BEST PROJECT FINANCING
Sarulla Operations $328m term loan due 2034 (Libor+200bp)
MLAs: Bank of Tokyo Mitsubishi-UFJ, ING, Mizuho, National Australia Bank, Société Générale, Sumitomo Mitsui Banking Corp
The $1.17bn 20 year financing for the 351MW Sarulla Geothermal Power Project in Indonesia was a difficult undertaking from start to finish. Many of the banks on the syndicated term loan portion were first time lenders to a geothermal project, so getting the financing off the ground involved a rigorous assessment of the viability of the project, while accepting the uncertainty and risks involved.
The $328m 20 year syndicated term loan for the project was supplied by a club of six banks, with each institution bringing its own expertise. Société Générale, which has engineers on its staff, took the lead in demystifying the technical aspects of the project, such as the upstream risks associated with whether the reserves would be adequate.In addition, the project is the first greenfield geothermal power project in Indonesia and is the world’s largest single contract geothermal power station. Banks included several mitigating factors, such as contingent equity and cash sweep, while structuring the financing. As a result, they were comfortable enough with the financial model to accept the combined risks.
But getting to this point was far from easy, and the 15 months in the run-up to signing were the most crucial. Banks met six or seven times during this period to figure out the risks and how to structure a deal that would best manage them. This involved site visits to study factors affecting viability in a developing country, including whether Indonesia’s roads would be able to cope with the delivery of heavy machinery.
Banks also included a contingency reserve in case of increased cost, among other measures to minimise potential losses.
Lenders were also able to get comfortable with the deal thanks to the fact that the offtaker for the project is Indonesian state owned electricity company Perusahaan Listrik Negara, which will buy the electric power for distribution in Sumatra over 30 years. While the project is due to be completed in 2018, commercial production is due to start from 2016.
Another level of reassurance was provided by external technical advisers Geothermex and Lummus Consultants International, who were able to inform the lenders on the construction and geothermal resource risks.
The $328m term loan also came with some extra backing in the form of an extended political risk guarantee (EPRG) from Japan Bank for International Cooperation (JBIC). In addition to the commercial bank loan, the financing was made up of a $250m direct loan from the ADB, a $492m direct loan from JBIC and a $100m loan from ADB Clean Technology Fund and the Canadian Climate Fund.
BEST LEVERAGED FINANCING
ADT Korea's W1,345bn ($1.2bn) loan
W940bn five year term loan (5.56%), W45bn five year revolving facility (three month bank debenture rate + 280bp), W360bn five year and one month mezzanine facility (not disclosed)
MLAB senior tranche: Industrial Bank of Korea, Kookmin Bank, Korea Exchange Bank, Korea Investment & Securities
MLAB mezzanine debt: UBS
The $1.2bn financing for the leveraged buyout of security company ADT Korea was a landmark deal for Asian leveraged finance. Not only did it mark the largest ever mezzanine financing in Asia ex Japan, but it set a legal precedent for others to follow in its footsteps.
“This is a ground-breaking deal in Asia ex Japan given the size of the junior mezzanine, especially as it was fully underwritten in the context of a very competitive M&A process,” said Mohamed Atmani, head of leveraged finance, Asia, at UBS.
Securing debt financing that would support an aggressive bid was key to clinching the highly competitive auction for ADT, a leading security products and services provider in Korea. This financing gave sponsor Carlyle just that.
Carlyle clinched the deal to buy ADT from owner Tyco for $1.93bn in March, representing a purchase multiple of about 10.7x target Ebitda. This meant the debt portion had to have a leverage of 7x Ebitda, but getting lenders on board for such a highly levered loan in senior was not possible. A junior tranche had to be fashioned.
The successful syndication of the mezzanine piece introduced a novel concept to Korean funds and also paved the way for more such financings to take place in the country. But doing so did not come without its problems.
The mezzanine portion was underwritten by UBS in US dollars, as the bank did not have enough funds in won. This $340m was then taken out in Korean won by sourcing liquidity from domestic funds, who were unfamiliar with junior debt and uncomfortable with the idea of being structurally subordinated, translating to a big underwriting risk for the Swiss lender.
Ultimately, however, UBS was replaced by Korean mezzanine investors as a signing party in the intercreditor agreement, as six Korean investors and one international joined the junior tranche.
Not only was the deal a triumph structurally, it also represented a legal turning point in M&A financing in Korea. Drawing up documents for the intercreditor agreement in a country that had rarely seen a senior/junior split was no mean feat. Lawyers had few points of reference.
Korea, with its cash rich domestic funds, certainly provided a fertile ground for marketing mezzanine debt. But a deal of this size, leverage and degree of legal complexity had never been achieved before.
The success of the ADT deal demonstrates the potential of Asia to support structures that would be considered aggressive even in more mature markets. For this reason it is a clear winner in this year’s leveraged finance category.
