Latin America Equity Issue: Pinfra's US$624m follow-on

After years of consultation with OSFI, the Canadian bank regulator, RBC was the first to crack the code on how to structure an NVCC, issuing a C$500m 4% non-call five-year preferred Additional Tier 1 transaction. The RBC structure was so elegant that its competitors decided to adopt the template to issue C$4bn of AT1s, rather than try and work out a structure for themselves. “It was a bit of an arms race,” said Patrick MacDonald, co-head of RBC’s debt capital markets business in Canada. “Everyone was trying to develop a new instrument, recognising there would be a benefit to being the first.” * The peculiarities of Canadian bank capital rules mean that being a leader in AT1 structures also results in leading in Tier 2. Under OSFI rules all Tier 1 and Tier 2 debt has to be non-viability contingent capital that converts to equity, but also respects hierarchy claims of a bank’s capital securities. OSFI also wanted the conversion to equity to be contractual (rather than at the discretion of regulators), automatic, immediate and resulting in significant dilution of existing shareholders. Respecting the hierarchy claims meant the conversion formulas for the AT1s and the Tier 2s had to be in sync with one another, because in reality an automatic conversion at the point of non-viability typically sees both securities convert to equity at the same time. “Basically, we couldn’t create one instrument without also creating the other, because there has to be a symmetry among them,” said MacDonald. RBC wanted to establish the AT1 structure with its deal in January and then followed up in July with a C$1bn 3.04% Tier 2 subordinated debt trade, cementing a formula that made investors feel they had an investment that was senior to AT1s.* The formula essentially ensures that each Tier 1 preferred is converted into equity based on a multiplier of one-times the note value of the preferreds, while the multiplier on the subordinated Tier 2 notes is 1.5-times the number of shares issued per subordinated note. The conversion price for both capital instruments would be the greater of C$5 or the 10-day volume-weighted average price of the stock. Adding to the challenge was the relatively small size of the Canadian market, at least compared with euros, where a variety of different CoCo structures exist. “We wanted something simple and easy to understand,” said Peter Hawkrigg, a senior banker in DCM at RBC. “We had to find a balance between what regulators wanted in a structure but also what investors and issuers wanted so it was repeatable. Then you can look at the underlying credit [when pricing a deal] and not get caught up on the structure.” * Corrects spelling of Patrick MacDonald and adds terms of Tier 2 issue. To see the digital version 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.

Structuring the deal as Thailand’s first exchangeable bond allowed CP Foods to avoid the need for early disclosure and a shareholder vote required to issue a convertible bond, meaning the issuer was able to come to market far quicker. The company scored a coupon of just 0.5% and exchange premium of 30%, the highest on record for a Thai equity-linked deal, thanks to some innovative features that gave comfort to investors. The bond came with an irrevocable undertaking from sponsor Charoen Pokphand Foods to ensure that the issuer, a wholly owned subsidiary, had enough liquidity to meet its payments. This is equivalent to a keepwell deed on a corporate bond, and is thought to be the first time such an undertaking has been included in an equity-linked issue anywhere. The joint bookrunners, Bank of America Merrill Lynch and Phatra Securities, also had to come up with a way to provide stock borrow for investors to hedge their positions – another first for Thailand. In a highly unusual move, CP Foods wished to use the same shares for both the borrow facility and the exchange property. At issue the conversion property was about 180m shares, of which up to 110m were offered for borrow. In order to partake in the stock-borrow facility, investors had to hold their bonds in a swap agreement with BofA Merrill, ensuring that the number of bonds exchanged would never exceed the number of CP All shares on hand. While bankers had been aware that it was possible to avoid Thailand’s lengthy disclosure requirements through the issuance of an exchangeable bond, instead of a convertible bond, CP Foods was the first to do it, reopening the Thai equity-linked market in the