EMEA Loan House: HSBC

A condition of war-torn Ukraine’s US$17.5bn bailout from the International Monetary Fund this year was that the sovereign restructure its US$18bn debt. That this was achieved by consensus in nine months was little short of a miracle. Moreover, creditors ultimately agreed to take a 20% discount – even though the bulk of the debt was owned by Franklin Templeton, which had repeatedly vowed not to accept any haircut on its bonds. Creditors were given extremely generous 20-year “value recovery instruments” payable on certain GDP conditions to cover that shortfall, together with enhanced coupons – part of a tricky solution that underscored Lazard’s swift, deft and meticulous work on the restructuring. As per the IMF’s own parameters, the international body itself could not directly be involved in the restructuring itself, leaving Lazard to act for Ukraine. “This was a pretty quick process door-to-door,” said Eric Lalo, managing director, sovereign advisory for Lazard. Lazard managed to achieve the main aim of extending the maturities of the debt by four years – as the IMF had demanded – giving Ukraine vital cashflow benefits to enable it to combat the conflict with Russia in the east of the country. But Ukraine Finance Minister Natalie Jaresko also told investors she would be “more than happy” if the country’s economy was growing at the level at which the instruments might eventually pay out. As part of its work, Lazard also advised other Ukraine creditors such as Ukreximbank and Oschadbank – both of which extended their debt. The result is that Ukraine is now in a far better position than the dire one it faced at the start of the year. And if a second round of restructuring is needed to meet further IMF demands, that will now be far easier to achieve. Creative energy Beyond sovereign territory, a long-expected wave of restructurings in the energy sector finally arrived in 2015 as oil prices hit multi-year lows, forcing high-margin producers and servicers to seek radical cures for their ailing debt-laden businesses. Over and over, Lazard helped companies battle their way to a solid and durable solution, rebuilding a balance sheet that could weather an ongoing industry downturn while not asking creditors to give up too much. One great example of Lazard’s handiwork was for Hercules Offshore, a Texas-based oil rig operator that slid off the Nasdaq and into bankruptcy as crude prices fell through the floor. Lazard found that optimising the Hercules balance sheet meant clearing away the company’s existing debt entirely – and helped devise a pre-packaged plan to convert more than US$1.2bn of senior notes into 96.9% of the equity. The plan won the support of 99% of bondholders, many of whom ponied up to fund US$450m in new debt financing to get Hercules out of bankruptcy. Hercules CEO John Rynd said restructuring the balance sheet early in the cycle generated significant benefits. “With our new capital structure, we are much better positioned to compete successfully in the offshore drilling market,” he said. David Kurtz, global head of restructuring at Lazard, told IFR that the conservative approach – including an infusion of new financing – would be used again in the sector. “People made the most conservative assumptions at Hercules and built the balance sheet from there,” Kurtz said. But Lazard also knows that, when it comes to energy restructuring, one size definitely does not fit all. It was hired as adviser to offshore drillers Vantage Drilling, Paragon Offshore and SandRidge Energy, as well as Goodrich Petroleum. The operational structures of these companies are vastly different, and the solutions to their woes will be as well. At SandRidge, for example, Lazard is helping reduce the debt load with a novel convertible bond exchange that swapped secured debt for a convertible. Creditors are generally reluctant to convert debt to equity, especially if there will still be debt on the books and they cannot quickly sell the equity without

UBS’s rise through the ranks over 2015 has been truly meteoric. Having languished in 14th place for all euro-denominated financials business at the end of 2014, by the end of November it had risen to third, taking a 6.4% market share – up from 2.7% – according to Thomson Reuters data. Indeed, 2015 proved a watershed for the Swiss bank. After enduring numerous organisational restructurings and team departures in recent years, this was the year that UBS cemented its position as a major player in the financials space. Its apotheosis came despite a turbulent market backdrop that repeatedly shut issuance windows and a fast-changing regulatory environment both for banks and insurers. But UBS’s ability to bring trades even during the most volatile periods, paired with its best-in-class