2007: Turbulence ahead

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

Trouble brewing in the US subprime mortgage market proved to be of little consequence in Asia, where analysts were more focused on booming Chinese stocks. Shanghai soared 240% in the 12 months to October 2007, taking Hong Kong with it into bubble territory and unleashing a wave of A-share listings as overseas Chinese companies raced back home.

While the global debt markets were beginning to show signs of stress, Asia’s banks were still looking for the next big leveraged buyout, piling money into deals for the likes of Yellow Pages New Zealand and Malaysia’s Maxis Communications.

IFR Asia 500 – May 5, 2007

Krishnan plans M$16bn Maxis buyout

In the same week that the MMC-Malakoff LBO deal was completed, Malaysia’s second-richest man Ananda Krishnan announced plans to take private the company he founded, Maxis Communications in a M$16bn (US$4.7bn) transaction that will be the biggest leveraged finance deal in Asia ex-Japan and Australia.

Maxis’ shares were suspended on April 30 following notification that Usaha Tegas, a company wholly owned by Krishnan through a special purpose vehicle called Binariang GSM, intends to launch a voluntary general offer for the 40.5% of Maxis that it doesn’t already own.

Binariang is offering M$15.60 per Maxis share, a 20% premium over the last traded price of M$13 a share on April 28, the stock’s last trading day before it was suspended. That offer values Maxis at M$39bn.

Binariang has mandated ABN AMRO to arrange the financing and the bank has already underwritten a bridge financing for as much as US$7bn. That figure will cover the acquisition itself plus existing debt and future capex needs. ABN and CIMB Investment are advising Binariang and the latter is very likely to have a major role on the financing. RHB Investment is the financial adviser to Maxis.

Banks are already clamouring to get in on the bridge loan, according to those involved, and it is likely to be syndicated.

CIMB has just demonstrated its LBO credentials via the MMC-Malakoff trade, while ABN AMRO is also a strong leveraged finance house and has a strong relationship with Krishnan. The Dutch bank has arranged several transactions for Maxis, including its US$890m IPO in 2002.

Like with the MMC-Malakoff deal, the takeout is likely to come via the bond markets, with as much as possible to be denominated in ringgit. The bonds are expected to be both Islamic and conventional.

The debt will result in Maxis’ Ebitda being leveraged by about 4.16 times, which according to a banker involved is far from aggressive. “We are talking about a telecommunication company that’s generating more than US$1bn a year,” the banker said.

However, including existing debt and planned capex, the leverage ratio is actually likely to be between five and six times.

IFR Asia 527 – November 10, 2007

Flying high

The A-shares of PetroChina made a strong debut on November 5, soaring 163% above the IPO price. The oil giant raised Rmb66.8bn (US$8.92bn) via CICC, Citic Securities and UBS Securities.

Alibaba.com also soared 192.5% above its IPO price on its first trading day on November 6, making it the largest first-day gain IPO in Hong Kong so far this year. The company raised HK$11.5bn through Deutsche Bank, Goldman Sachs and Morgan Stanley.

IFR Asia 501 – May 12, 2007

Bankers bemoan wasted Qantas effort

Anger and disbelief are the uppermost emotions going through the minds of the bankers involved in Airline Partners Australia’s failed A$11bn (US$9.15bn) bid for Qantas Airways.

Anger that more than six months of hard work had suddenly gone up in smoke without a cent to show for it; and disbelief that the unthinkable had happened because of a miscalculation by investors “trying to be clever”.

Despite several days of uncertainty, APA and its bankers (Calyon, Citigroup, Deutsche Bank, Goldman Sachs JB Were, Morgan Stanley and RBS) finally had to acknowledge that the bid for Qantas had – despite all predictions – failed to secure the 50% control of shares that was necessary to ensure the offer proceed to the next stage.

“What a cock-up,” said one banker who had worked on the deal since December. “We worked our tails off for the past six months and [the deal collapsed] just because some fund manager thought he was smarter than everyone else.”

The angry banker was referring to American billionaire and hedge fund manager Samuel Heyman who reports have fingered as the main culprit for the deal not going through. Bankers accused hedge funds managers such as Heyman of deliberately prolonging the bid – and the uncertainty of success – in a bid to maximise profits from trading shares and other instruments such as credit default swaps.

Heyman had allegedly miscalculated when he thought that APA would clear the 50% share control hurdle on the May 4, 7pm AEST offer deadline without help from a 10% stake in Qantas shares that he controlled. Despite a prior agreement with two other hedge funds to push the deal just over the line, Heyman is believed by many to have held back his own stake so that he would have more Qantas shares to trade once the bid had been extended.

“I should be sitting on a beach somewhere right now,” said the banker. Instead, he was fuming in his Sydney office.

Banks had bent over backwards to accommodate the demanding requirements of the APA bid and to win a role in Australian corporate history.

The amount of senior debt involved, some US$7.866bn and €375m (US$312m), plus a US$750m revolving-credit facility, made the deal one of the largest financings ever in Australia.

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