process. At the time, there had been no Thai equity-linked issuance since 2010 and no paper was outstanding. A military coup happened within weeks of CP Foods’ new deal, but some investors had actually bought into it hoping for an event to trigger volatility. While the window for issuance closed for a while as the political situation developed, Bangkok Dusit Medical Group had followed CP Foods to the equity-linked market come September. However, Dusit used the convertible bond format, which required a stock exchange disclosure and shareholder vote, adding three months to its time to market. To see the digital version 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 December 2013, two US-listed Chinese internet companies were planning to launch convertible bonds into a crowded market on the same day. One wall-crossed investors but decided to mothball the deal; the other – E-House – went ahead with its CB at a reduced size of US$135m, with Credit Suisse swallowing the majority of its fee to reoffer it at 97.5. While not the most auspicious start to IFR’s review period, the move underlined the bank’s determination to keep a clean track record of printing every deal it brought to market – a theme that proved increasingly important in 2014. Credit Suisse worked hard to build trust with issuers, and those relationships paid off handsomely as the year progressed. For example, when Chinese recruitment website 51job decided to tap the US equity-linked market in April, it added Credit Suisse to its bookrunning syndicate. This new mandate may have owed something to the fact that E-House’s chief operating officer is also a director of 51job, and had first-hand knowledge of how far the bank would go to support a deal. Under better market conditions, 51job sailed through with a US$150m deal. Issuance from US-listed Chinese technology companies was a key theme for the year, with another offering from Soufun adding to Credit Suisse’s tally, but the stand-out deal from that sector was Qihoo 360. The transaction was launched at a size of US$900m across two tranches, and in the end both the six-year tranche with a put at the end of the third year and the seven-year tranche with a put after year five were set at US$450m. Splitting the deal into two tranches created price tension and also suited different types of investors. The deal drew an order book of more than US$2.5bn from over 100 investors, and paid a coupon on the six-year tranche 200bp lower than Qihoo’s previous deal a year earlier. Despite a sell-off in US tech stocks and Argentina’s default during bookbuilding, both tranches were priced at or around the mid-point of guidance. The bonds performed well enough for the leads to exercise the greenshoe in full and bring both tranches to US$517.5m, making it the largest international CB offering from Asia ex-Japan in four years, and the largest ever from an Asian company listed in the US. In the US, Credit Suisse played pivotal roles in deals from China’s solar sector, working on transactions for Jinko Solar, Canadian Solar and Trina Solar. Trina added Credit Suisse for its second deal of the year, which came with an ADS offering and replaced a zero-strike facility from its earlier deal with a stock lending facility. This maximised proceeds from the equity portion and meant holders of the earlier bond could dip into the borrow facility to hedge. Credit Suisse also maintained its presence in Asia, winning a coveted role on the HK$4.3bn (US$556m) exchangeable bond from Beijing Enterprises Holdings – priced at a hefty 42.78% conversion premium – and on a chunky HK$3.9bn debut deal from Shenzhou International Group. While Credit Suisse was on three of the four largest issues from Asian companies, it was equally comfortable bringing smaller issuers to market, such as Kingdee and China LotSynergy. Credit Suisse also managed to bring a rare Thai deal to market, helping Bangkok Dusit Medical Services print a Bt10bn (US$311m) convertible bond issue in September – the first zero-coupon CB from a Thai issuer and the first structured with an asset swap, allowing investors to hedge their credit exposure. It also ticked the Taiwan box with a role on Zhen Ding Technology’s solid US$300m convertible in June. In Japan, Credit Suisse acted as joint bookrunner on a dual-tranche ¥80bn (US$691m) zero-coupon convertible for Toppan Printing in December 2013, the largest deal from Japan’s corporate sector in the calendar year. To see the digital version 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.