advisory business, saw it mandated time and again in both the capital and funding markets. Preparing for new resolution rules was a key theme for banks throughout the year, as the worlds of capital and senior collided and different jurisdictions tussled with different solutions. “The funding business has moved to an advisory business,” said James Marriott, head of EMEA financial institutions DCM at the bank. “We now have the capital advisory guys in the room for the first time.” Leading by example, UBS made a strong start on shifting its issuance to the holding company to comply with Swiss regulation, issuing senior bonds in three currencies and a three-part multi-currency inaugural Additional Tier 1 trade. UBS further proved its worth by executing some of the year’s more complex AT1 deals, including inaugural trades for comeback kids Bank of Ireland and ABN AMRO. It also structured and executed an inaugural sterling AT1 for Santander UK, spotting a window in June despite ongoing Greek turmoil. In Tier 2, it helped Banque Federative du Credit Mutuel reopen the market in September, the first trade in the format since July, and landed a deal for Ibercaja, Spain’s eighth-largest bank, after a torrid period that saw others’ mandates fall by the wayside. Tier 2 deals for the Co-operative Bank and SNS Bank, in sterling and euros respectively, underlined its ability to sell more challenging stories to the market. UBS ramped up its market share in the insurance sector, managing to do so without relying on business from franchise loans, and at a time when issuers and investors alike were grappling with the implications of Solvency II regulation. In December 2014, it led a €500m Tier 2 deal for Intesa Sanpaolo Vita before the grandfathering window allowing for that to count as Tier 1 capital slammed shut, despite competing issuance and a volatile backdrop. It helped KLP and Danica access the market after lengthy absences and was involved with a tender and reoffer of subordinated notes for Swiss Re. It also led a perpetual sub for Helvetia, the year’s first Swiss franc hybrid. But it was not in the capital market alone that UBS shone. The bank’s resolve to grow its funding flow business bore fruit, snagging mandates both for covered and senior trades from more than 50 issuers across core and non-core currencies. Its strength in the UK and Irish market saw it pulled into a covered bond issue for Allied Irish Banks after the mandated deal failed to materialise in 2014. It also executed trades for the trickier peripheral names as well as core issuers. UBS’s dialogue with investors was crucial to its success. It arranged more than 600 one-on-one investor meetings for EMEA issuers in the IFR awards period and its global reach enabled it to guide clients beyond Europe’s borders to the most suitable market, whether the Yankee market for Nationwide or Australian dollars for Rabobank. “We offer a very broad reach in terms of which markets we can bring issuers to,” said Barry Donlon, global head of capital solutions and liquidity. “We don’t talk to them about a bond, but a capital structure.” UBS rounded off IFR’s awards period with one of its trickiest trades of all: a li

In many ways, the sterling bond market works as a microcosm of its larger global cousins, reflecting the same themes that exercise the minds of participants throughout the rest of the world, albeit on a less cluttered stage. To truly do the sector justice takes a house that can call upon deep international expertise, but also one that has not sacrificed its domestic roots in gaining that capability. HSBC is just such an entity, combining undisputed world vision with local history. The similarities between the universal and the domestic are plain to see: a bedrock of stalwart repeat issuers; the search for cross-border diversity; and the need for innovation to keep the market fresh. HSBC was in the vanguard of all of these themes. “What we did was position our DCM business to advise and enable clients,” said Jean-Marc Mercier, global co-head of debt capital markets. “We have a good anticipation of what is possible, and at many times we have been a strong voice,” added global head of debt syndicate Adam Bothamley. Similar to other markets, the sterling arena is underpinned by its frequent visitors. And in terms of volume, it is the public sector borrowers that are at the forefront of this subset. Close to home, the UK DMO again awarded a mandate to HSBC, this time with a lead management role on its 2046 index-linked Gilt, with the bank now one of very few annual ever-presents. In wider Europe, HSBC maintained its historically strong relationship with the EIB, working on deals that mounted to double figures, including the £1bn tap of its February 2020 FRN that constituted the largest