GlobalCapital Asia capital markets awards 2019: Bonds

Bookrunners: Bank of China, Barclays, Crédit Agricole, Goldman Sachs and TD Securities

Co-managers: BNP Paribas, Bank of America, Citi, Deutsche Bank, HSBC, Industrial and Commercial Bank of China, JP Morgan, Morgan Stanley, NatWest Markets, Nomura, RBC Capital Markets and Standard Chartered

The Asian Infrastructure Investment Bank’s debut bond in May was two years in the making, but the issuer proved that it was a transaction well worth the wait.

AIIB, set up with a mission to fill some of the gaps around financing infrastructure in Asia, first won a clean sweep of triple-A credit ratings from all three major international agencies in July 2017. Besides scoring top-notch ratings, AIIB also went about acquiring talent to its treasury team, setting the stage for its inaugural bond issuance.

It was a long slog, to say the least. While AIIB met with around 250 investors in October 2017, preparing the documentations for a global offering from scratch took longer than expected. Although it had to delay the transaction from the first half of 2018, AIIB made sure it stayed relevant and its outing was well flagged.

The much-anticipated trade finally hit the market in May, just a little over two years after the supranational opened for business.

But AIIB’s patience paid off. Despite being a newcomer in a world of well-established SSA issuers, AIIB landed $2.5bn through a textbook execution, pulling $4.4bn of orders from 90 investors across 27 countries globally.

AIIB made its mark, pricing the five year deal at an aggressive spread of mid-swaps plus 6bp, the same level as European Investment Bank’s $3bn five year which was printed just a day before AIIB, and also in line with the fair value for a new five year benchmark from the Asian Development Bank and the World Bank. AIIB’s bonds have since traded in line with its peers.

The spread over US Treasuries — 9.65bp — was also the tightest at the time for an SSA issuer. In addition, the China-led AIIB also achieved a book of comparable quality with that of other SSAs.

AIIB’s outing was unprecedented in many ways. It highlighted the pricing power of Asia, as strong interest from its home base provided some early bookbuilding momentum, despite AIIB launching its deal with just one Chinese bank in the bookrunner group.

It was more than just an Asian story though, as the Beijing-based supranational allocated over half of the bonds to Europe, the Middle East and Africa, as well as the US. For its landmark issuance, AIIB wins plaudits.

Global co-ordinators and bookrunners: Citi and Morgan Stanley 

Lead Managers: Credit Suisse and HSBC

For years, the bank capital story in Asia focused on developed economies such as Hong Kong, Singapore and South Korea. Chinese lenders came out in force and dominated the bond market in 2017 and much of 2018. But the rest of Asia offered little.

The landscape is slowly changing. This year, lenders from the region’s true emerging markets stepped up their game in developing an offshore investor base to support their capital needs.

Among those issuers was Bangkok Bank, which reopened the Thai offshore bank capital market for the first time since Krung Thai Bank’s $700m tier two issuance in 2014, according to Dealogic.

The deal ticks a number of boxes. First was the wider market impact of the transaction. While Bangkok Bank had to educate investors about Thai Basel III-compliant deals, its work paved the way for its peers to follow suit. For instance, investors’ strong response to Bangkok Bank gave Kasikornbank the confidence to tap the bank capital market. Later in the year, TMB Bank also came out with an additional tier one deal.

The market impact aside, the Bangkok Bank deal itself was a huge success. For starters, it came with a rare 15 non-call 10 year structure for a Basel III tier two in Asia Pacific. This tenor had only been used by Australian lenders previously. But after Bangkok Bank tested it out, it encouraged others to use longer-dated transactions rather than the more common 10 non-call five structure for Asia.

While pioneering a new structure for the rest of Asia, Bangkok Bank was able to price the Baa3/BBB rated subordinated deal 3bp-5bp inside Australian comparables despite the latter’s higher ratings. It was also in line with — if not tighter than — its single-A rated Hong Kong peers after adjusting for duration.

More importantly, the tight pricing of 190bp over US Treasuries did not come at the expense of the deal size. The issuer managed to increase its offering to $1.2bn from the planned $1bn, having seen a granular book from 190 accounts.

Having gone the extra mile to do a 144A/Reg S deal instead of opting for the typical Reg S-only structure like many Asian borrowers, Bangkok Bank saw US investors taking more than a third of the bonds.