E.ON was looking to sell its non-core 6.7% stake in BKW, while unbeknown to it, BKW wanted to avoid the Swiss requirement to pay tax on treasury share holdings after holding them for over six years. The illiquidity of BKW meant a block sale of E.ON’s stake would be challenging and could destabilise the share price. However, an exchangeable bond would avoid these issues, while BKW could postpone any tax hit until after maturity if using the treasuries as the underlying for a convertible bond. The two deals came together with UBS at the helm of both as sole bookrunner. A single bank syndicate is almost as rare as concurrent deals in the same underlying, but was deemed necessary to ensure the two deals did not compete with each other. The two were differentiated through the use of different currencies, tenors and dividend treatments. By the time E.ON came to market, nine companies in 2014 had issued equity-linked bonds with zero yield but no lower, suggesting a psychological floor had been reached. UBS added guidance on the issue price of 100–102 to the normal coupon (0bp to 25bp) and premium (20%–25%) ranges. This meant that at the best terms for investors there was a coupon but at mid-terms the yield was actually negative, with the 101 issue price more than offsetting the one-eighth coupon. The move capitalised on investors often putting in large orders at best, smaller at mids and nothing at worst. Once the book was covered at mids it was then relatively easy to squeeze the coupon down to zero, giving a yield to maturity of minus 0.248%. Investment-grade ratings are catnip for CB buyers and the combination with a small deal size of €113m (for proceeds of €114.1m at the 101 issue price) allowed for the first negative yield in the European equity-linked market for more than a decade. In many ways those terms made sense for investors, as other investment-grade paper was trading with greater negative yields. And 25bp per annum was an appealing worst-case scenario in September for many investors that had lost far more when the secondary market traded off pre-summer. The target to offload the stake through the bonds is helped by E.ON passing through the full dividend to bondholders, a move that also helped ease the passage to negative yield. There was no stock impact on the day, which was remarkable considering the shares underlying BKW’s SFr163.4m six-year bonds and E.ON’s exchangeables represented two years’ trading. To see the digital version 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.

Over most of the last decade, Societe Generale has been very much the “other” French bank when it came to the equity-linked markets: heavy on innovation but light on volume. SG did not feature in the top 10 of the EMEA equity-linked table for full-year 2013, its sixth absence in a decade. Yet the bank has worked on far more IFR Award-winning structured equity deals than many of its larger rivals, picking up gongs for Amorim Energia in 2013, ArcelorMittal in 2009 and La Caixa/Criteria CaixaCorp in 2008. “We’ve previously been accused of being just a French bank,” said Jose Antonio Gagliardi, head of equity syndicate at SG. “We had to ensure we no longer rely on the French issuer universe.” Notwithstanding the traditional quiet of August and an October snuffed out by market weakness, SG was printing deals every month in 2014 through to September. Well into the second quarter, SG was one of only two banks to have completed more than a handful of trades – and it was the first to top US$1bn in league table credit. Over the year, the bank completed the same number of deals in Germany and Spain as it did in its home market, as well as printing trades in Belgium, Italy and the Czech Republic. It diversified by sector and brought a healthy mix of debutants and repeat issuers. Its tally of 13 deals during the awards period – not including an unusual trade for unlisted Siclae – was bettered only by two other banks. “Flow plus variety is what investors need,” said Bruno Magnouat, head of equity-linked origination. “As a bank we need to be in the flow, but we also want to add value throughout.” Those remarks refer to one of the defining themes of the CB universe in 2014: the zero coupon. Over the awards period, SG was on five of the 10 zero deals, including the upsized €500m 2019 CB for German healthcare group Fresenius that was priced through 0.10%–0.90% guidance in March. Also pricing with a 0% yield was the €470.2m exchangeable by Czech electricity supplier CEZ into Hungarian oil and gas group MOL, providing