Regional Capital Markets Awards Part I: Loans

In the first instalment of our 2017 awards, we present the full write-ups of the winners for Best Investment Grade Syndicated Loan, Best High Yield Syndicated Loan, Best Leveraged/Acquisition Finance, Best Loan and Best Loans House.

  • By GlobalCapital
  • 07 Jan 2018
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BEST INVESTMENT GRADE SYNDICATED LOAN 

Alipay (Hong Kong) Holding’s $3.5bn dual-tranche loan 

$2.175bn term loan due 2020 and $1.325bn revolver due 2020 

Mandated lead arrangers and bookrunners: ANZ, Barclays, Citi, Credit Suisse, DBS, Goldman Sachs, HSBC, ING, JP Morgan, Mizuho and Morgan Stanley 

Mandated lead arrangers: Deutsche Bank and Société Générale

Arranger: BNP Paribas

In the first week of January 2018, China’s Ant Financial put its takeover of US money transfer company MoneyGram International on hold after it became clear that US regulators were not willing to approve the deal. Alex Holmes, MoneyGram’s chief executive, blamed a ‘considerable’ change in the geopolitical environment since the deal was first announced in April 2017.

GCAsia_awards_logo_2017_384pxThe decision by the Committee on Foreign Investment in the United States (CFIUS) to rebuff the deal, or at the very least to leave it stuck in limbo, was a blow to the hopes of some bankers who were eyeing more Chinese takeovers in the US. But it also overshadowed a financing that deserved respect —and deserves it no less because the transaction ultimately did not go ahead.

The $3.5bn debut international loan for Ant Financial, through subsidiary Alipay (Hong Kong), was remarkable in many ways. The deal heralded the arrival of a fintech powerhouse to international capital markets, providing banks a chance to be part of the company’s growth story ahead of its highly anticipated IPO. It also provided some M&A financing action to banks starved of such deals from China.

There was always a risk that CFIUS would block the deal, but Chinese regulators have arguably been just as keen to put a dampener on outbound acquisitions. They have clamped down on outbound capital flows from the country, as well as stepping up scrutiny of acquisitive home-grown private enterprises that were raking up debt to expand internationally.

In this context, Ant Financial had to overcome serious uncertainty to generate demand for its loan. It did that in part by highlighting its international credentials.

The company put together a diverse underwriter group, with marquee commercial and investment banks from the US, Europe and Asia throwing their weight behind the transaction.

Ant Financial was also smart enough to structure its deal with additional flexibility on the off-chance that the deal did not go through. For instance, the $1.325bn revolving portion will remain in place irrespective of whether the acquisition of MoneyGram goes through.

In the end, the deal cruised to an oversubscription, which allowed Ant to boost the loan by $500m.

Loans bankers know that the work they put into acquisition loans may not bear fruit. They are likely to be reminded of that ever more frequently over the next few years. But they should also get recognition for that work, even if the headlines tell a different story. This award is an attempt to give them that recognition.


BEST HIGH YIELD SYNDICATED LOAN  

Mu Sigma’s $394.3m three year term loan  

Mandated lead arrangers and bookrunners: Bank of Baroda, Barclays, Credit Suisse, Deutsche Bank and Standard Chartered 

Mandated lead arrangers: ANZ, BNP Paribas, ING, IndusInd Bank and Kotak Mahindra Bank 

Arranger: Siemens Bank

The debut loan for Indian unicorn Mu Sigma was one of a kind. Syndication was far from straightforward, owing to the unfamiliarity of banks with the borrower’s industry, unfavourable tax regulations and the unusual circumstances that drove the fundraising. 

But thanks to expert structuring, painstaking due diligence and a clever syndication strategy, the deal became an exemplar for borrowers, and is our pick for 2017’s Best High Yield Syndicated Loan. 

The story of the deal’s inception is unusual. Dhiraj Rajaram and Ambiga Subramanian, co-founders of data analytics firm Mu Sigma, had divorced. In the aftermath, Subramanian agreed to sell her share of the business to her ex-husband, and signed a non-compete agreement preventing her from venturing into business in the same industry.  

Rajaram approached lenders in November 2016 for funds to buy out Subramanian’s stake in Mu Sigma. The objective of the share buyback was for Rajaram to end up with a controlling stake in the company. 

So far, so good. But when it was time to drill down the details of the loan, things started to get tricky. For starters, a bulk of Mu Sigma’s business and cash were in India. Upstreaming the money from the country to pay down the debt faster would have exposed the company to a dividend tax leakage. As a result, getting the structure right was critical and the leads spent three months perfecting this. 

The most tax efficient route was to raise the money at the US holding company level and secure the loan against the borrower’s assets. Because Mu Sigma had very little debt on its books, it could afford to amp up its leverage, so the loan was designed as a leveraged buyout financing. 

Given the uniqueness of the trade, safeguards were put in place through negative pledges, giving banks a degree of control over what the company could or could not do with the cash. 

Most of the cash was put into bank deposits and mutual funds. In case of investments into securities, a domestic bank was assigned the role of investment agent to monitor which mutual funds the money was being ploughed into. The borrower has to provide monthly statements on the investments and avoid investing in risky assets.

