2013: Taming the taper tantrum

IFR Asia - 20th Anniversary Special Issue 2017
10 min read

The very suggestion that the US might scale back its monetary stimulus sent several Asian currencies into a nosedive over the summer of 2013, adding to a bleak picture in a market already worried about cooler Chinese growth.

Despite the headwinds, financing markets continued to innovate. India’s government listed its first exchange traded fund, CNOOC priced China’s first big euro bond, and Asia’s first Green bond arrived from South Korea’s export-import bank. The trend of Chinese companies delisting from the US also reached new heights, and major IPOs in the Philippines and Thailand kept bankers busy across the region.

IFR Asia 784 – February 23, 2013

Kexim rewarded for going green

The Export-Import Bank of Korea last Wednesday priced its first ‘green bond’, raising funds dedicated to supporting climate-related initiatives.

The US$500m five-year SEC-registered deal raises hopes among bankers and investors that Asia will become a rich source of socially responsible investment (SRI).

By demonstrating that SRI investors are willing to look beyond the traditional issuers of green instruments, Kexim’s debut also paves the way for other companies in Asia Pacific to sell green financings of their own.

While Kexim does not have a global mandate for the promotion of green projects, it is supporting 19 ongoing green projects across eight countries. The Korean bank presented a less straightforward credit proposition than a development bank, but investors put in the credit work and around 70% of the paper was placed with dedicated green funds.

“The Kexim Green Bond is a good fit for us because it supports global climate-related initiatives, adds portfolio diversification and has the potential for long-term performance,” said Stephen Liberatore, a portfolio manager at TIAA-CREF. “A robust market of socially responsible investments helps us meet the needs of more and more investors looking to align investments with principles.”

The SRI-dedicated funds of Pimco and BlackRock also featured in the order book, while the number of SRI-focused funds in Scandinavia explains the presence of Sweden’s SEB Enskilda Bank on the trade as joint bookrunner alongside Bank of America Merrill Lynch, to help structure the trade in compliance with international green standards.

Taking the green route allowed Kexim to save around 5bp in funding cost versus what it would have paid by taking the conventional route. The leads referenced the Kexim January 2017s which were trading a G-spread of 104bp prior to the announcement so at the final Treasuries plus 95bp pricing, Kexim can plausibly claim to have priced through its implied curve.

IFR Asia 790 – April 6, 2013

Action stations

The record listing of the Bangkok SkyTrain infrastructure trust has underlined Thailand’s potential to become one of the region’s most active equity capital markets.

An increase in IPOs from infrastructure and property funds is expected to spice up Thailand’s equity capital markets as major companies expand their businesses and investors prefer yield instruments.

“There was pent-up supply in the market after the 2011 floods reduced capital market activity. Companies are now looking to implement their expansion plans,” said Vorada Thangsurbkul, executive vice president and head of investment banking at Siam Commercial Bank.

Investor demand for yield instruments has encouraged telecom, transportation and power companies to consider infrastructure fund IPOs, and real estate companies to launch property funds.

“Many South-East Asian countries want to emulate the success of Singapore in deepening its stock market with the listings of business trust and real estate investment trusts,” a source said.

In March, BTSGIF’s 3.86bn-share IPO raised Bt41.7bn, excluding the sponsor tranche, after pricing at Bt10.80 per unit. The final price implied a yield of 5.8%.

International demand for the offer, the largest Thai IPO ever, was strong with 19 cornerstone investors buying 2.33bn units. The cornerstone investors included Capital Research, AIA Group, JF Asset Management and Morgan Stanley Investment. Morgan Stanley, Phatra Securities and UBS were the bankers for the IPO.

Bankers are confident that the northward move in interest rates will not derail the IPO pipeline. Telecom operator True Corp is planning an up to US$1bn IPO in late 2013 or early 2014. It has mandated Credit Suisse and UBS as the bankers. Power developers Amata B Grimm and SPCG are also planning infrastructure fund IPOs of up to Bt6bn and Bt5bn, respectively. Another property fund, Sri Panwa Freehold Property Fund, plans to sell 200m units at Bt10 each, amounting to Bt2bn at a 7% yield. Subscription is likely to open in the first week of July. Siam Commercial Bank is the sole bookrunner on these property fund IPOs.

