BEST FOLLOW-ON/ ACCELERATED BOOKBUILD
Sale of Crown Asia Investments’ stake in Melco Crown Entertainment
$336.7m follow-on plus $840m share sale for swap unwind in May 2017, after a $670m secondary sale in December 2016
Bookrunners: Deutsche Bank, Morgan Stanley and UBS
Australian magnate James Packer shook things up in Asia’s usually straight-laced equity block market in 2017 when he bowed out of his Macau casino venture, completing a transaction that was executed mostly behind the scenes over six months and backed by complex swap arrangements.
Packer’s Crown Asia Entertainment completed the sale of its remaining 11.2% stake in Melco Crown Entertainment on May 8 to Hong Kong partner Melco Resorts & Entertainment. But given the troubled circumstances, including issues around regulation in Macau, this was no easy sale. Indeed, the sheer complexity of the transaction was a big part of why GlobalCapital Asia picked it as the Best Follow-On/ Accelerated Bookbuilding during our awards period.
Melco Crown was started as a joint venture between Packer’s Crown Resorts and Melco International Development, controlled by Lawrence Ho. The JV was behind the development of Studio City, a sprawling gambling resort on Macau’s Cotai Strip.
Following his decision to exit, Packer needed to reduce his exposure from the 38% he held in May 2016. To achieve that, he worked with the lead banks and Lawrence Ho to structure the trade in four parts.
In December 2016, the leads initiated swap hedge agreements to reduce Packer’s exposure in Melco Crown by $670m. This was followed by a private placement from Crown to Melco International Development that would essentially trim Crown’s exposure by a further $1.9bn.
Those efforts came to a head in May 2017, when the leads went to the market with a $336.7m US pre-open block that was well-received by investors.
The blocks in December 2016 and May 2017 were priced at progressively tighter discounts despite the rise in Melco Resorts’s share price. The first trade priced at $16.35 for a 5.5% discount to the previous close and the May one at $21.35 for a 4.4% discount.
Following the buy-back of stock in Melco Crown, Ho’s US-listed Melco Resorts issued 27.8m American Depositary Shares (ADSs) to fund the purchase, and a further 82m new shares to settle the existing swap agreements. The swap unwind was worth $840m.
Packer and Ho’s arrangement was an excellent example of the kind of deal that can emerge when banks are faced with an unusual problem that requires non-traditional solutions. For the numerous complex layers to the transaction, and for Packer’s ability to make a smooth exit from the company in time of need, this deal was a clear pick for the Best Follow-On/ABB of the year.
BEST EQUITY-LINKED DEAL
Shanghai International Port Group’s $1bn dual-tranche exchangeable bond in Postal Savings Bank of China
$500m 2021 EB and $500m 2022 EB
Bookrunner: Deutsche Bank
Asia’s equity-linked market presented few opportunities for bankers to generate revenues in 2017. But among the deals that did come were some truly impressive transactions. When Shanghai Port Group broke a summer lull with a two-tranche exchangeable bond, it silenced naysayers.
The Chinese state-owned enterprise sold the bonds with Postal Savings Bank of China’s (PSBC) shares as the underlying asset, offering the largest equity-linked trade by a Chinese issuer in a decade. But more crucially, it gave global accounts, especially outright investors, the opportunity to build a position in PSBC’s notoriously illiquid stock.
PSBC raised HK$59.15bn ($7.6bn) from Hong Kong’s largest IPO of 2016, but a cornerstone-heavy book meant only 24% of the deal was on offer during bookbuilding. Shanghai Port was one of those cornerstone investors. When it picked Deutsche Bank to help it cash in on the trade, it clearly gave the German bank a neat opportunity — but it also gave it some serious problems to overcome.
The vast majority of investment banks approached about an equity-linked deal had passed on the transaction, according to a banker familiar with the deal. It is hard to blame them.
Shanghai Port was in the market to sell 7% of PBSC, which would have been all but impossible to do as a regular equity block, given the 847m shares on offer were equal to 150 to 160 times its daily trading volume.
To make it work, Deutsche needed to convince the seller to make some difficult decisions. This included getting Shanghai Port to fork out money to get the exchangeable bonds rated, as well as convincing it to provide stock borrow — a touchy subject given sensitivities around Chinese state-owned enterprises (SOEs) facilitating shorting.
The lead also split the issuance into a pair of $500m zero coupon tranches: a four put two and a five put three. The dual-tranche approach proved smart, as having two distinct offerings meant it was possible to appeal to investors with different maturity preferences.
The A2 rating by Moody’s and A by S&P also helped draw in investors that were not familiar with the credit.
Shanghai Port ended up becoming the first Chinese SOE to provide a stock borrow facility, which was key as it allowed investors to model the EB with a capped cost assumption of between 1% and 1.5%. Without it, the cost of stock borrow would have ballooned to a deal-breaking 10%.
With the stage set, the EB saw impressive traction during bookbuilding. The trade had a much larger global buyer base than the typical Asian issuer, including huge participation from European outright funds. Shanghai Port sealed the EB at the mid-point of guidance, giving both tranches a yield-to-maturity of 0.75% and an exchange premium of 20%.
For orchestrating a $1bn exit strategy in a stock that trades at just a fraction of that, and for its savvy in tapping demand from a broad investor base, Shanghai Port’s EB in PSBC is GlobalCapital Asia’s pick for Best Equity-Linked Deal of 2017.