rare CEE paper. With CEZ committing to sell its 7.3% stake underlying the bonds, but MOL having first right of refusal on any sale, the bonds cannot be converted for three years of the 3.5-year tenor. The option to settle in cash provided the client with extra flexibility. Value was also represented by SG’s knack for structuring around complex situations and client requirements. Innovation included helping Telefonica monetise a stake in Telecom Italia that it did not yet possess. The €750m 2017 mandatory exchangeables used a 14.8% stake held indirectly in a vehicle being unwound due to competition concerns. Enough outright demand was captured for an accompanying delta placing to be cut to €276m, from €575m originally, with further flexibility provided by the option to settle in cash if Telefonica has not yet received the shares. 100% debt But SG’s unique flair for the product was best shown in deals that revealed the bespoke nature of structured equity. In March, Fresenius issued €500m of convertible bonds while purchasing call options from Credit Suisse with a strike price equal to the CB conversion price to remove dilution entirely. SG was a joint bookrunner with UniCredit, compared to Credit Suisse’s sole global co-ordinator, but it was the only one of the three to be employed when subsidiary Fresenius Medical Care tried something similar in September. This time SG was provider of the matching call options. Corporates learned to their cost the risk of packaging derivatives with convertibles when Lehman Brothers collapsed and their calls disappeared with it. In the case of FMC’s €400m CB, the issuer is fully protected. If SG were to go bust, then rather than FMC losing its hedge, it is bondholders that would notice the change; they would become creditors of the French bank for anything owed above nominal value. 100% equity Addressing very different needs, SG also brought to market Europe’s first-ever 100% equity credit CB under IF

Having conducted multiple stabs at liability management over the years, Mexican cement giant Cemex employed a new security to manage potential debt obligations. Long-time partner Citigroup was principal architect of the innovation. Cemex acted six months ahead of the maturity of its 4.875% convertible bonds in March 2015. Through a series of induced conversions negotiated with holders earlier in the year, the principal amount of the CBs outstanding had been whittled down from the original US$750m issued to just US$204m by early September. Still, there was uncertainty for the issuer. At the time of the offering in September, Cemex’s shares were trading around US$12.50, above the US$11.18 conversion price, but this had not been the case earlier in the year. If the stock held firm, investors would convert into equity; if they dropped, the company would need to come up with cash to meet the maturity. The simple answer would be to refinance by selling equity or straight debt. However, neither option was available, as the company lacked authorisation to issue more stock and senior loan indentures stipulated that the CBs could only be refinanced with another convertible bond issue – an unattractive option as it could turn out to be entirely unnecessary. The solution was to sell a convertible bond offering structured as a six-month forward contract. If more than US$100m principal of the 4.875% notes were presented at maturity, then buyers of the units would receive new six-year CBs. If issued, the new bonds would pay five-year swaps (at issue) plus 195bp and convert at the greater of US$11.20, 130% of five-day VWAP or 110% of the closing price at the time of issue. Cemex will cover the cost if less than US$100m is presented, though clearly the outcome is binary with either all the bonds converting or none. “Innovation tends to come from a problem being posed to you,” said Cristian Gonzalez, a director in the structured equity group at Citigroup, adding that the terms on the new security were negotiated via a wall-crossing exercise. “While this worked for Cemex, a large-cap issuer, under a specific set of circumstances it could be applicable to other forward contingencies, such as an M&A event or maturity of a term loan,” he said. The financing allows Cemex to prepare for the worst at a monthly payment that equates to just 3% per year, while hoping for the best. When the company’s share price briefly dropped below US$11 in October, that insurance looked an even better investment. To see the digital version 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.

