BEST EQUITY-LINKED DEAL
Qihoo 360 Technology $1.035bn dual tranche convertible bond
$517.5m 0.5% six year put three due 2020 and $517.5m 1.75% seven year put five due 2021
Joint global co-ordinators: Citi and Credit Suisse
Structure and size made Qihoo 360 Technology’s $1.035bn convertible bond stand out among this year’s equity-linked deals. The deal, the largest CB in Asia ex Japan since 2011, made neat use of a dual tranche structure rarely seen in Asian deals.
The trade was a bold move as the Chinese software company had only recently made its equity-linked debut, in August 2013 via a $600m 2.5% due 2018. But it was always on the lookout for a comeback if conditions allowed.
Liquidity for the equity-linked sector is a lot tighter than in the straight bond market, and re-tapping so soon after a debut — which was already big by convertible bond standards — would typically require the issuer to pay up.
But joint global co-ordinators Citi and Credit Suisse saw an opportunity, realising that liquidity and — most importantly — investor sentiment were once again favourable for Qihoo to re-enter the market.
And it was not just any run-of-the-mill deal the leads proposed. They came out with a dual tranche structure comprising bonds with different maturities, a six year put three and a seven year put five. It was specifically designed to avoid having any overlapping maturities with the outstanding CB, which was effectively a four year put two.
While splitting a convertible bond into two tranches is common in the US, where Qihoo is listed, it is rare for Asian issuers to adopt the structure.
But that did not deter investors, and the deal was three times subscribed — no mean feat considering the market backdrop. Pricing coincided with Argentina’s debt default at the end of July, which saw global equities take a big hit. But coming any later was not really a possibility as that would mean competing with Alibaba’s $25bn IPO in September.
The uncertain market backdrop, however, only served to showcase top notch execution as books were multiple times covered. Indeed, the issuer had the option to price at the tighter end of guidance but sensibly decided to price near the middle instead.
Even without pushing on pricing, the issuer managed to save 200bp off the coupon of its previous deal, while also helping itself to a $135m increase from the $900m base size. And with both tranches closing first day of trading at 100-100.5, the issuer’s decision to launch was vindicated.
Qihoo became the first Chinese technology firm to sell a dual tranche CB, setting a strong precedent for other US-listed Chinese technology firms in the process and making it a clear winner in 2014.
BEST IPO
Alibaba Group Holding $25bn IPO
Joint bookrunners: Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley
It was the most anticipated IPO of recent years, and when Alibaba Group hit the market for its New York listing, it didn’t disappoint. At $25bn, the Chinese e-commerce company’s IPO is now the largest ever. The unprecedented amount of work that happened behind the scenes speaks of a deal that ticked all the right boxes, from pre-deal momentum and flawless execution to strong aftermarket performance. For all these reasons and more, Alibaba is our choice for Best IPO of 2014.
With the deal launched to eager investors in US hours on September 5, a Friday, the leads were able to put out a covered book message on Monday morning Asia time. That was largely down to the efforts of some of the bookrunners to contact Asian investors over the weekend in a bid to generate strong early momentum.
That momentum just kept on building once roadshows and one-on-one meetings started across the US, Europe and Asia over the course of nine days. Investors got the chance to hear the story direct from Jack Ma, founder and executive chairman of Alibaba, and it was a story that proved compelling. When the deal closed, there were almost 2,000 investors and orders totalling some $200bn — extraordinary numbers, even for a deal of this size.
“We were surprised by the sheer volume of demand,” said a banker at one of the bookrunners. “But it shows that Alibaba touches a lot of people and that the deal had a profound impact on capital markets and the view of China in the global markets.”
The overwhelming demand generated one of those problems that bankers say is nice to have — an allocation headache. With Alibaba this was a different order of magnitude to other popular deals, and banks had to fight to ensure their accounts got a piece of the deal. According to a second banker, the allocation process took nearly 12 hours, with two or three bankers from each of the leads making their case on behalf of the investors they had obtained.
The ultimate decision makers as to who got the company’s stock were Alibaba and Ma, however. Long term shareholders and those with ties to the business were the obvious preferences – a factor that helped the aftermarket performance and was critical to the IPO’s success. The deal priced at $68 per share, the top of the $66-$68 revised guidance, with the stock rising by 38.1% on its debut. The greenshoe option was fully exercised on the very first trading day.
It could have priced higher, of course, although bankers are reluctant to speculate on just how far it could have been pushed. But memories loomed large of Facebook's IPO, which fell about 25% in its first two weeks in 2012. No one wanted to risk scuppering the biggest deal ever — particularly with a huge amount of loose stock out there, held by pre-IPO investors who were not locked up.
Alibaba’s success was down to a number of reasons: exceptional co-ordination among the banks and the company, a well thought out syndication plan, reasonable pricing, and a great deal of awareness about avoiding the pitfalls of deals like Facebook.
One big help was a sensible division of banks' responsibilities — the workstreams, as bankers call them. Each of the leads had clear roles, such as being the stabilising agent, drawing up the prospectus or being the lock-up release agent. By delegating well and keeping in constant communication, bankers say Alibaba ensured that there was no potential for bad behaviour.