SSA deal of the year away from the DMO. The Council of Europe also again appointed HSBC – for its December 2019 issue. The German connection continued to function admirably, with the bank active across numerous issues for KfW, including the issuer’s first Green bond in sterling (deals from EIB and TfL underpinned the bank’s SRI credentials). HSBC also maintained its leading bookrunner status with compatriot FMS. Further north, HSBC lead-managed all three deals from Finland within the awards period: five-year transactions in November 2014 and 2015 and a three-year in February. Add to this trades for EDC and AfD, not to mention KommuneKredit’s debut in the currency, and the list becomes all the more impressive. “The simple truth is that we do the plain vanilla issues extremely well,” said PJ Bye, global head of public sector syndicate. While those among the domestic borrower base might be viewed as likely to be frequent issuers by nature of their domicile, this is not necessarily the case. This was certainly true in covered bonds, where HSBC brought Lloyds Bank to the fixed-rate arena for the first time since 2012 ­– selling 52% of the paper into Asia into the bargain – while also ushering in Leeds Building Society for the first time in three years. This was one of a slew of three-year FRNs that included compatriot Abbey, as well as overseas visitors RBC, TD, BMO and CIBC from Canada and Sweden’s Stadshypotek. “On the right day, sterling can represent great diversification as well as competitive funding versus other currencies,” said Hugo Moore, head of frequent borrowers/covered bonds. This was also evident in the senior market, where HSBC led Rabobank’s first fixed-rate deal since 2012 and Wells Fargo returned, while Westpac NZ made its debut and Pohjola Bank diversified even further, with a dual-tranche fixed/floating approach. Nationwide had waited even longer – since 2009 – before making its return to senior, although it was the subordinated sector in which HSBC made a domestic splash, with the likes of Aviva’s first dual-currency hybrid since 2008, Prudential’s T2, Co-op Bank’s post-recapitalisation trade and Centrica’s rating-affirming 60NC10. Overseas corporates such as Apple, IBM, Daimler, Paccar, APT Pipelines and GE were just some that trusted HSBC on the investment-grade side of the equation, while homegrown high-yield issuers such as Angli

The Rmb4bn (US$650m) exchangeable into shares of China’s third-largest insurance company New China Life has also set a template for other state-owned enterprises to capitalise on their non-core assets, part of SOE reform in China. Pioneering transactions in China require clearing multiple regulatory hurdles before even considering marketing and distribution. Baosteel needed blessings from five regulators – the State-owned Assets Supervision and Administration Commission, China Securities Regulatory Commission, Shanghai Stock Exchange, China Securities Depositary and Clearing, and China Insurance Regulatory Commission. Convincing investors to accept the new product was another challenge. Instead of a step-up structure that is typically used in China’s convertible bonds, Baosteel’s exchangeable offered a fixed-rate coupon. “As an innovative product [in China], the terms should be as simple as possible to allow investors to understand it better,” said Huang Zhaohui, managing director in investment banking at CICC, at the time. “[The] fixed-rate coupon allows investors to enjoy higher returns in the early years.” Even a market correction could not throw the deal off track. Marketing of the exchangeable began on December 9, capitalising on a 25% gain in the Shanghai Composite Index the previous month. The same day, the index dropped 5.43% and shares of NCL fell by the maximum 10% allowed on the exchange before being suspended. Demand was apparently immune to the drop – correctly, considering the upward path immediately resumed and continued until mid-June. The institutional tranche of the deal was 27 times covered, allowing the issuer to price the coupon at the bottom of the 1.5%–3.5% range. The conversion premium, set before bookbuilding began, was 9.35%. Riding on the overwhelming response to Baosteel’s offering and the CSRC viewing exchangeables as outside the ban on shareholders of 5% or more selling shares, other issuers have been encouraged to take the exchangeable bond route. Three other companies have raised a combined Rmb7.2bn from public exchangeables in 2015, while Shanghai State-owned Assets Operation is mulling a Rmb3.5bn EB into shares of China Pacific Insurance. Both Baosteel and the EBs scored AAA ratings from Chengxin. Credit Suisse Founder Securities and UBS Securities were joint bookrunners alongside CICC. 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@tr.com .