Pitching a company when representing a bulge-bracket firm with an established track record and leading league table position is one thing, but simply getting through the door when one has none of these credentials is quite another. So for RBC Capital Markets to convince 18 companies to trust it on convertible bond issues (with a deal roster of just five from the previous years) is impressive. RBC ran deals earning league table credit of US$3.3bn in the IFR Awards year for a 6.5% market share. Key was a platform that offered clients customised products, often without the risks traditionally associated with structured equity. “When I came to RBC in October 2009 I recognised there was an opportunity to really fashion a business that provided a holistic solution to corporations, across convertibles and equity derivatives. It was a blank piece of paper,” said Andrew Apthorpe, global co-head of equity-linked origination. “I took the opportunity to build a business around fundamental buyers – on average we put 75% of our deals with fundamental buyers.” Still, PDL BioPharma CFO Peter Garcia concedes there was a certain “leap of faith” when it mandated RBC to lead its US$300m, four-year CB in February. The owner of a portfolio of drug patents already had established relationships with bulge-bracket firms – Bank of America Merrill Lynch was sole bookrunner of its US$131.7m principal of 2.875% CBs, issued in 2011, and execution hinged on participation of holders of the existing CB. “In order to get this deal done we really did need to free up stock borrow and thereby allow for greater efficiency of pricing,” said Garcia. “It was important to get the exchange holders to sign on before the public launch.” The negotiations entailed two days of confidential marketing, both with the 2.875% holders and a select group of new institutions. An additional day of public marketing allowed for an increase in sizing from a US$250m base deal to US$300m and pricing at a 4% coupon and a 15% conversion premium. A call-spread overlay was employed to offset dilution to a 30% premium. Instrumental to the selection of RBC was the structural advice it provided. To minimise equity dilution the new security was structured with a provision to compensate CB holders only for an increase in dividends above the current 15-cent threshold, in contrast to the full pass-through mechanism on the notes sold in 2011. “We wanted the convertible to be more debt-like than equity-like,” said Garcia. Confidential marketing is a hallmark of RBC’s fundamental orientation. Cobalt International Energy, a US$7.6bn market-cap deep sea oil and gas explorer, signed up to the merits of wall-crossing in May to secure US$1.3bn from the sale of a 10-year CB, one of the longest-dated CBs ever. To minimise market risk the company met with 17 investors, predominately long-only, over a 24-hour period before unveiling details publicly as a 3.125% coupon and 25% conversion premium. “It was very important for us to place the security with investors that were going to hold and not short our stock,” said Cobalt CFO John Wilkirson. “We basically got an overnight deal placed at marketed terms and totally avoided the equity risk and exposure of a day of marketing.” Again, Cobalt was a new client that had previously used bulge-bracket firms – Goldman Sachs and Morgan Stanley – to lead a US$1.7bn CB back in 2012. That deal was bought by the banks and ended up being offloaded at 99.25%. Once again, structural advice factored into the selection of RBC as lead. To provide flexibility and send a bullish message, the company opted to structure the CB with a call beginning in 2019 struck on an underlying share price of US$30, a premium of roughly 70% to the reference price. There were other marquee wins as well. RBC was elevated to bookrunner slots on Tyson Foods’ US$2.4bn two-tranche raising of equity and mandatory convertibles and Dynegy’s US$1.15bn raising from a similar combo-sale of equity and mandatory.

Against a challenging backdrop of slowing Chinese growth, a looming US rate hike and increasing geopolitical tensions, Goldman Sachs managed to seize market windows for major equity financings across the Asia-Pacific region. The US investment bank led three out of the four largest IPOs and three of the five biggest follow-ons from the region, putting clear water between itself and its nearest rival in volume terms over IFR’s review period. Goldman has worked hard to craft a reputation as the arranger of choice for Asia’s biggest equity offerings, and 2014 was no different as it continued to print the biggest deals from Greater China. This year, however, it did more for key clients in Australia and continued to develop Asia’s equity capital markets with innovative transactions. “This year has been full of uncertainty. Still, we have raised capital for our clients efficiently, while at the same time resisting margin compression,” said