As well as being a landmark for the company, the IPO had broader importance in bringing Chinese and tech names into the limelight. It also reflected the capacity of investors and the market appetite for a strong story. For accomplishing what many of its peers have failed to achieve, Alibaba is a clear standout.
BEST FOLLOW-ON/ACCELERATED BOOKBUILD
Sands China
$1.38bn secondary placement by Waddell & Reed Financial
Sole bookrunner: Bank of America Merrill Lynch
If there was one follow-on offering this year that had to overcome some unusual challenges, it was the Bank of America Merrill Lynch-led placement of $1.38bn of shares in Sands China in May — the biggest block placed during the awards period by a sole bookrunner in Asia ex-Japan.
The lead had two factors to contend with. First, shareholder Waddell & Reed Financial was selling all of its stock in Hong Kong-listed Sands. And second, it was looking to reinvest all of the proceeds simultaneously into Sands’ US parent, Las Vegas Sands.
Needless to say, success rested hugely on timing the execution of the block for when both markets were closed to ensure the share prices did not take a hit. Here it was the meticulous preparation on the part of BAML, which had analysed various execution options along with the issuer, that played a key role.
One possibility was pricing the deal after Hong Kong shut and before the US opened. But that idea was vetoed as Sands wanted to see how the shares traded in both markets before launching the block. This meant BAML used the next best option — opening books after both markets had closed for the day, wrapping up allocations before Hong Kong began a new trading session.
It was a tricky task, given that the lead had just five hours to capture bids for what was a big deal. BAML held all the underwriting risk. Getting the execution right was essential, for the sake of not just the stock but also the bank.
To ensure things ran smoothly when books opened, the lead got 70% of the block covered by anchor orders ahead of launch, giving plenty of momentum. This paid off. Despite the fact that European accounts were left out due to the time difference, more than 90 bids came in — leading to the book being three times covered.
Other factors that helped included the final discount of 4.80%. While this was based on a range of 4.00%-5.10% that was already considered tight given the size of the trade, the fact that the lead didn’t push for the narrow end helped demand. Allocations were naturally skewed to the anchor orders that had been key in pushing the deal forward — and they helped in ensuring the stock held up well in secondary.
Working against the clock for a trade this big was an immense challenge that was circumvented by BAML’s painstaking but quick approach to execution. Sands took a gamble by picking just one bank to complete such a chunky deal. But the deal’s success, both in primary and in the aftermarket, shows it was the right bet.
BEST EQUITY HOUSE
Goldman Sachs
The year 2014 was a tricky one for ECM bankers to navigate in Asia. On-off volatility in global markets, slower pace of economic growth and unsuccessful deals often shutting down issuance windows were all factors that equity houses had to contend with.
But Goldman Sachs managed to stand out, leveraging the opportunities that arose across the breadth of its business, while also being brutally selective about the deals it took on.
Goldman Sachs has had a phenomenal time during GlobalCapital Asia’s awards period. It priced 61 deals in Asia ex-Japan for league table credit worth a whopping $15.23bn — figures that give it the number one spot on the ECM bookrunning league table, according to Dealogic. Second ranked was Credit Suisse, which accounted for $13.51bn worth of volume via 87 deals.
What differentiates Goldman Sachs from some of its peers is the way its equities business works in partnership with the securities division, say bankers at the firm. When considering deals, decisions are made jointly by ECM syndicate members — who provide their expertise on execution — and staff in the securities division, who offer their views on risk from the perspective of the buyside.
The fact that it’s not one desk calling the shots but a combination of the heads of ECM, risk and distribution helps to avoid problems, say bankers. This is even if it involves spending six to seven hours on the phone simply discussing one trade.
That's not to say that no other firm has a committee approach to transactions, but Goldman certainly gets the most out of it. And this has been reflected in its deal roster.
China Cinda Asset Management became the first Chinese asset management company to go public in a $2.5bn IPO in December 2013. China Oilfield Services (COSL) completed a HK$5.88bn ($759m) private placement on January 7 to become the first big equity transaction for the year. Online retailer Vipshop Holdings net $550m from a very successful CB in March. And Alibaba Group raised $25bn in September to become the largest IPO on record.
All these deals, which performed exceptionally in the aftermarket, had Goldman Sachs in a lead role.
Its involvement in hugely successful deals also speaks volumes about something that bankers at the firm pride themselves on — being very aware that they are accountable to two sets of clients, issuers on one side and investors on the other.
When risk appetite among investors is low, Goldman doesn’t advise the buyside to take the plunge and put money into deals it may be running. At the same time, it also warns issuers against tapping the market when fund flow is anaemic or when lofty valuations are difficult to achieve — a strategy that has helped when sentiment has been weak.
“It’s about finding the balance,” says one banker at the firm. “It’s about advising, not abusing your relationship, and more of this discipline needs to come through.”
The year has also been dominated by US listings of Chinese names, particularly those in the tech space, and here Goldman Sachs has excelled. Be it Alibaba, Jumei, Vipshop or Weibo — where there were landmark deals to be done, the bank was very much present.
Others have come close. Both Citi and Credit Suisse have had booming business this year and are creeping up the league tables and giving rivals a run for their money. But when it comes down to having a long-term view on the market, identifying themes early and leveraging them to the best benefit of issuers and investors, Goldman Sachs is by far the best.
(All data sourced from Dealogic.)