Asia-Pacific Structured Equity Issue: CP Food’s US$290m exchangeable bond into CP All

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 IFRS

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.

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.

The opportunity for the funding was apparent, even if the structure was not. At the time of the offering in July, Pinfra’s stock traded at close to 20-times Ebitda, presenting a chance to sell equity more cheaply than issuing debt and use the proceeds to invest in future growth. Underlying that premium valuation were expectations that Pinfra would benefit from historic reforms to open up the telecoms and energy sectors. The company has highways, ports and airports that will grow in lock-step with a revitalised economy. The fact that it was one of the few pure-play Mexican infrastructure companies increased the appeal – so much so, in fact, that controlling shareholders were concerned that selling stock could put the company in play. “There was more spending on infrastructure, but [the owners] did not want to be diluted,” said Santiago Gilfond, a managing director at Credit Suisse, which acted as lead along with Itau BBA, JP Morgan and GBM. “We went back and forth, and ultimately had the confidence to launch an L share – a new class of stock.” The L shares offered investors limited voting rights, a once-popular structure that fell out of favour decades ago due to the poor treatment of minority shareholders by Latin American companies. Mexican regulators were circumspect with a number of investor protections embedded in law. “The thing that protected minority investors in the case of Pinfra is that there were mandatory tag-along rights – L shares have the same economic rights,” said Fecundo Vasquez, a managing director at Itau BBA. “We were very careful. That is something written in the law.” There was, however, a cost. The all-primary raise saw 42.9m L shares placed at Ps172, a 6.1% discount to the Ps183.24 A share last sale. Nevertheless, strong investor demand in the aftermarket was evident when the underwriters exercised the greenshoe of 6.5m shares. Giving investors comfort on corporate governance was central to the success. In addition to tag-along rights, the L shares flip into voting A shares on any equity raising larger than 25% of the outstanding, as is required under Mexican law. Pinfra did receive a lift from the equity infusion, as the A shares rallied on the deal launch to set the discount on the L sale at just 0.2% from filing in early July. 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 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.