Jonathan Penkin, co-head of Goldman’s financing group, Asia-Pacific ex-Japan. “We will continue to lead the biggest deals in the region, rather than chase smaller transactions with multiple bookrunners.” China was again the busiest market for Asian equity offerings during the year, but the mix of issuers is changing, with state-owned enterprises no longer the sole source of big deals. Here, Goldman played to its strengths, using its home advantage to win several mandates from Chinese technology companies for US listings, a sector that accounted for a major proportion of the year’s deal flow. Goldman won a coveted bookrunner slot on the US$25bn New York Stock Exchange listing of Chinese e-commerce giant Alibaba Group – the stand-out deal of the year worldwide. Despite joining the deal at a much later stage than at least two other banks, Goldman was appointed sole stabilisation agent for the mammoth float, a prestigious role underlining the issuer’s trust in the bank. Goldman also featured on many other equity offerings from US-listed Chinese tech companies in the year. It led the US$280m NYSE IPO of online cosmetics retailer Jumei International, the US$328m Nasdaq IPO of Weibo, the biggest Twitter-like microblogging service in China, and the US$821m dual-tranche CB and placement for Vipshop, a Chinese online discount retailer. In Australia, efforts to build the franchise in recent years paid off, as Goldman successfully arranged the largest IPO, rights issue, institutional placement and block trade for the year, gaining market share in the process. The A$2.34bn (US$2bn) entitlement offer of toll-road operator Transurban Group underlined the bank’s ability to take risk for the right deal, and the right client, with a nerve-shredding 30-day hard underwriting agreement to support an acquisition. Other stand-out trades included the first subordinated convertible bond in China for Ping An Insurance. Goldman was joint bookrunner on the Rmb26bn (US$4.2bn) A-share deal, which was equity-like with a 3.3% premium and 0.8% initial coupon, that allowed the country’s second-largest insurer to improve its solvency ratio from 162.7% to 181.2% even before any of the bonds are converted. Goldman also played a pivotal role in Dai-ichi Life Insurance’s ¥277bn (US$2.3bn) follow-on, which was the first equity offering in Japan to finance an acquisition before the M&A transaction had even closed, showcasing its ability to deliver creative solutions for Japanese companies that are increasingly looking to invest overseas. The bank helped revive IPO markets in Japan and South Korea with its key involvement in the largest listings in each market during the review period. It arranged the ¥318.5bn (US$3.09bn) float of Japan Display, the world’s largest maker of smartphone screens, in March, and it raised W1.16trn (US$1.1bn) for Samsung SDS, the IT services unit of South Korea’s largest conglomerate, in November. Equity issuance in South and South-East Asia was thin in the period under review, but Goldman featured on a hand

Citigroup – whose ECM team had precedent for successfully blurring the line between public and private with VTB’s US$3.3bn-equivalent capital increase in 2013 – worked alongside Bankhaus Lampe to combine the most desirable elements of public and private funding options to list the automotive lighting company. Eighteen months of work resulted in a two-part process – a private placing followed by an accelerated IPO. Where private transactions often allow for taking short-cuts compared with the regulated and public route, this was a full IPO albeit in private; research, pre-marketing, management roadshows, and bookbuilding were all completed over six weeks with hand-picked investors. The extended timing allowed for the participation of family offices, representing other German industrial families, which offer a long-term commitment but usually need more time to consider an investment than an IPO allows. On October 31, Hella surprised the market with the placing of 11.1m new shares, sufficient to meet the 10% minimum free-float in Frankfurt, completed at €25 per share with a group of investors, around half of which were family offices. The following week, in an accelerated IPO the family sold 5m secondary shares at €26.50 per share, supplemented by a 750,000 share greenshoe that took the free-float to 15% when exercised on November 19. Suneel Hargunani, head of EMEA equity syndicate at Citigroup, was heavily involved in marketing the deal as the whole sales team could not be wall-crossed and highlighted that in this case the innovation was for good reason and was well tested. The private part of the deal was launched in mid-September, just as equity markets collapsed. The DAX lost 12.5% in 17 days from September 19 and many IPOs in Europe were pulled. Cancellations were not because investors were unwilling to buy, but because of doubts about whether those deals could succeed. The