Managers have to do deals and build up scale,” he said. Not again The retention rule is clearly aimed at forcing CLO managers to have “skin in the game” and stave off the pump-and-dump tactics common before the subprime mortgage meltdown. In the run-up to the crisis, lenders quickly sold-on shoddy loans – and the risks they entailed – to investors in the form of collateralised debt obligations. Critics of the new regulation, such as Forrester, point out that, unlike those structures, the new CLOs are not bundles of loans originated with the intent to distribute, and are in fact purchased on the secondary market. He and others insist that lawmakers, in their reaction to the financial crisis, have unhelpfully lumped both kinds of structures together in one-size-doesn’t-fit-all regulation. “The market is going to react in ways you didn’t expect. Managers have to do deals and build up scale”  “After three years of intense lobbying, it’s pretty clear it’s only falling on deaf ears,” Forrester said. According to Thomson Reuters data, the default rate of the loans underpinning the new CLOs sits at a relatively low 1.2%. Yet with the risk-retention rule looming – it is expected to be finalised in the second half of the year – issuers have been pushing the boundaries to soak up every last dime in the market. In May, Onex Credit Partners priced a whopping US$1bn CLO – and did so with a third of the underlying collateral still unidentified, Moody’s said. In effect, this meant that investors in the Triple A piece lent Onex money at just 150bp over Libor while the borrower had just two-thirds of the loans needed to back up the trade. “Those [types of deals] are not going to perform as well,” one CLO manager told IFR. “It’s bad execution.” Neither Onex nor Bank of America Merrill Lynch, which arranged the deal, responded to requests for comment. All in The Onex trade, the second-biggest CLO deal of 2014 so far, was heard to have been sized to fit investor demand, and that it was not substantially oversubscribed. Even so, however, such a large trade will have removed much of the investor cash available to the CLO market at a time when many issuers are frantically trying to print new deals. The size of the Onex deal leaves little left over for the next trade, the manager

To see the full digital edition of the IFR Top 250 Borrowers 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com Debt capital markets have become so used to the Federal Reserve’s easy money policy since the global financial crisis that when talk was first mooted in May last year of a pull-back in QE, markets took fright. Equities tumbled and primary debt markets shut. With a normalisation of Fed policy arguably priced in, the question now is whether an economic hard landing in China and consequent mass defaults is going to be the next instigator of dangerous global market volatility. Despite registering around 10% annual growth rates since the economic reforms introduced by premier Deng Xiaoping in 1978, China’s economy remains a strange beast, geared towards government spending and exports, while the domestic demand component, which is a necessary balance in a mature economy, is muted. China’s economy is badly in need of structural reform and the administration of Xi Jinping is under no illusions as to what needs to be done to address the array of structural imbalances it confronts. Nomura Securities forecast the Chinese economy to grow by 7.5% this year, above the critical 7% level that the Chinese authorities believe to be the tipping point for civil unrest in the country, but some way off the heady pace of the past 15-odd years. The Japanese house believes China’s growth will fall to 6.8% in 2015 and sees the country’s sluggish property sector, which is dogged by over-investment, as leading the drag on growth. In April, Christine Lagarde, the managing director of the IMF, set out in a Global Policy Agenda the risks of a hard economic landing in China, particularly to emerging markets, and singled out the country’s poor asset quality, the inefficient allocation of credit thanks to a still over-regulated financial market where state-directed lending remains the basic modus operandi, and the risks inherent in China’s vast shadow banking industry. But China’s vice finance minister Zhu Guangyao took issue with this analysis and said that the Chinese authorities were cognisant of the problem’s facing the economy: “We are beginning to take action, including strengthening management, monitoring and supervision. Compared with how the US and the Europeans handled Lehman Brothers and the sovereign debt issue, we think that China is the most successful, so far,” said Zhu at a meeting on the sidelines of the IMF and World Bank spring meeting in Washington in April. Hard landing? This reaction would strike many as complacent, however, and numerous market players are voicing concerns that a variety of phenomena point to the likelihood of a hard landing in China, including the recent weakness of the renminbi, logjams in the Chinese money markets, witnessed a few times last year, and a series of domestic bond defaults. Lombard Street Research estimates the renminbi to be overvalued by between 15% and 25% and there is massive arbitrage speculation based on the view that the renminbi would continue to appreciate. A recent widening of the trading band by the authorities is seen as the prelude to further falls in the currency and there are fears that a mass unwind of arbitrage positions could produce huge financial losses. The renminbi has fallen around 2.5% versus the US dollar this year. Meanwhile, the big shock for China’s domestic bond market came in March when Shanghai Chaori Solar Energy Science and Technology produced the first default in China’s onshore bond market after trading in the paper had been suspended since July 2013. The solar and wind power segments of China’s debt market have long been vulnerable to the cyclicality of the industry, which has been allowed to leverage up to the hilt in recent years. Indeed, in a recent research report in which Deutsche Bank identified US$28.6bn-equivalent of domestic paper at risk from default, the solar and wind sector