US health insurer Anthem found itself in a potentially precarious situation in early 2015 with a US$3bn cash call that could come at any time. The company’s US$1.5bn principal 2.75% 30-year CB issued in 2012 (when the company was called Wellpoint) was the cause of concern. The conversion price was US$75.58 but the shares had since risen to US$154.20. With the bonds trading at 207, early conversion was a real risk. “Conversion would have brought about a potential liquidity event we would not have wanted,” said Anthem VP of corporate finance Merrill Yarling. “It was a potential put, at their choice and not ours.” The bonds are not callable until 2022. A net-share settlement structure meant Anthem had to fund the principal in cash and use cash or stock for the remaining value – and make that decision within 24 hours of notice. The shareholder-friendly option of full cash settlement would create a nearly US$3bn cash call for just half of the outstanding. Liability management on CBs was a common theme of the capital markets in 2015, though none dealt with the problem as elegantly as Anthem. The solution for Anthem, rated Baa2/A–, was a US$1.25bn mandatory convertible that allowed it to raise a significant amount of capital through a security that provided both partial equity credit and tax efficiencies and to negotiate a price to purchase half of the outstanding bonds. Key to success was to maintain tension on both the price paid for the 2042s and terms on the new MCB. Initially a 1–1.25 point premium was offered on the existing bonds, before pricing the purchase of US$700.5m principal at 0.875 points above parity. Management was still concerned about dilution, despite how far the stock had already risen. To achieve a higher upper conversion threshold of 30%, Anthem agreed to compensate investors for up to a 10% drop in its share price. “We were bullish on where we thought our stock price would be three years out,” said Yarling. Anthem reached agreement in July to acquire rival Cigna for US$54.2bn, including assumed debt. Credit Suisse, which was joined by Bank of America Merrill Lynch as a bookrunner, set the coupon at 5.75%, a 415bp pick-up to the yield on the underlying at the time. The banks increased the base deal from US$900m at launch to US$1.175bn, and subsequently exercised their US$75m overallotment option. 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@tr.com .

The share price had performed well when discussions first began with Deutsche Bank in March, with the Mexican company – known as AMX – sitting on a pretty profit. But major shareholder and chairman Carlos Slim knew that having such a large exposure to the performance of an independent entity was less than ideal. The expertise and experience of management – Carlos Garcia Moreno Elizondo has been CFO for 14 years and is a former banker – meant there was little need to pitch the logic of an exchangeable bond, but every structural tweak was explored in depth. “There was a list of objectives,” said Gavin Deane, global co-head of TMT at Deutsche Bank. “AMX wanted to retain voting rights, board seats, dividends and any action to be cash-settled, to show they remain supportive of KPN.” Timing was critical to gain maximum value. The European telecoms sector was abuzz with M&A activity and rumour, and KPN was seen to have several admirers. There was also the potential for a special dividend or buyback as a result of KPN’s sale of E-Plus completed in October 2014. AMX is the best-rated telecoms firm in the world and the deal was certain to comprise a large component of bond indices. While investment-grade bonds are always in hot demand from EMEA equity-linked investors, the depth of demand was unknown as few deals had topped €1bn. Bankers were also concerned that some investors might have limits on how much Mexican exposure they could hold – Deutsche Bank certainly did. The deal was launched at a cautious €2.25bn through Deutsche (global coordinator) and Barclays as joint bookrunners and soon upsized to €3bn. A huge proportion of demand was nonetheless unsated, with a 2.5 times covered book. It was the largest ever exchangeable by a corporate. The five-year bonds pay no coupon – and miss out on the dividend – while the premium was struck at 45% on top of a share price already up over 30% for the year. Arguably, some subsequent deals were priced more aggressively, but they were not even comparable in terms of size. There is no clearer sign of customer satisfaction than a return visit – the lifeblood of equity-linked is repeat issuers – but with so much paper issued at once it seemed that it would be some time before AMX could do more of the same. Yet just four months later it was back – with Deutsche working alone this time – with a mandatory structure on €750m of three-year paper. Again, the issuer was quids in by passing on only 85% of KPN dividends and the bonds are cash-settled. Carlos (both of them) defined the year. AMX bonds represent over 20% of the equity-linked bonds sold into Europe, yet through clever structuring and sensible timing any hint of oversupply was avoided. * Carlos Slim’s role corrected in second paragraph. 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@tr.com .