luxury of time and lack of pressure to be covered in days meant Hella was unscathed. The family met investor concerns over liquidity by locking up shares representing 60% of Hella for 10 years, with the implicit signal that the free-float could soon reach 40%. This was underlined by a vision for MDAX inclusion that would require greater trading volume. Hella has solved an age-old problem of how family-owned companies cope with succession. The family lacked a candidate to take over running the business so hired professional management and decided the capital markets would provide the best check on their performance. So it secured a rating, issued bonds and floated on the stock exchange. To see the digital version 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 the IPO market surged to levels last seen in 2007, JP Morgan was king. The US bank left rivals in its wake, launching 38 IPOs in EMEA during the IFR Awards period versus the nearest tally of 27 listings by Deutsche Bank. They were not punts either, as JP Morgan priced 34 transactions. More significantly, JP Morgan was in the driving seat. The global co-ordinator role grew in importance in 2014 as issuers acknowledged that syndicates swollen with multiple bookrunners were unwieldy and hindered success, but declined to demote their lenders. The subjugation of bookrunners took some senior bankers by surprise, but not the top US banks familiar with a similar development in their home market. JP Morgan was a global co-ordinator on 29 of its successful IPOs. Goldman Sachs was the only other bank to execute 85% of its IPOs with a top line role, but could not compete on volume with 17 GC deals, still the second highest in the region. Well anchored Sizeable and complex, listing stock exchange group Euronext involved floating an entity that did not previously exist and required co-operation with regulators in several countries and multiple ministries of finance. Getting a large group of European financial institutions to commit to buy a third of the company for nearly €450m with a three-year lock-up as cornerstone investors was not only impressive but also set the tone. Cornerstone and anchor investments were increasingly important for generating momentum on IPOs, and in the second half were often critical for success. The latter was especially true for German property company TLG Immobilien’s €375m IPO and the revival of Swiss biopharma Molecular Partners’ briefly cancelled deal, where JP Morgan was sole global co-ordinator. Both deals came in the exceptionally challenging period in late October/early November when markets and confidence had been decimated. Just a few weeks earlier, a handful of cornerstones bought more than 40% of internet incubator Rocket Internet’s €1.4bn Frankfurt entry standard listing. Getting committed backers for a high-growth/high-risk proposition – especially an incubator that is so difficult to value – was necessary to draw the backing of generalist investors needed for a float of that size. The bank’s IPO roster was not just longer than everyone else’s, it was on the top line for the largest corporate IPO of €1.77bn when ING listed insurer NN Group, and for the Dh5.8bn (US$1.58bn) float of Emaar Malls Group. By pricing EMG at the top of the range and drawing demand of more than US$40bn, this single deal has reignited the Gulf region with a pipeline rapidly building for 2015 and beyond. Anglophile It is hard to ignore the bank’s market share in the UK, with the wisdom of the Cazenove acquisition growing clearer each year. The bank was again chosen by the UK government to lead a sale of Lloyds Banking Group, which at £4.2bn is the largest-ever accelerated bookbuild in Europe, and was then hired by Lloyds to lead the £500m IPO of TSB. In the IFR Awards period the bank clocked up 47 trades across all products, claiming a 15.2% market share in the UK. Just Eat’s £360.1m IPO in April was one example that was heavily oversubscribed and upsized, only for the restaurant aggregator to fall in the aftermarket and be tarred a failure. Yet by the end of the IFR Award year its shares were up 21%. Spire Healthcare was up a stunning 52%. There were some failures too, with four deals cancelled after beginning bookbuilding and eDreams Odigeo falling 85% from its IPO price after disappointing with its first set of numbers after floating and then falling out with British Airways and Iberia. Considering the depth of JP Morgan’s pipeline, however, missteps were inevitable but kept to a minimum. JP Morgan, led by Klaus Hessberger and Achintya Mangla, has also made great strides in equity-linked, ranking third during the period and completing 16 deals. These included US$1bn of paper for DP World, innovation on Telef