As the region’s bond investors look to diversify away from China, and the rest of Asia matures and becomes more sophisticated, Thai banks — and their peers in southeast Asia — will likely have a lot to offer. Bangkok Bank has shown what is achievable. 

Global co-ordinators: Barclays, Citi, Credit Suisse, Deutsche Bank, JP Morgan, MUFG and Standard Chartered

The October 2019 deal, issued by three of Adani Green’s subsidiaries, was a rare long-tenor amortising bond from an Indian issuer. It came in the form of a 20 year partially amortising structure with a 24% balloon payment at maturity, giving it a weighted average life of 13.47 years.

Rated Baa3/BBB-/BBB-, the deal was also the first investment grade-rated dollar bond from the Indian renewable energy sector.

It was no small achievement for Adani Green to get a triple-B rating from all the major international agencies, given that just four months earlier, it had sold a bond through three different subsidiaries that was rated —/BB+/BB+. 

A lot of work had gone into structuring the deal and educating investors before the senior secured transaction officially launched.

Unlike most other Indian issuance by restricted groups that are merely lenders to the operating entities, the co-issuers of the Adani Green transaction directly operate the solar assets, which have a combined capacity of 570megawatt. This is under a 25-year fixed-price power purchase agreements with government off-takers including Solar Energy Corp of India.

In addition, the offering was backed by project finance-style features, including a cash flow waterfall and a robust security and collateral package, as well as unique yet strong covenants that restrict the distribution to equity.

The security package included assets of the restricted subsidiaries, a first-priority pledge of their shares, and an assignment of key project documents.

The covenants require the restricted group, among other things, to maintain at least 65% of Ebitda from sovereign-backed off-takers, a project life coverage ratio of 1.6 times, and a funds-from-operations to debt ratio of 6% for distributions to equity. The distribution payments are also linked to the operating performance, measured by the debt service coverage ratio (DSCR).

Thanks to the structural features that increase the cash flow visibility, Moody’s expects the restricted group’s average DSCR to be around 1.4 times to 1.5 times, while Fitch expects 1.45 times. S&P Global Ratings has projected a minimum DSCR of at least 1.34 times. All these are above their thresholds of an investment grade rating for a transaction of this kind.

The complicated structure aside, the lead banks also faced other challenges, including finding fair value for an Indian investment grade renewable bond, as using Adani Green’s existing high yield notes would have led to wide pricing.

Instead, the leads turned to better-rated Adani entities such as Adani Ports and Special Economic Zone, utility firms like NTPC and other project bonds from Asia.

Having started bookbuilding from the 5% area, the leads managed to price the $362.5m 144A/Reg S transaction at par to yield 4.625%, giving it the lowest coupon for a project bond in Asia for a decade.

Adani Green’s transaction ticked all the boxes for a landmark deal. What is also promising is that it further opened up the project finance market in the region, giving confidence that there is a receptive capital market with liquidity for project financing in Asia. This makes the deal the Best Investment Grade Corporate Bond, the Best Structured Finance transaction and the Best Bond of the year.

Adviser: Twin Pine

Arranger: Bangkok Bank

Yoma Strategic's $70m-equivalent bond sale did not stand out because of its size or the breadth of its order book. But the deal was exemplary for its ability to open a new market, cracking through the walls that have kept Myanmar's growing corporations restricted to their home base.

The January 2019 deal, which was some eight months in the making, marked the first time a Myanmar company sold an international bond. While the company ultimately swapped its baht earnings to dollars, Yoma Strategic took the prudent approach of venturing into a friendlier market in Thailand than the vast unknown of the dollar world.

The move was smart for a variety of reasons. Thailand's baht market is well developed, providing more than enough liquidity for Yoma Strategic's deal to be more than 2.5 times oversubscribed by Thai institutional investors that were eager to lap up diversified paper. Thailand's geographic proximity also provided an investor base that was generally familiar with Myanmar and required significantly less investor education than a debut dollar deal would have.

Even as a debut name, the borrower was able to price the deal attractively, with the five year notes landing at a coupon of 3.38%.