The structured equity market flattered to deceive in 2015 with a clutch of genuinely interesting deals and remarkable valuations – but far too little fruit to be a quality vintage. It wasn’t a disastrous year: dollar issuance of US$88.1bn was down 20% on the previous year, but still up versus 2012. However, the 276 deals priced is the lowest annual total since 2008 (when the preponderance of jumbos ensured volume was a lofty US$132.5bn). While many equity-linked bankers have been left deflated by overall issuance, there have been some stand-out deals establishing new structures and pushing terms achievable for issuers to new levels. Nonetheless, the fall in the number of deals means most banks have failed to establish a strong presence across markets. JP Morgan is the exception. The US bank is a long-established leader in the asset class, having been a stalwart of the top three globally for the past decade. In the past three years, it has moved up from third, through second, to first in 2015. More importantly, however, JP Morgan is the only bank that is strong in every region, ranking first in the US, second in EMEA and third in the barely active Asia-Pacific market. Key to success in the year was blending the easy trades, such as vanilla bonds to finance buybacks or mandatory bonds, with the more challenging – such as the remarkable 70% premium achieved on Telecom Italia’s convertible. In its home market JP Morgan was miles ahead of its peers. The bank priced 44 issues, when only two other banks broke into the thirties. Its market share of 11.3% trounced the competition, with the second-placed bank claiming a share of 8.8%. It was in the US that the bank led the centrepiece of its 2015 collection – the US$5.06bn mandatory convertible from Actavis that was part of a near-US$30bn fundraising through bonds and equity for the purchase of Botox-maker Allergan. Notably the US$9.24bn equity and mandatory components came first, with the US$21bn debt deal being priced the following week. JP Morgan was lead-left for what is the largest dual-tranche follow-on offering and acquisition-related equity raise outside the financials sector. Quality Size was no hindrance to quality and having launched with equally sized tranches the equity portion was scaled back in order to pump up proceeds from the mandatory. The upsize was to capitalise on appetite that allowed for pricing at a coupon of 5.5%, better than the 5.75%–6.25% guidance, while still having a book three times covered. Another gem among JP Morgan’s roster is Fiat Chrysler, a transaction that required the expertise of both its US and European operations. Again it was a combo trade with the mandatory portion larger than the stock sale. The carmaker raised US$2.875bn through the issue of unusually short dated two-year convertibles. Fiat Chrysler wanted to expand US representation on its shareholder register and so the bond was SEC registered. Yet it is the convertible bond for Telecom Italia, done in conjunction with BNP Paribas, that stands out most among the deals won by the European team. The €2bn CB was immediately significant as it was launched in late March with a fixed 70% premium. Adding to the challenge, issuance for the year to-date had only just topped €1bn, there had been no pre-sounding of the deal and it was launched on a Thursday evening in the midst of the Greek crisis. Plus, there had been no issuance for nearly a month. The lack of pre-sounding was very deliberate. “It gives investors a chance to say ‘no’,” said one banker involved. The premium was less scary upon closer inspection as the bonds included full adjustment for dividends over the seven-year life. Some bonds that followed achieved even more extraordinary terms, such as the 62.5% premium on Airbus CBs with adjustment only on an increase in dividends, but bankers agreed that what followed could only have happened thanks to Telecom Italia. The 70% figure was enough to get treasurers and CFOs across Europe reco

The combined offering by parent Japan Post Holding and two of its subsidiaries, Japan Post Bank and Japan Post Insurance – the unattractive postal service is JPH’s other subsidiary company and not up for sale – was the largest government sale since the ¥1.59trn follow-on in Nippon Telegraph & Telephone in 1999 (known as NTT 5). JPH alone is enough to be the largest IPO globally in 2015. All three IPOs were priced at the top end of their respective ranges, and all performed strongly in the aftermarket for the days following the listings. The size and significance of the deal made success all the more important for those involved – something that was far from assured earlier in the year when markets were going through a tumultuous summer. “After we launched, failure was not an option – but we were confident we could do it,” said a banker involved in the deal. “The headwinds were pretty strong in August. There was a lot of uncertainty even as we were pre-marketing and we were very careful to listen to what the investors had to say.” Leads said the institutional portions of the deals were covered after two days, but with three-quarters of the offerings earmarked for retail there was still a long way to go. The attractive dividend yields for the floats, from 2.6% to 3.6%, together with the improved market sentiment during bookbuilding, were key to bringing investors into the deals. On the three IPOs, 80% of the shares were sold to domestic investors, of which 95% went to retail. Retail demand was two to three times the offered shares, despite accounting for such a huge proportion of the deals. On the flip-side, the small allocation for internationals meant their tranches were up to 30 times subscribed. Japan Post raised ¥693bn, Japan Post Bank ¥597bn, while Japan Post Insurance raised just over ¥145bn. The listings were the first tranche of a three-part sale aiming to raise around ¥4trn over the coming four to six years to fund reconstruction of areas devastated by the 2011 earthquake and tsunami. On November 4, shares of Japan Post were up 25.7% on their trading debut. Those of Japan Post Bank rose 15.2%. Japan Post Insurance, by far the smallest of the trio, showed the biggest gain as its shares shot up 56%. The insurer has largely been treading water since, while JPH and JPB are steadily catching up. Nomura, Goldman Sachs, JP Morgan and Mitsubishi UFJ Morgan Stanley were the joint global coordinators on the IPOs. 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@tr.com .

