Hyundai Heavy Industries $221.6m guaranteed exchangeable bonds due 2020
Joint lead managers and joint bookrunners: Bank of America Merrill Lynch and HSBC
In a year when volume was so thin that nearly every equity-linked deal was hailed as a market opener, Hyundai Heavy Industries’ exchangeable bond stood apart. It was the first offshore equity-linked deal from South Korea in over a year, carried a rare credit enhancement from the Korea Development Bank and used an unusual approach towards providing stock borrow. For all these reasons, the $221.6m EB is GlobalCapital Asia’s Best Equity-Linked Deal of 2015.
The five put three notes, callable in three years and exchangeable into shares of Hyundai Merchant Marine Co, had plenty going for them having been in the works for more than six months.
A lot of that time was spent convincing KDB to support the trade. KDB often guarantees straight debt, but this marked one of the first occasions it was backing an equity-linked transaction. While leads Bank of America Merrill Lynch and HSBC spent a considerable amount of time with the policy bank to get it comfortable, Hyundai also leveraged on its strong relationship with KDB to get it on board.
The credit enhancement was critical given Hyundai is highly levered but was adamant about not paying up. The work paid off. KDB’s support boosted its status to investment grade, allowing it to pull off a zero coupon and zero yield trade.
South Korean regulations also posed a hurdle as underlying shares are banned from being used as stock borrow. This meant the leads had to create a facility where borrow was provided by another entity – Hyundai Samho Heavy Industries Co. This is also rarely done in equity-linked transactions but was important for the deal’s success.
The combination of these factors makes Hyundai’s EB a clear winner. The leads successfully juggled the objectives of each party – the issuer’s goal of achieving a zero coupon; KDB’s of netting the best pricing on the guarantee and Samho’s on receiving good pricing on the borrow.
Investors were also happy; their appetite evident as the bonds traded up to 101/101.5 in the grey market. They put in enough orders to make books multiple times covered, with the EB pricing at the high end of its conversion premium range of 37.5%, setting a strong precedent for other such structures to follow.
BEST IPO
GF Securities Co HK$32bn ($4.13bn) IPO
Joint sponsors: GF Capital (Hong Kong) and Goldman Sachs. Joint global co-ordinators: Bank of America Merrill Lynch, BoCom International, Deutsche Bank, GF Securities (Hong Kong) Brokerage, Goldman Sachs and Morgan Stanley. Joint Bookrunners: ABCI Capital, CCB International Capital, China Merchants Securities, China Securities, CIMB Securities, Guosen Securities, Huatai Financial Holdings, HSBC, ICBC International, Industrial Securities and Sun Hung Kai Investment Services
If there was only one theme in China ECM this year, it was FIG. From IPOs to H-share placements, issuers from the financial sector went full steam ahead with their fundraisings, making the most of an unprecedented boom in China and Hong Kong.
And GF Securities Co’s HK$32bn ($4.13bn) juggernaut was the one that started it all. The Chinese brokerage led the charge for the deluge of FIG deals that followed, including HTSC’s IPO and placements from China Galaxy Securities, Citic Securities Co and Haitong International Securities Group.
But the journey was far from smooth. The mandate for the IPO had been sitting on bankers’ desks for the better part of four years, as the issuer bided its time to make the jump from A-share to dual listing. When 2015 rolled around, it got its chance.
There couldn’t have been a better time. Chinese brokers were seeing their biggest rally in years as the A-share market exploded. But of all the FIG deals on the table, GF was the first to take the plunge, setting the bar high.
The IPO is a landmark on a number of counts. At the time of pricing, it was the largest IPO for a securities firm globally, the largest IPO in Asia ex-Japan since 2011, and largest overseas IPO by a Chinese broker. In all, 12 new listings from the finance and insurance sector raised $16.22bn in Hong Kong up to end-November.
GF’s success was down to the concerted effort of the leads to reach out to investors early in the process. The move helped drum up $1.9bn worth of demand from 18 cornerstone investors, who mopped up over 50% of the shares even before bookbuilding started.
From there it was only a matter of time before hundreds of global accounts flooded into the trade, allowing it to be multiple times covered throughout the marketed range. Pricing, unsurprisingly, came in at the top of its HK$15.65-HK$18.85 guidance.
While there have been larger IPOs this year, by coming first GF Securities became the standard bearer and the trade everyone looked to as the yardstick for their own success. For these reasons, GF Securities deserves the title of Best IPO of 2015.
BEST FOLLOW-ON/ACCELERATED BOOKBUILD
Industrial Bank Co
$2.07bn secondary placement by Hang Seng Bank
Sole bookrunner: Goldman Sachs Gao Hua Securities Co
Of the hundreds of block trades that priced in Asia this year, none did it quite like Industrial Bank. Hang Seng Bank sold down a 5% stake in Industrial Bank in February, in a trade that broke barriers and went boldly against the grain.