The US$25bn New York Stock Exchange listing of Alibaba Group transformed the Chinese e-commerce giant into one of the world’s best-known – and most valuable – companies. But its significance goes far beyond that. The IPO lifted valuations across the emerging Chinese technology sector. It prompted a review of listing rules in Hong Kong. And it showed just what is possible with the right approach to the capital markets. Alibaba’s performance since listing – its shares ended IFR’s review period up 69% – made the IPO’s success look like a foregone conclusion, but it all could have been very different. The company had initially planned to list in Hong Kong, but its partnership structure fell foul of local listing rules in allowing a minority to control board appointments. Once it became clear that a rule change would take months, if not years, Alibaba switched its attention to the US. Together with independent adviser Rothschild, Alibaba divided work equally across the six joint bookrunners: Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and Citigroup. They shared negotiating with selling shareholders, prospectus drafting and valuation. Each bank handled a separate leg of a nine-day, two-team roadshow that took in 10 cities and reached over 2,000 investors. Only the biggest potential investors received individual slots, and the syndicate’s predictions were justified with a 100% hit rate from those one-on-one meetings. More than 70 investors placed orders of more than US$1bn each, and at least one fund signed up for as much as US$4bn. Alibaba offered 320.1m American depositary shares at US$60–$66 each, about 25 times forecast 2015 earnings at the top of the range. That was a discount to a 32x multiple for Hong Kong-listed Tencent, and the attractive valuation helped draw orders totalling US$275bn. The overwhelming demand allowed the company to raise the price range to US$66–$68 three days prior to pricing, before pricing at the top. Bankers had told Alibaba they could price a successful deal slightly above US$70, but the company was focused on a positive secondary market showing. With that in mind, each major allocation was discussed between the arranging banks and Alibaba’s management, with a view to putting as much stock in long-term hands as possible. The tactics clearly worked. The shares soared 38% to close at US$93.89 on their trading debut on September 19, at which point the greenshoe was quickly exercised, taking the deal to a record-breaking US$25bn. To see the digital version 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.

The jumbo US$7.25bn credit facility sneaked through a turbulent market and was priced in September just before spreads blew out due to a combination of regulatory issues, loan fund outflows and intensifying global capital markets volatility. “The interesting thing about it is that Burger King is a well-known commodity, [the deal] traded well, with way more leverage, and not much lower rating, and still got done in a tough environment,” a buyside trader said. JP Morgan and Wells Fargo led the deal, which included a US$6.75bn term loan and a US$500m revolver. The 3G Capital-owned restaurant chain also funded the transaction with US$2.25bn of 6% senior notes due in 2021 and US$3bn of preferred equity financing from Warren Buffett’s Berkshire Hathaway. Burger King’s timing was impressive. The company decided to forge ahead and market the jumbo deal before the underlying M&A trade closed to lock in favourable rates before the market changed – and that decision paid off. Banks marketed the deal aggressively at 350bp over Libor, which was potentially a tough sell for a company with a B2/B+ rating looking to leverage up to above 7.0 times – even with support from big names like Warren Buffett and the financial clout of private equity firm 3G, along with strong Ebitda and a well-known brand name. Investors pushed back immediately and asked for bigger incentives to make room for the huge loan in their portfolios. Burger King obliged by adding a ticking fee that included the full spread plus Libor floor after 30 days to give investors income on their commitments before the M&A trade closed. It originally offered no ticking fee for the first 30 days with step-ups to the full spread and Libor floor after day 120. Burger King was pragmatic and made several other concessions, including extending call protection, removing the most favoured nation sunset clause and replacing step-ups with the ticking fees, all of which would become commonplace in October’s market correction. Although the concessions were expensive for Burger King, the company saved money by giving investors what they were looking for as spreads had blown out by 100bp–150bp for new issues in mid-November. The new company will be headquartered in Canada in a tax inversion deal, which was one of the key M&A themes of 2014 and another example of perfect timing, as the US government announced new rules to clamp down on tax inversion trades shortly after Burger King’s transaction. To see the digital version 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.