To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com Apocalypse movies always display mass panic the same way. Streets are either jammed with honking traffic or tumbleweed-empty. Madding crowds scour supermarket shelves for vacuum-packed food. No one has a clue what they are doing: how can you plan for the future when you’re not sure what it’s in it? Translating that genre to the white-collar woes of the financial services industry has always been a mug’s game. Leaving aside boiler-room flicks, you’re left with the tediously high-falutin’ Margin Call or the banal-and-flavourless sequel Wall Street: Money Never Sleeps. Yet if you want to see how such a movie could be scripted and made – and what low-level, directionless panic looks like, when adapted to the world of banking – just look around you. In recent months, banks have finally thrown off their shackles, tapping bond investors for extraordinary amounts of fresh capital. In May, Deutsche Bank raised €8bn (US$10.9bn), also bringing in Qatar’s royal family as a major new investor. Three days later, Credit Suisse sold US$5bn worth of bonds. JP Morgan, Bank of America Merrill Lynch, Wells Fargo, Bank of Tokyo-Mitsubishi UFJ – few globally scaled lenders have managed to resist the market’s siren call. And for good reason. Lenders of all stripes have fought the urge to issue fresh bonds, sometimes with impressive stoicism. The previous major debt sale by Credit Suisse took place more than three years ago. The result, notes Christoph Hittmair, global head of FIG DCM at HSBC, has been both “pent-up supply” and “strong demand from investors across currencies and geographies”. Alexandra Macmahon, head of FIG DCM at Citi, said the market expected an acceleration in additional Tier 1 capital issuance in 2014 as regulatory and tax regimes were finalised, but that the “pace of supply has certainly exceeded expectation”. Countries, including Germany, have resolved lingering concerns over tax-deductibility issues relating to Tier 1 capital issuance, fuelling further bond sales. Volumes, while remaining below pre-crisis levels, have ticked up sharply. Tier 1 capital issuance by lenders topped US$16.3bn in the first five months of 2014, according to Thomson Reuters data, against US$3bn in the same period a year ago. Banks know interest rates in the Western world won’t linger at historic lows forever; most are opting, sensibly, to issue debt while rates and market conditions remain amenable. “The capital funding market is currently as good as we’ve seen,” said Fergus Edwards, head of international syndicate at Mitsubishi UFJ Securities. “It makes good sense for issuers of all shapes and stripes to be issuing long-term debt at this point in time. If you don’t raise capital now, it’s sensible to question when are you expect to fund at these rates again.” Yet, scratch the surface and forget the headline-grabbing data, and the smell emanating from the industry is that of panic not power, of frailty not fortitude. Banks are under immense, possibly unparalleled, pressure from all sides. They feel it from lecturing politicians, and from regulators seeking to rein them or, in some cases, to exact punishing fines on those unwise enough to deal with blacklisted sovereigns. They feel it from investors desperate to minimise risk and maximise returns in an often unrewarding and hazard-strewn world. Most pressingly, banks feel the pressure internally, as they struggle to fathom what they want to be in two, five, 10 years’ time. Corporate punishment Take the issue of corporate punishment. Credit Suisse’s landmark May bond sale came just days after it choked down a US$2.6bn fine from US regulators, having pleaded guilty to an “extensive and wide-ranging conspiracy” that involved helping thousands of US citizens to evade tax. Moody’s downgraded the bank’s outlook from s

To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com The pain of Portugal’s tearful exit at the semi-final stage of this year’s Eurovision Song Contest on May 6 was eased by a more triumphant and significant one later in the month when the country made a clean break from its €78bn bailout, joining Ireland as the second bailed-out peripheral European sovereign to put its woes behind it. For Portugal this is an impressive turnround – only four months ago there was still talk that the country needed a second bail-out. Positive economic data coupled with a broader rally in peripheral European bonds underpinned by expectations of new stimulus measures across the eurozone have, however, enabled Portugal to close a troubled chapter. In an official statement announcing its exit on May 18, the European Financial Stability Fund, which contributed a total of €26bn to a joint external financing package of €78bn that also included loans from the European Financial Stabilisation Mechanism and the IMF, said the programme of economic reforms undertaken by Portugal had “laid the foundation for an economic recovery”. “Portugal has achieved very significant reforms. It has reduced spending significantly and the state has improved its efficiency. The progress it has achieved is reflected in a 200bp tightening of its debt in the last 18 months,” said Zeina Bignier, head of public sector origination and deputy head of DCM at Societe Generale. Regaining access to the bond markets and restoring liquidity were also crucial cornerstones in the road to the exit from its 2011 bailout, and momentum began to build in January when the sovereign was emboldened by the success of a €3.25bn tap of its 4.75% June 2019 bonds – a transaction that attracted more than €11bn in orders. A month later, it raised €3bn through a tap of its 