Hang Seng was looking to cash in on the 953m A-shares it held in Industrial Bank, mandating Goldman Sachs for the job. But there were huge challenges to overcome, not least the fact that an A-share block had never been distributed on a large scale before.
This was because block trades on the Shanghai Stock Exchange had only previously been sold on a piecemeal basis to one or two buyers at a time, and onshore market participants were not used to the kind of broad-based price discovery this deal was trying to achieve.
So Goldman set out to pioneer the first ever institutionally marketed A-share block sale in China, aided by the Shanghai-Hong Kong Stock Connect. The platform was key to sealing the deal as it created a bridge between China’s hard-to-access onshore market and institutional investors offshore.
But being the first mover also has its drawbacks. In order for the trade to be a success, Goldman had to educate a wide array of parties, including not only the issuer and investors, but the stock exchange and regulatory bodies.
And because Goldman’s own QFII quota was too small to accommodate all the orders, it quickly pooled together about $3.5bn worth of QFII with the help of several banks.
Even when it came time to execute the block, there was plenty working against the lead. It had less than two weeks between kick-off and pricing, and on the day of the trade the lead pulled off what can only be described as surgery.
With only a 30-minute window to cross the shares, time was not on its side. Goldman got around this by working on a minute-by-minute schedule with the brokers, detailing each crossing to make sure the trade went off without a hitch.
And it paid off handsomely. The block priced at Rmb13.36 a share, or a 7% discount to its last close. If that first deal wasn’t ballsy enough, Hang Seng returned with a similar sell-down in Industrial Bank just three months later – proof that it was a winning strategy.
BEST EQUITY HOUSE
Goldman Sachs
Calling 2015 a tough year for equities would be an understatement, but Goldman Sachs managed to stand out by putting together a game plan that worked to its advantage and helped it stay ahead of the pack.
The bank received bookrunning credits for 48 deals in Asia ex-Japan ex-onshore China during GlobalCapital Asia’s awards period, giving it a market share of 6.8% for $10.75bn of volumes. It ranks second in the league table behind Morgan Stanley, which executed 58 trades worth $14.08bn for a market share of 8.9%.
While numbers are important, 2015 was more about staying relevant when markets turned choppy. Following a boom, China’s equity markets crashed in the third quarter, bringing primary issuance to a near halt as issuers and investors took pause. But Goldman steered its business successfully, showing continuous leadership in execution and meeting the demands of both issuers and investors.
China was a big theme this year despite the summer rout and Goldman was quick to adjust its strategy to capture opportunities there. It added more staff dedicated to China, including boosting the sales team from both the institutional and corporate side. It also invested more into its China equity derivatives operations to make it a meaningful part of the ECM franchise and worked at providing alternative fundraising avenues for companies when the onshore market was inaccessible.
This was evident from the suite of trades it executed. Goldman was a sole lead on a $700m forward sale and placement of delta hedge shares in China Pacific Insurance, through which German insurer Allianz hedged part of its stake in the Chinese company. Goldman was also the sole bookrunner on a $2bn A-share block for Industrial Bank —GlobalCapital Asia’s best follow-on offering — which marked the first ever institutionally marketed A-share block.
And where there were big trades, there was Goldman. In southeast Asia where deal flow was thin, the bank was involved in some of the larger trades such as Sampoerna’s $1.4bn rights issue and concurrent placement in Indonesia. In India, it gained market share thanks to a sizeable $3.2bn block for Sun Pharmaceuticals. And in Hong Kong, where financial names made their presence felt in the block and IPO market, Goldman led the way including as a joint sponsor on GF Securities HK$32bn listing, our IPO of the year.
What helped the bank maintain credibility is the way the ECM syndicate team works in close collaboration with the sales force. This helps bankers feel the pulse in the market, know what investors are looking to buy and know where liquidity is, which means bankers are better positioned to have relevant conversations with corporates and potential vendors.
Putting capital on the table quickly is important, but bankers at Goldman also understand that being disciplined is equally critical especially when markets are volatile. The bank achieved this by holding conversations between the senior management, the sales, the ECM and syndicate members before deciding to use the bank’s balance sheet for transactions. While not a novel way of doing business for Goldman, it is an approach that held it in good stead while avoiding any slip-ups.
Others such as UBS have a similar approach to their business and also found success. But Goldman triumphed in identifying themes early on, taking pole position in large transactions and having a wide geographic reach in a difficult year to clinch the title of Asia’s best equity house.