BEST IPO/ECM DEAL
ZhongAn Online P&C Insurance Co’s HK$13.7bn ($1.75bn) Hong Kong IPO
Sponsors, global co-ordinators, bookrunners and lead managers: CMB International, Credit Suisse, JP Morgan and UBS
Bookrunners and lead managers: ABC International, BOC International, CICC, ICBC International, Morgan Stanley and Ping An of China Securities (Hong Kong)
Lead managers: Essence International, Futu5.com and Head & Shoulders Securities
An IPO backed by China’s best-known technology and finance chiefs was always going to have huge expectations. But ZhongAn Online P&C Insurance Co’s Hong Kong flotation delivered on all fronts. It was the first big test of the city’s ability to host technology IPOs — and its success paved the way for many more deals to follow.
The online-only insurer was founded in 2013 by Alibaba Group Holding's Jack Ma, Tencent Holdings’s Pony Ma and Ping An Insurance’s Ma Mingzhe, and since then it has outsold traditional firms to become the country’s largest insurer.
Despite its credentials, the success of the trade was far from a given.
The leads not only had to get investors comfortable with ZhongAn’s innovative business model, they also had to work with regulators in both China and Hong Kong — all the while aiming for punchy valuations.
When the issuer held the kickoff in late 2016, equity markets were choppy, so much so that the leads even considered dropping Hong Kong as a listing venue altogether.
But then they came up with a plan. ZhongAn took a different approach by raising funds in a so-called ‘A+’ financing round, a move that introduced more investors at the pre-IPO stage. These included non-traditional accounts like high net worth investors and corporations.
This allowed the lead banks to go full steam ahead with the IPO after the preliminary documents were filed, but while there was sufficient cornerstone demand by the time of launch in September, it was SoftBank’s entry that supercharged the deal. The Japanese firm made its first cornerstone investment in a Hong Kong IPO through ZhongAn, under the ambit of its $100bn Vision Fund.
SoftBank helped ZhongAn win over investors, as did the issuer’s future growth potential, powered by its proprietary technology. Investors bought into that long-term story, allowing the IPO to price at a 2019 price-to-earnings multiple of 36.7 times.
Not only did the float see over 500 institutions pile in, but the retail subscription topped $1bn. ZhongAn’s market capitalisation surged from HK$85.7bn to a high of HK$140.8bn in the secondary market.
But even more important is the deal’s impact on the wider market.
ZhongAn laid the groundwork for IPOs from the likes of China Literature and others in the technology sector in Hong Kong, and lit a fire under issuance for 2018 and beyond. All this makes ZhongAn’s listing our pick for the Best IPO and the Best ECM Deal this year.
BEST ECM HOUSE
In a strong year for Asia’s equity capital markets, all the banks that vied for GlobalCapital Asia’s awards put up commendable performances. But for positioning itself in front of the year’s biggest themes, and for staying close to the clients that mattered, Credit Suisse stood out from the crowd.
Market participants will look back on 2017 as the start of a new cycle in China’s technology-related IPOs, after the previous wave hit a climax with the mammoth $25bn listing of Alibaba Group Holding on the New York Stock Exchange in September 2014.
The return of this theme, as well as the change in fortunes of the Hong Kong bourse, were opportunities Credit Suisse was prepared for.
The Swiss firm has always put the technology, media and telecommunications sector at the heart of its ECM coverage. It has held the number one bookrunner ranking for Chinese US-listed technology IPOs since 2013, according to Dealogic, putting it ahead of the top Wall Street shops despite its lack of home ground advantage.
That focus helped Credit Suisse land sponsor roles in all the technology-backed IPOs in Hong Kong, as well as the bulk of the Chinese new economy issuers that listed in New York — testament to the strength of its China origination capabilities.
Although sometimes viewed by competitors as a TMT boutique and as being overly reliant on its private bank, it was those factors that have helped Credit Suisse, under the leadership of head of Asia Pacific ECM Johnson Chui, fire on all cylinders last year.
The bank leveraged on its relationship with Tencent Holdings, a giant of China’s internet platforms, to engineer one hugely successful IPO after another. China Literature, Sea, Sogou, Yixin Group and ZhongAn Online P&C Insurance Co all owe part of their listing successes to their Tencent connection.
These transactions were the result of years of staying close to the right clients. Credit Suisse facilitated Tencent’s investments into Sea, a shopping and gaming company, and Sogou, a search engine, before their IPOs. Its private bank was also key to the origination of ZhongAn’s listing — our pick for the Best IPO and Best ECM Deal of 2017.
Its patience has paid off in other ways too, especially in southeast Asia where its ECM desk is helmed by Cheun Hon Ho. The region has lost much of its appeal to international bulge bracket firms due to the paucity of deal flow. But Credit Suisse has shown there are rewards to staying invested.
The bank worked on Singapore-based Sea’s US flotation, the first for a southeast Asian unicorn, as well as the Hong Kong listing of Singapore computer gaming company Razer. Credit Suisse also stayed on top of the city-state’s real estate investment trust market, winning roles in Lotte Chemical Titan Holding’s IPO, Chandra Asri Petrochemical’s rights-plus-block combo, and fundraisings in India, the Philippines and South Korea.
Credit Suisse’s frontier market franchise also shone with Vincom Retail’s deal, hailed as Vietnam’s first true international IPO. The transaction used a novel approach to settlement that overcame Vietnam’s arcane rules, blazing a trail for future share debuts from the country.
Credit Suisse ticked a lot of boxes in 2017. It was a bank that played to the year’s biggest themes, stood at the forefront of the revival in Hong Kong IPOs, and helped push the boundaries of Asia’s primary equity market. It is undoubtedly a worthy winner of Best ECM House for 2017.