5.65% February 2024s. Aside from strong investor demand and tight pricing, Portugal was also encouraged by the quality of the book and the re-emergence of real-money accounts. Joao Moreira Rato, chairman of Portuguese debt agency IGCP, said: “Hedge funds represented only 2.4% of our last syndicated issue. We are mostly seeing a very significant return of real-money investors. In our last syndicated issue the share of insurance/pension funds/central banks was 10.5% of the total. “In the last syndicated issue, [the] Benelux [region] had a share of 11.8% and Scandinavia 14.4%. The reports we receive about secondary market flows show a more recent wave of inflows from Germany and Austria. We see some insurance companies in France starting to gradually extend maturities in the secondary markets.” True test But Portugal knew the true test would come with its first bond auction since the bailout, and that came on April 23 when it issued €750m of 10-year bonds at an average yield of 3.58%. “We have now re-established the type of market access we had before the crisis through a combination of auctions and syndicated deals,” said Rato. At the start of May, Portugal had accumulated a cash buffer of close to €15bn. Rato said that with redemptions totalling €12.6bn at the start of the year with peaks in June and October, and executing the existing financing plan, IGCP would enter 2015 with €3.6bn of net new funding, excluding the €6.4bn that it has deposited with the Bank of Portugal pending the outcome of the European Central Bank’s stress tests. Portugal is planning a further €4.7bn of funding between now and the end of the year, by which time it may come to the market with a new syndicated bond deal. But first it sees regular use of the auction window as key to maintaining liquidity. Rato said: “The regular tapping via auction facilitates liquidity in the secondary market, where volumes increased to 2009 levels. It is very important that we keep our auction prices in line with the secondary market.“ There a

To see the full digital edition of the IFR Top 250 Borrowers Report 2014, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com Whether the company is simply basking in the “second honeymoon” being enjoyed by dotcom or its enterprise value is justified is the big question as its IPO looms. Alibaba is an extraordinary cash cow. Its Ebitda last year was around the US$3bn-equivalent mark on the back of US$248bn of sales and its net income doubled to US$1.4bn in the last quarter of 2013. Much of that revenue came from Alibaba’s 231m regular users in China, which is its sole market. That customer base grew at a heady 44% from the previous year and Alibaba boasts a like number for profit margins. Small wonder then that as the company appears as promising a growth story as any in Asia with seemingly limitless cash-generating capability, bankers in the region have been falling over themselves to get a slice of Alibaba’s business. This for a company that made its capital markets debut as recently as 2012. That borrowing emerged in July 2012 in the shape of a US$1bn four-year loan, with proceeds earmarked to help buy back a 20% stake Yahoo had bought in Alibaba in 2005 for US$1bn. The price tag for the buyback, agreed in May that year, was a whopping US$7.1bn and closure of the deal would see Yahoo book a 700% profit. Not a bad return for what seemed at the time a punt on the unproven skills of Alibaba founder, former English teacher, Jack Ma, with a bit of random dotcom madness thrown in. Yahoo continues to hold a 22.6% stake in the company, while Alibaba’s biggest shareholder with 34.4% is Japan’s SoftBank. Internet-focused investment company SoftBank, founded by the enigmatic Masayoshi Son, holds one of the four board membership seats of Alibaba and is expected to have increased representation when the board is increased to nine, as flagged in the IPO filing. That perhaps raises the possibility that Alibaba could aim to tap Japan’s capital markets once it has gone public and sought a rating. Assuming the company is rated in the upper reaches of the investment-grade credit curve, it would have little problem in tapping the Samurai market, according to DCM bankers in Tokyo. “Alibaba could tap the Samurai market in size, at long tenor and at tight pricing given its link to SoftBank, its blue-chip status and rarity value,” said a syndicate head at a Japanese bank in Tokyo. Seldom has an IPO been as eagerly awaited as that planned by Alibaba. Hong Kong was to have been the venue for the IPO, but Alibaba broke off talks late last year with the SAR’s financial regulators following disagreements about a partnership structure the company hoped to put in place before the listing. In early May, Alibaba filed for a US listing that could be the biggest in the US market’s history, surpassing Facebook’s US$16bn debut last year. Alibaba’s IPO is expected to raise between US$15bn and US$20bn later this year. It is of course easy to understand the crazed rush of the investment banking community for a slice of the Alibaba pie. The reason is not just that Alibaba has immense room to grow its business in China, but that it is seeking to establish a foothold in the US as well through its 11 Main online marketplace and through the purchase of selected start-ups. Alibaba is spending a tiny fraction of its domestic revenue on these enterprises but is apparently determined to get plugged into the nous of Silicon Valley and has hired ex-eBay, Gap and Walmart staffers as part of this effort. For now, though, in its limited history in the offshore capital markets, Alibaba has limited its presence to the loan arena, albeit in colossal size. The US$8bn three-year and five-year loan it raised in July last year attracted 22 participants in general syndication and paid Libor plus 225bp and 275bp respectively, a healthy pay-day for the banks. Assuming the IPO is a success and that Ebitda continues to gr