Granted, the company didn't face as much of a marketing struggle as most other Myanmar credits would when courting international investors. Yoma Strategic, which operates in real estate, consumer, automotive and heavy equipment, and financial services and investments, is listed in Singapore and houses its executives there, giving it a toehold outside of its home country. The bond was also guaranteed by Credit Guarantee and Investment Facility, a bond guarantor fund under the Asian Development Bank.

But its momentous position in being the first Myanmar credit to break through borders should not go unnoticed. It would be overly optimistic to expect many of the company's compatriots to follow suit in the near future, but the fact that Yoma Strategic was able to raise funds in the baht market should be lauded as an important example and a path-setter. Other borrowers in the region, from places like Cambodia, Laos and Vietnam, will also find increased appeal in Thailand's capital markets.

Global co-ordinator: Standard Chartered

Lead managers and bookrunners: ANZ, DBS, ING and Mandiri Securities

In contrast to 2018, 2019 was a bumper year for high yield corporate bonds. The sheer quantity of deals— dominated as always by Chinese property credits— made it difficult to determine the best transaction of the year. But with its B2/B/B+ rating, oil and gas company Medco Energi's acquisition financing exercise was a real challenge, and an outstanding example of what high yield borrowers can achieve.

The Medco Energi deal's story started before the bond was launched in May, with a $550m unfunded bridge loan in February and the leg work that went into the loan even months before that.

Standard Chartered, the bank that ended up as the sole co-ordinator on the bond transaction, provided the loan for the Indonesian borrower's £408.4m ($544.88m) acquisition of Ophir Energy. The bridge loan, which was later syndicated, was not officially closed, so that it could give the borrower flexibility not to drawdown the loan if the acquisition was not completed.

When Medco Energi came back to the market for its bond sale, it had a queue of investors ready to buy into the deal. Some 90 investors requested one-on-one meetings after the mandate was announced. The borrower also worked with the ratings agencies to show how the acquisition of Ophir would benefit their business. That resulted in Fitch upgrading its rating to B+ from B, and S&P revising its outlook for the company to positive from stable.

The investor interest held throughout the roadshow and the opening of the order book, pushing orders to a peak of $2.25bn during the bookbuild, and allowing the notes to be priced with a negative new issue premium. Most notable were the bids from investors outside of Asia, as the US and Europe each took 25% of the deal. 

The transaction was flawless, and remarkably smooth for a high yield trade. Bankers on the deal admit that part of the sale's success boiled down to luck. The market steadily improved between the end of 2018, when talks with the issuer began, and the launch of the notes in May. As a result, the final coupon was even better than expected, and the notes have continued to trade above par since.

Bookrunners: Citi, HSBC, Standard Chartered and Sumitomo Mitsui Finance Group

The Mong Duong 2 dollar bond sale was a landmark trade for the market. It was the first ever power plant refinancing transaction or project bond from Vietnam. It was also the first private sector corporate bond from the country since 2013. Bankers agree that the Vietnamese market is beginning to blossom, and the success of Mong Duong 2 is a sign of what's to come from the country.

Aside from its uniqueness as a rare offshore Vietnamese credit, the deal's structure stood out in its ability to meet Mong Duong 2's unique project needs.

The bond is set to mature in 9.8 years, and has a weighted average life of 6.9 years. The Mong Duong 2 bond also co-ordinated with the borrower's other fundraising. The company had a concurrent $403m term loan, which amortises over 2.1 years, as well as a $82m debt service reserve letter of credit facility. The notes and the loan have a shared security package, which includes a pledge of all of the issuer's outstanding capital stock. The proceeds from the transactions were to be used to purchase Mong Duong 2's existing loan from its current lenders.

The pricing was also noteworthy, as the transaction managed to tighten 50bp during the bookbuild, allowing the notes to be priced at 5.125%. Orders were in excess of $3.4bn when final price guidance was announced during US hours, a testament to the leads' roadshow work.

While a remarkable project finance trade, Mong Duong 2's bond sale wasn't as difficult as some other high yield project deals. As one banker put it, Mong Duong 2 is "high yield-lite" because of the company's ties to the sovereign. The power plant, which began operating in 2015, has a 25 year power purchase agreement with state-owned utility company Electricity of Vietnam, as well as a 25 year coal supply agreement with state-owned Vinacomin.