Spot-on syndication

As it was an LBO-style loan and structurally complicated, the leads took a novel approach to the syndication. They engaged with the structured finance desks of commercial banks first instead of approaching loan syndication teams directly, as is usually the case. 

This turned out to be a smart move, with the loan a hit in the senior phase, bagging commitments from a distinguished group of lenders. 

The distribution was not without its challenges. The company is unlisted so there were a number of questions about its valuation. Although Forbes had assigned the start-up a valuation exceeding $1bn, lenders were not easily swayed. To convince them, the leads worked tirelessly with their in-house sector teams and also commissioned reports from external consultants to ensure the most accurate valuation for the company.  

The personal angle, with the loan essentially being viewed as a form of compensation from Rajaram to his ex-wife, also caused unease. But lenders’ fears were partly assuaged by the non-compete agreement. The leads also arranged one-on-one meetings between lenders and Mu Sigma’s management, with banks comforted by the latter’s professionalism. 

Lenders’ unfamiliarity with the data analytics industry was also something that was flagged. The leads tackled this by providing investors with comprehensive due diligence, showing the sticky nature of Mu Sigma’s operations. 

All these efforts paid off. The loan defied expectations, with the targeted syndication and structuring setting an important template for share buyback related fundraisings in Asia, making it a worthy winner of GlobalCapital Asia’s award. 


BEST LEVERAGED/ACQUISITION FINANCE AND BEST LOAN 

Belle International’s HK$28bn ($3.6bn) dual tranche take-private loan 

HK$21.5bn five year amortiser and a HK$6.5bn bridge loan 

Mandated lead arrangers and bookrunners: ANZ, Bank of America Merrill Lynch, Bank of China (Hong Kong), China Citic Bank Shenzhen branch, China Minsheng Banking Corp Hong Kong branch, China Merchants Bank, DBS, ICBC (Asia), Mitsubishi UFJ Financial Group and Shanghai Pudong Development Bank Shanghai branch 

Mandated lead arranger: Bank of China Macau

When Bank of America Merrill Lynch took a sole underwrite on a HK$28bn loan to support the take private of Chinese shoe company Belle International, the move was considered nothing short of audacious by its rivals.

But the loan went on to receive commitments from top-tier banks and gathered liquidity from some lenders that had little to no experience in funding leveraged buyouts. There is little doubt that underwriting the deal was a risky play for BAML, but it was a calculated risk.

In the beginning, the odds appeared to be stacked against Belle. The firm relied on a retail-driven model to sell its shoes in a world that has increasingly embraced e-commerce. The volatility of the footwear sector and losses suffered by Belle in its fashion shoe line added to the uncertain outlook.

But the borrower overcame these issues with a nifty structure. The financing consisted of a HK$21.5bn term loan and a HK$6.5bn bridge-to-cash. Banks that bought a piece of the term loan received a pro-rata allotment for the three month bridge, meaning they earned a juicy 50bp fee on what was effectively a cash component. Once the bridge was paid out, the leverage went down to a reasonable three times. 

The issuer also mitigated concerns around its sector by emphasising its diversified revenue stream. Belle is among the largest distributors of Nike and Adidas in China, earning a sizeable chunk of its Ebitda from those channels. Moreover, health and lifestyle related products have a ready market in the country, thanks to the aspirational spending by its population, propelled by steady growth in disposable income.

Banks also took comfort in the fact that investment manager Hillhouse Capital, which became Belle’s majority owner following the buyout, was an early investor in JD.com. This signalled to the market that Belle’s eventual migration to e-commerce was likely to go smoothly under the guidance of its new sponsor.

The fundraising came in for some criticism from rival banks, which reckoned the leverage was too low to qualify as a leveraged deal and the syndicate was not varied enough, since it was dominated by Chinese banks. 

But given leverage is a function of the industry the target operates in, three times for a retail-based footwear business appears sensible. And the sponsors were keen to build relationships with Chinese banks, explaining their strong presence in the syndicate group.  

In the end, and following some intense investor education, Belle turned out to be a big draw, with a number of non-traditional LBO financiers, such as Shanghai Pudong Development Bank and Bank of Tokyo-Mitsubishi UFJ jumping in. The loan was two times oversubscribed. 

Belle’s transaction was one that nearly every house on the street admitted they wished they had been on. For its structure, smooth syndication and for meeting the client’s objectives, Belle’s loan is our pick not just for the Best Leveraged/Acquisition Finance of the year, but also Best Loan overall.


BEST LOANS HOUSE

Standard Chartered 

Banks entered 2017 on a cautious note, after authorities in China decided to tighten the screws on capital outflows at the end of 2016, bringing down the curtains on an outstanding year for China outbound M&A. 

That was undoubtedly a blow. Acquisition-related financings had propelled loan volumes during the previous year. China’s newly bearish attitude to outbound M&A, not to mention increasing scrutiny from US regulators, forced banks to innovate and search for elusive sole mandates in an ultra-competitive environment. 

Add to that the fact the Asian bond market was more buoyant than ever this year, becoming a top choice for corporate debt raising, and 2017 seemed set up to be a disappointment for loans syndications desks in the region.