Morgan Stanley picked its battles in an extremely competitive market and was consistently first to take advantage of short windows in a volatile year, especially for Chinese equity offerings. The US bank handled key deals either side of the A-share market collapse in the summer and focused its energy on situations where it could play a leading role in execution. It dodged most of the bunfights among 20-strong IPO syndicates and instead chalked up jumbo – and lucrative – deals as sole arranger or one of only two or three sponsors. “In a year of two halves marked by consistent volatility, we are proud of our execution success, which was based on our accurate market judgements,” said Jerome Leleu, co-head of Asia-Pacific ECM with Mille Cheng. “This included reopening the Hong Kong IPO market in September’s challenging backdrop. Being nimble allowed us to deliver an outstanding year in ever-changing conditions,” he said. The first eight months of the review period, from November to June, was a golden period. The soaring A-share markets boosted investment sentiment, setting the stage for many giant equity offerings from China, which was again the busiest market in Asia. During those eight months, Morgan Stanley led most of the jumbo Chinese IPOs, including the HK$31bn (US$4bn) float of Dalian Wanda Commercial Properties, the HK$25bn offering of CGN Power, the HK$38.7bn IPO of Huatai Securities and the HK$32bn float of GF Securities. Sentiment in China’s stock market reversed in mid-June. By mid-July, the Shanghai stock market had already fallen more than 30% from the seven-year high in June. Despite this challenging backdrop, Morgan Stanley, as one of the sponsors, successfully completed the HK$11.28bn IPO of China Railway Signal & Communication Corp in July, thanks to the support of cornerstone investors that took up almost 70% of the deal. In September, the bank broke a two-month lull in Hong Kong IPOs with the HK$2.2bn listing of IMAX China and HK$1.9bn float of lingerie manufacturer Regina Miracle. Both were the subject of extensive pre-marketing, and reasonable valuations at launch helped build momentum, with both then priced at a premium to their closest peers. The HK$8.87bn listing of Dali Foods Group was the first sizeable Hong Kong IPO to be done without a disproportionately big cornerstone tranche after the equity rout in China. Instead of hiring an army of bankers, Dali picked only Morgan Stanley and Bank of America Merrill Lynch to run the transaction. On another occasion Morgan Stanley snatched a HK$36.83bn private H-share placement for Ping An Insurance from two of its biggest rivals. The win hinged on Morgan Stanley bringing in Alibaba chairman Jack Ma and Tencent chairman Pony Ma among the 10 investors. The Alibaba relationship also won Morgan Stanley a HK$12bn private placement of Alibaba Pictures Group, the film and entertainment unit of the Chinese ecommerce giant, in June, though the deal did come with a hefty 20% discount. The bank’s geographic spread was impressive and involved the prized mandate of the year – Japan Post, where it was a joint global coordinator. The three-leg mammoth ¥1.4trn (US$11.8bn) IPO of Japan Post Group was the largest Japanese government sale since 1999 and an important success. Morgan Stanley also caught the eye for completing two block trades in Japan, when normally sellers prefer to offload shares directly in the liquid secondary market. In May, US-based Cerberus Private Equity, with Morgan Stanley as sole bookrunner, raised ¥103bn through the sale of part of its stake in Japanese hotel and railway operator Seibu Holding in the largest overnight block in Japan in almost a decade. In October the seller was back, again with Morgan Stanley. The US bank racked up a series of notable deals across the region with the Rs30bn (US$462m) Interglobe Aviation float, the largest Indian IPO of the year, and IndusInd, at Rs43bn the largest qualified institutional placement for the year. Despit