IFR Asia 791 – April 13, 2013

Jonathan Rogers: Time for 1MDB to come out in the open

So our old friends from Malaysia’s 1MDB are back again, or should I say were back again, since the US$3bn 10-year private placement arranged for the government investment vehicle by Goldman Sachs was closed in conspicuous silence some weeks ago – on March 29 to be precise.

There is an obvious point to be made about the 1MDB private placement, the size of which equates to last week’s US$3bn two-tranche transaction for the Republic of Indonesia, which was the largest G3 public offshore market deal so far this year. Why wasn’t the transaction launched, marketed and distributed like any conventional bond transaction rather than placed privately?

Not only does canvassing a broad base of investors enable syndicate bankers to discover the optimum price point at which a deal can be successfully placed, but the secondary trading of a well-placed bond will tend in most cases to lower an issuer’s implied cost of term funding. It also opens up a broad investor base which can be called upon in the future to provide funds and secondary market liquidity.

And the bookbuilding process can often uncover hitherto unimagined demand for an issuer’s paper which in turn allows leads to drastically tighten pricing. Not so with a private placement, where demand is uncovered bilaterally or with a handful of investors. And when private placement paper finds its way into the secondary market, it inevitably does so via the brokers. It’s not uncommon to see paper crossed for obscenely large skims between a less than clued-up seller and an even less savvy buyer.

Malaysia’s opposition has thrown serious brickbats at 1MDB, with Anwar Ibrahim questioning the company’s deals with PetroSaudi and its relationship with Najib. He also called for a special audit of the company.

That background noise didn’t stop S&P from last Friday rating the new 1MDB private placement A–, on a par with Malaysia’s sovereign rating, and stating this was based on “the strength of documentation supporting the transaction and the country’s willingness to support the payment obligations of 1MDB under the notes”.

That’s all well and good, but 1MDB has yet to release to the public its annual accounts. Perhaps that would be a good idea and would soften the noise surrounding the company. One thing’s for sure: more private placements like the one on March 29 won’t silence its critics.

IFR Asia 819 – October 26, 2013

Focus Media completes fastest recap

Focus Media Holding, the Chinese advertising group accused of fraud by short-seller Muddy Waters in 2011, is making it a habit of resetting standards in Asian loan markets. Last week, it closed a US$500m dividend recapitalisation and amendment exercise after a blowout response from lenders.

The dividend recap and amendment exercise was completed inside one month — supersonic speed in loan market terms. It also marked the fastest leveraged recap exercise of an Asian company, coming just six months after the company went private.

Focus Media made a mark in the loan markets in March, when it closed a US$1.525bn leveraged buyout financing to back the US$3.7bn delisting of the company’s US-listed stock – the largest such exercises involving a PRC company.

The reception from lenders on its latest visit proves that the success achieved on the original LBO loan was no flash in the pan, though it may also point to a lack of dealflow for lenders in Asian leveraged finance.

China Minsheng stepped up to provide US$575m on the new term loan, as well as a new US$300m standby letter of credit to Focus Media to lift its total exposure to US$875m from US$175m on the original LBO financing.

The seemingly seamless execution belies the challenges the exercise faced.

“How does one seek approval when the new deal is a dividend recap and the margin is 25bp lower than the previous financing?” asked one loans banker, pointing to the mindset among Asian commercial banks, which typically do not view dividend recaps favourably.

No doubt from a return perspective the recap was neutral to existing lenders, despite the 25bp cut in the margin, given that the 75bp in upfront fees compensated for the reduced margin income.

Among the other swing factors for lenders were the improved financials – Ebitda has risen to over US$450m compared with US$425m when the original LBO loan was stitched – and the fact that sponsors of the ilk of Carlyle Group are now in control of the company.

One of the other differences between the original LBO loan and the recap is the change in market conditions. Liquidity in Asian loan markets has improved tremendously, compared with a year back, when the original LBO deal first emerged in mid-2012.

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