But power and infrastructure are important areas for Vietnam to finance, and the country will be on the prowl for more private money to feed into projects like Mong Duong 2. With the deal's success, more project bonds should certainly be expected from Vietnam.

Finding the best high yield bond house of 2019 was no easy feat. High yield Asian issuance in dollars and euros reached $76.52bn during the 2019 awards period, compared to $36.33bn during the same period in 2018. Where some banks stepped back from even pitching for best high yield bond house in 2018, most were chomping at the bit in 2019 to tell their high yield story.

The sub-investment grade market has treated everyone well this year, so the award for best high yield bond house must be given to a bank that showed growth beyond that of the market, as well as the skill and finesse to get difficult deals done.

That outstanding bank is HSBC. The bank is no stranger to market domination, having won GlobalCapital Asia's best G3 bond house award over the past two years. But in 2019, HSBC made a concerted effort to improve its high yield business. It shows. The bank's dollar and euro Asia ex-Japan high yield bond business posted volumes of $5.5bn over the 2019 awards period, in contrast to the $2bn it had in 2018, according to Dealogic. The bank is ranked second for dollar and euro high yield bond volumes in Asia ex-Japan in 2019, a climb from its rank at third in 2018 and eighth in 2017.

HSBC worked with clients that faced a difficult end of 2018 to get successful deals done in 2019. It worked on key transactions, such as Indian non-banking financial company Shriram Transport Finance Co's debut dollar bond in February, and later was the sole lead on a tap for Shriram Transport. It held steady in China, despite not being on some of the largest deals, like that from China Evergrande Group. But just as importantly, HSBC demonstrated a presence across the region, working on deals in India, Indonesia, Malaysia and Vietnam.

HSBC's innovation in high yield is notable as well. For example, the bank was the sole global co-ordinator and principal adviser on Serba Dinamik Holdings' debut dollar bond, a wakala sukuk, in May. It was also sole financial adviser, sole rating adviser and a joint global co-ordinator on Vietnamese company Mong Duong's $678.5m project finance bond. And HSBC has nailed the perpetual market, working on transactions like Far East Consortium International's $250m deal in September. 

The bank has also been active in liability management, an area of increasing importance in Asia. HSBC worked on deals like Hilong Holdings's September tender offer and $200m new issue.

It's not to say that HSBC had a perfect year in high yield. The bank failed to get would-be debut credit NutiFood Nutrition Food Joint Stock Company over the finish line, for instance. Haitong Securities beat HSBC out for the top league table spot in G3 high yield bond volume in Asia, according to Dealogic. Other banks were close behind with high yield bond volume and fees this year. The likes of Credit Suisse, GlobalCapital Asia's past award winner for high yield bond house in 2018 and 2017, continues to hold strong in the market, with its diversified approach to Asia.

But accolades must be given to banks that consciously build their business in new ways, and with its growth in high yield, HSBC has certainly done that.

Socially Responsible Investing (SRI) has clawed its way up from a market buzzword to an important part of investor profiles. The days of SRI simply being something nice for investors and banks to reference are slipping away, replaced by the reality that deals linked to "dirty" projects like coal are going to struggle to sell the way they once did.

Since GlobalCapital Asia introduced an award for Best House for SRI Financing in 2018, sustainability businesses at investment banks have grown and the competition has gotten fiercer.

But HSBC has secured itself the top spot for green, sustainable and social bond volume in G3 currencies in Asia, according to Dealogic — and the award for the Best House in SRI Financing. The bank not only worked on a large number of deals in 2019, it also acted as green structuring agent on many of them. As a testament to its prowess in the green market, HSBC worked on all three sovereign green and sustainable bond deals in Asia in 2019, including the maiden green issuance from the government of Hong Kong SAR. The bank also worked on a number of significant financial and corporate deals, including Kookmin Bank's Basel III-compliant tier two sustainability bond.

HSBC has used its expertise to build its SRI business beyond plain green bonds. It wielded its experience in liability management to help borrowers buy back conventional debt and refinance it with green debt. It has worked to introduce the idea of transition finance to companies, helping those that can't sell pure green bonds to raise sustainability-linked funds that can clean up their businesses. HSBC has worked with some of its private bank clients who are keen to invest in SRI to guide them to green options. And HSBC's work in SRI goes beyond the bond market. Just as importantly, the bank has been active in green loans.