Big rarely leaves room for interesting and, with a capital injection of €7.5bn required, the conventional wisdom for a European bank would have been to plump for a rights issue. However, Santander’s chairman Ana Botin had shown she would take difficult decisions since taking charge in September 2014, including replacing the CEO appointed by her predecessor – her father – with the CFO. With the ECB looking at corporate governance and long-standing concerns about capitalisation, Botin opted to draw a line under the past and launch the largest-ever accelerated bookbuilding ever executed in Europe. Goldman Sachs was drafted in over the Christmas period – leading to the inevitable conference calls while riding the ski lift – and was convinced an early January trade could work. It even offered to underwrite the whole deal. In the end, underwriting was split with joint bookrunner UBS, with the US bank taking on two-thirds of the risk. The combined cheque was the largest underwriting ever on an overnight trade. Wall-crossing to a group of investors on the evening of Tuesday January 6 – only the third trading day of the year – provided momentum for a prompt launch at the Madrid close on the Thursday. Despite the enormous quantum being raised, books were covered in an hour. “To do this you need €15bn of demand, so you need people to be in for €1bn orders each – and they were,” said co-head of EMEA ECM Christoph Stanger. Sovereign wealth funds were among those putting in large tickets, which included many US$250m orders. Launching at the start of January was bold, but well considered. “Investors hadn’t spent any money at that point, they were still risk-on, happy and positive,” said Sam Kendall, global head of ECM at UBS. Closing just four hours after launch, the deal was priced at a 6.9% discount to the previous day’s close and a 9.9% discount to the last trade on January 8 before the stock was suspended ahead of the deal launch. The discount was chunky for a trade representing about 10 days’ trading and nearly three-quarters of the stock went to hedge funds. Yet the ABB route was far less disruptive than a drawn-out and heavily discounted rights issue that would have taken months to complete. “Santander needed to move on,” said Richard Cormack, co-head of ECM at Goldman Sachs. “Rival treasurers were jealous as it was early January and already ‘job done’.” Rival bankers were devastated. Some had missed the opportunity in succession, with their ties to Emilio Botin counting for nothing. Others simply saw their league table ambitions for the year evaporate, crushed in the first week of January. 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@tr.com .

For once, 2015 represented a level playing field in EMEA equity capital markets. M&A activity was sufficient that being on the wrong side of one situation didn’t ruin your year. At the same time, the IPO market was extremely active, and auctioned blocks barely featured in the top deals. The mega bank recaps of previous years, which often skewed the league tables in favour of those with large balance sheets, were also noticeably less important. So it was a year when advice really came to the fore, and choppy markets meant the quality – or otherwise – of that advice quickly became clear. On just about every quality metric, Morgan Stanley excelled. The bank’s focus on IPOs and mandated business saw it increase its deal total, market share and bookrunner league table credit year-on-year. The bank also had the most global coordinator roles on the top 25 cash equity deals – tied on 10 with Goldman Sachs. But were those deals better executed than those led by other banks? The numbers suggest an emphatic yes. Looking at IPOs by global coordinator, Morgan Stanley priced a higher proportion of its deals at or above the mid-point of guidance. Four out of 14 IPOs were priced at the top or above, and just one below the range. Pricing above the top of the range is extremely rare in Europe, yet Morgan Stanley did it twice – on Aena and NNIT – while Worldpay was significantly upsized. The bank also showed excellent judgement. When Covestro – a spin-off from Bayer – was struggling, it dropped the price range and cut the €2.5bn primary proceeds target to €1.5bn. The IPO could easily have been pulled, but it wasn’t. “We had to perform open heart surgery to make it work,” said Henrik Gobel, co-head of global capital markets for EMEA at Morgan Stanley. IPOs brought to market by the US bank traded better on their first day than those of rivals with a mean gain of 9.2%. Just one of 14 traded down – a hit rate rivals could not match. After a month, investors were sitting on a mean gain of 14.4%. The rocketing stock price of Spanish airports operator Aena