Through it all, one lender —Standard Chartered — stood apart from the rest in dealing with these headwinds, managing not only to boost its bookrunner credentials in the G3 syndicated loans market, but doing so with ingenuity while using its deep understanding of the Asian market to draw out liquidity from untapped areas.

One big change at the firm this year was the establishment of the Capital Structuring and Distribution Group (CSDG) in June, a move that united the private side distribution and structuring teams from the corporate and institutional businesses. This meant the bond syndicate, private side structuring, loan syndicate, securitization, private side structured sales, credit insurance and trade distribution teams were effectively under one unit — allowing them to work closely to originate and distribute loans. 

The efforts of that partnership were visible in a deal for the Pakistan sovereign, for instance. The $700m fundraising had a static guarantee from World Bank entity International Bank for Reconstruction and Development, which effectively translates to 100% World Bank cover by the time the 10 year loan reaches its halfway mark. This means lenders would not be using their Pakistan limits while investing in the loan, freeing up space for other borrowings from the capital-hungry south Asian nation.

Standard Chartered’s market know-how was also on display in the distribution of Sri Lankan firm Sampath Bank’s $100m loan. The firm knew that one promising investor class for deals from financial institutions was Indian banks, as the risk weight they need to assign to FI deals was lower than for corporations.

The performance of Sampath’s longest and largest international loan demonstrated that Standard Chartered got it right. A number of Indian lenders signed up, allowing the borrower to take double the amount it was initially seeking. Standard Chartered was also the first bank to start arranging roadshows in Mumbai, identifying second tier state-owned lenders as potential providers of dollar liquidity. 

Expanding liquidity

Standard Chartered’s story was also one of consistency and innovation. In 2016, the bank had harnessed Chinese bank liquidity for African credits, in a bid to leverage on the growing trade ties between African countries and China, and the Mainland’s plans to undertake massive infrastructure building in those nations. 

Not one to rest on its laurels, Standard Chartered continued its efforts to unearth new liquidity and introduce new clients to Asian lenders, focusing on Latin American credits. It held a seminar in Taipei to educate Taiwanese lenders — often a key source of retail liquidity for loans. 

The bank has long been at the vanguard of using innovative techniques and credit wrapping methods to get borrowings for ostensibly difficult credits off the ground. This year was no different. 

Take the example of a $300m loan for Lotte Vietnam Shopping, which runs a mall located in Ho Chi Minh City. Local regulations prevent offshore banks from collateralising loans with the properties of Vietnamese companies. To attract demand, Standard Chartered came up with the idea of enhancing Lotte’s loan with a standby letter of credit from a local Vietnamese bank, which, in turn was secured by the borrower’s properties. 

Geographic reach 

Standard Chartered’s efforts to push the boundaries on possibilities in the Asian loan market is apparent in its league table performance. It occupied pole position in the G3 Asia ex-Japan investment grade bookrunner league table during the awards period, up from third place during the same period in 2016. It took second place, behind Bank of China, in the overall Asia ex-Japan G3 bookrunner league table, with 53 deals accounting for a 7.28% market share. 

It’s breadth of coverage is also apparent, as it has a portion of the loan pie across countries in south and southeast Asia, as well as north Asia. Its deals have spanned the likes of Agile Group Holdings’ HK$3.519bn loan return to Beijing Automotive Group Co’s €265m deal. In Asean, it worked on a $650m loan for the Philippines’ Aboitiz Power, a £259m deal for the Malaysian Employees Provident Fund and a $370m syndication for Public Bank. 

Its Indian footprint included transactions for the likes of Adani Global and the first US term loan B style financing in Asia for Novelis, while it also sourced Indian bank liquidity for international borrowers successfully. 

Revenue wise too, it performed well. It ranked fourth during the awards period, with Asia ex-Japan loan revenues of $43.35m, according to Dealogic. It did not feature in the top 10 during the same period the previous year. 

Whether it is experimenting with loan structures to come up with the right solution for its clients, or expanding the horizons of Asian banks in terms of the geographies and sectors they lend to, Standard Chartered has been a driving force behind it all — indisputably making it our pick for the Best Loans House of 2017.


  • By GlobalCapital
  • 07 Jan 2018

Panda Bonds Top Arrangers

Rank Arranger Share % by Volume
1 China Merchants Securities Co 21.76
2 Agricultural Bank of China (ABC) 15.11
2 CITIC Securities 15.11
4 China CITIC Bank Corp 13.60
5 Industrial and Commercial Bank of China (ICBC) 10.58

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 9,879.80 45 8.93%
2 Morgan Stanley 8,481.96 28 7.66%
3 Goldman Sachs 8,123.16 33 7.34%
4 China Securities Co Ltd 6,118.37 18 5.53%
5 Bank of America Merrill Lynch 5,384.74 11 4.86%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 12,759.16 95 7.41%
2 Citi 11,327.78 69 6.58%
3 Goldman Sachs 8,568.36 34 4.97%
4 JPMorgan 8,456.82 37 4.91%
5 Bank of America Merrill Lynch 7,806.04 40 4.53%

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