BEST INVESTMENT GRADE SYNDICATED LOAN
Xiaomi HK: $1.0bn
$500m three year term loan and $500m three year revolver (232.5bp)
MLABs: ANZ, BNP Paribas, Bank of East Asia, Bank of Taiwan, Bank of Tokyo Mitsubishi-UFJ, Barclays, CTBC Bank, Cathay United Bank, Credit Suisse, Deutsche Bank, Goldman Sachs, Hang Seng, ING, ICBC, JP Morgan, Maybank, Morgan Stanley, Standard Chartered and Wing Lung Bank
Chinese technology has been one of the dominant themes of 2014, with well-known names such as Alibaba Group and Huawei Technologies gracing the loans market. And then there was Xiaomi. A Chinese smartphone maker that is only four years old, it managed to seal a $1bn debut loan to much fanfare.
The privately-owned group certainly had other fundraising options and did not need to opt for an offshore US dollar syndication.
“It would have been easier to get a renminbi loan inside China from commercial banks,” said Jinling Zhang, chief financial officer at Xiaomi. “But all of our revenues are in renminbi and because we have a very rich cash flow, there is no shortage of the currency. But we want to grow and expand outside China so wanted some US dollars for M&A.”
This proved to a canny decision as its loan was a hit. Driven by initial MLABs Deutsche Bank, JP Morgan and Morgan Stanley, the loan received a stellar response, with a 29-strong syndicate forming within just three months.
It wasn't all plain sailing, though. Getting commercial banks comfortable with a company that only had a short track record was a challenge, said bankers. What helped was a two pronged syndication — a senior stage targeting large investment banks and a general phase for smaller names. When 17 banks piled in during senior, that was more than enough to reassure the banks gunning for junior tickets.
And that wasn’t all that helped achieve a smooth execution. Lenders also were given full access to the eight founders of Xiaomi during two bank presentations, one in Hong Kong during the early stages of syndication and another in Taiwan during the last leg of the process. This worked in the company’s favour, as it managed to entice some Taiwanese banks to put in chunky amounts.
Xiaomi also pushed pricing boundaries, sealing a margin that was considered tight for a debut borrower while structuring half the loan as a revolver. It was a risky bet, as the company was counting on its rapid growth since its inception to provide security to lenders about its health.
It wasn’t disappointed. While the terms drew some murmurs in the beginning, these quickly dissipated as confidence grew in the borrower’s long term outlook.
The company’s loan triumphed over competition from the likes of Huawei, which closed $1.6bn in a deal that reflected European lenders’ hunger for Chinese names. But Xiaomi is a clear winner, setting a benchmark for what is truly possible in Asia.
BEST LOANS HOUSE
Standard Chartered
This year has been less than ideal for those working on Asian loan syndicate desks. A barrage of issues confronted lenders in 2014, from rising funding costs for Taiwanese banks at the beginning of the year, to heightened risk aversion stemming from Beijing’s anti-corruption crackdown and macro fears linked to a slowdown in China’s growth.
But one bank — Standard Chartered — not only navigated these headwinds, countering them with structural innovation, but it did so while broadening the horizon for Asian lending, be it through adopting bond market structures or using Islamic finance to source new liquidity.
Standard Chartered was quick to capitalise on China’s liberalisation of the use of cross border guarantees by onshore companies in June. While guarantees and standby letters of credit have become a regular feature of the bond market, Standard Chartered was among the first to use such credit enhancement in syndicated loans for borrowers that might otherwise struggle to get funding.
Take the case of a $100m September syndication for Tisco Stainless Steel HK that came backed by an irrevocable demand guarantee from the Export and Import Bank of China.
This trade was 2x subscribed at a time when the steel industry was facing extreme uncertainty due to China’s economic slowdown.
Standard Chartered also showed leadership in using Islamic finance structures to harness the increase in liquidity from the Middle East. The bank recognised that while some companies from countries in southeast and south Asia might receive a muted response in a conventional syndication, they lent themselves naturally to Islamic finance.
A case in point was Garuda Indonesia, which had a $200m loan it needed to refinance but had been rebuffed by other banks. Standard Chartered came up with a solution where half the funds were raised through a conventional syndication and half through a wakala structure, where the investment agent uses the proceeds of the loan to purchase airline ticket vouchers from Garuda.
Standard Chartered’s success was down in part to the organisational changes it has introduced over the last few years, including having bond and loans combined under capital markets. This has led to better communication across the origination, syndication and distribution functions.
The loans desk has also dealt with a frequent criticism over the size of its average hold in deals, with this now down to 10%, from 20% just a few years ago.
The efforts have paid off. Standard Chartered is the leading international bank in the loans sole bookrunner table, leading 26 deals worth $5.5bn during the awards period, boasting a 5.3% market share.
ANZ deserves a mention for its performance this year. The Australian bank, which has long made clear its pan-Asian ambitions, mounted a credible challenge to more established loans houses. It has successfully expanded its reach in Greater China and southeast Asia and nimbly grew its relationships with existing clients, in many cases migrating from participant to sole bookrunner. And it did all this while cultivating new relationships.
But by adapting quickly in tough market conditions and by striving for the best approach with clients as well with its own structure, Standard Chartered has shown why it deserves to win this year's award for Best Loans House.
(All data sourced from Dealogic.)