was a big component of this average gain, but again, just one deal was below water – compared with 30%–40% at rivals. Critical to any deal is making sense of the orders that come in to the book and what investors really mean – and adjusting terms if necessary. Morgan Stanley showed its experience on that count again. “We have been at the forefront of changing the IPO process,” said head of syndicate, Martin Thorneycroft. “An IPO is a price discovery exercise, but before, one went out with price and size and woe betide if you got it wrong.” The upward revision on NNIT was all the more impressive as it was the first Danish IPO since a deal from OW Bunker. Not only had OW Bunker collapsed amid fraud and massive losses within eight months of its IPO, but that deal was led by Morgan Stanley, which many said would not be able to lead a Danish float again. The bank also deserves plaudits for what it didn’t do, such as the €3bn BMPS rights issue. It was a willing bookrunner on 2014’s €5bn fundraising, but when asked to underwrite again four months later it declined as the risks were too high. Morgan Stanley and JP Morgan were the only institutions to do so. Meanwhile, the bank was busy on the structured side with a lead role on the £250m hybrid convertible issued by Sainsbury’s concurrent to a £250m straight hybrid in late July and also on a rare pre-IPO bond for Aroundtown that looks set to be followed by a public offer and finally seemed to match the structure with an appropriate issuer, a real estate investor. Santander’s €7.5bn ABB was the biggest ECM deal of the year in EMEA, but Morgan Stanley’s dribble-out of Lloyds shares on behalf of the UK government has been transformational. Since December 2014, the US bank has sold around 13% of Lloyds and delivered the state a £1.2bn profit. The government was so pleased with the six-month programme that it was extended to a full year. To see the digital ve

The stock sale offered investors a rare opportunity to gain exposure to a Mexican industrial, and one that has a leading market share in lightweight auto components. “There had been a glut of real estate issues and this was the first time that a large industrial was coming to market – and a company that could say they are a global leader,” said Ian Taylor, who at the time was head of Latin America ECM, ex-Brazil, at Goldman Sachs, which led the deal with Deutsche Bank and JP Morgan. The sale was made up of all new shares but, other than US$150m earmarked for growth plans, the proceeds were handed to existing shareholders Ford and conglomerate Alfa. The flotation is the third-largest ever Mexican IPO, behind only the US$4.1bn issue by Santander Mexico in 2012 and miner Fresnillo’s US$1.77bn offering in 2008. Already facing strong headwinds in June when investors were turning their backs on emerging markets, the issuer also had to contend with heightened concerns over the Greek debt crisis. Four days before the deal was scheduled to be priced, the Greek prime minister surprised the market by calling a referendum on its bailout. The risk-off mood cast a pall over the market, sending the VIX up 35% and stocks of Nemak’s peers down by up to 6% the day before pricing on June 30. “There was a lot of uncertainty in the market, but it didn’t have a big effect on orders,” said Alberto Sada, Nemak’s CFO. “Oversubsription was very healthy and that gave me the green light.” And while the deal ultimately was priced at the bottom end of the Ps20–Ps23 range, the final valuation represented the highest forward EV/Ebitda multiple ever achieved in an auto sector IPO. “Volatile market conditions meant new issues were very difficult for many companies,” said Taylor. “That is why it was pretty remarkable for a Mexico-headquartered auto supplier to achieve a valuation more than two times over [peers] and it was able to do that just a few days after Greece [announced the referendum].” Leads positioned the deal as a growth story, taking advantage of the shift to lighter aluminium components as the auto industry seeks to comply with ever more stringent environmental regulations. “Being a public company is a big step,” said Sada. “It diversifies our sources of funding and gives us the ability to tap this market for potential sources of cash and for future growth prospects.” 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@tr.com .