All of this comes through the work of HSBC's SRI team. Jonathan Drew, managing director of sustainability finance, leads the team across sectors, while Luying Gan has been heading the bank's efforts in Asia DCM. There are now 11 people focused entirely on ESG financing, including research, in Asia Pacific. The bank is also actively “greening” every banker in the region, encouraging a better understanding of green finance across departments and staff, and making green finance a standard part of client conversations.

HSBC has also committed to provide $100bn to sustainable financing and investments by 2025. It aims to source all of its electricity from renewable sources by 2030.

As a very close second in the league tables, an honourable mention must be given to Crédit Agricole. The French bank was GlobalCapital Asia's debut award winner in 2018, and it has continued to demonstrate its worthiness through its work on SRI in Asia, the expansion of its sustainability banking business in the region, its dedication to bringing a sustainable finance approach to new issuers and investors in the region and its proof that SRI financing is a core part of its DNA. But this time, HSBC was a step above of all of its rivals.

Standard Chartered’s journey to become a top Asian G3 bond house from a niche, emerging markets and local currency focused firm was a long one. Its transformation did not happen overnight, but 2019 saw the seeds planted over the last decade flourish, making it our pick for the Best G3 Bond House.

In a market where competition has intensified each year, StanChart increased its market share in Asia ex-Japan G3 bonds to 5.21% during our awards period, when some of its biggest rivals have fallen behind, according to Dealogic.

If the number does not look impressive enough, StanChart — now one of only three banks to hold more than 5% of the Asian market — had a market share of just 0.8% 10 years ago when there were 38 different financial institutions competing for business. Today, there are more than 160 banks and securities houses fighting for a much larger pie.

More noticeable was its growth in share of wallet during the awards period. In terms of G3 bond revenues, it jumped to number four with a 4.75% share, after gaining more than one percentage point from number 10 the previous year, when it earned 3.55% of available fees, according to Dealogic.

What sets StanChart apart from rivals that also saw robust growth is its diversity. It was able to take the region’s most sophisticated issuers — including sovereigns and top-rated financial institutions — across different markets in currencies beyond dollars, with not just vanilla senior bonds but also more complicated deals including capital and structured transactions, in both investment grade and high yield. It also helped debut names navigate through the offshore market.

When winning mandates, it quite often acted as a global co-ordinator or one of the top-line bookrunners, making it stand out from an overly crowded market for the DCM business in Asia.

Part of its success should be credited to the team it has built over the years, including a balanced DCM syndicate team on the ground in both Hong Kong as well as Singapore, covering both G3 and other markets including Formosa and local currencies.

In a year where many issuers in Asia turned their eyes to Europe for funding, StanChart also spotted and capitalised on the trend from an early stage, given the negative yield environment, taking the greatest number of Asian issuers to Europe in 2019. As the green bond theme continues to blossom in the region, StanChart also secured a place among the top five in G3 green, sustainable and social bonds during the awards period.

One of the most well-rounded G3 houses in Asia with a presence in 15 countries, the bank demonstrated consistent success in different markets. It maintained its leadership in south Asia and is expanding its footprint in southeast Asia. In north Asia, it continues to lead dollar Formosa issuance while building a Korean G3 bond business any bank would be proud of — taking nearly 9% of available league table credit for the first nine months of 2019.

In China, which without a doubt remains the single most important source of offshore bond supply in Asia, StanChart led deals ranging from landmark transactions from issuers including the Ministry of Finance, to corporate hybrid and bank capital, and liability management. For a market of its depth and diversity, the bank covers more regions and sectors than its competitors, and has been willing to venture into places that other international or even Chinese houses have not. 

It faced its fair share of challenges this year, however. For instance, StanChart, along with BNP Paribas, led Indonesian textile company Delta Merlin Dunia Textile’s $300m bond debut in March. But the company failed to make the first interest payment on its deal in September, triggering a default.

As key markets such as Indonesia, India and China go through turmoil onshore, more of these incidents will likely hurt investors in 2020. DCM bankers and investors will have to be extra diligent. But StanChart’s senior capital markets bankers have worked long and hard to build a world-class business. This year proved they have achieved their goal.

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