Regional Capital Markets Awards Part III: Bonds

In the third instalment of our 2017 awards, we present the full write-ups of the winners of the Best Local Currency Bond, Best High Yield Bond, Best Financial Bond, Best SSA Bond, Best Investment Grade Bond, Best Project Finance Deal, Best Bond, Best G3 and Local Currency Bond House, and Best High Yield Bond House.

  • By GlobalCapital
  • 09 Jan 2018
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BEST LOCAL CURRENCY BOND 

Agricultural Development Bank of China’s Rmb16bn Bond Connect deal

Rmb5.5bn tranche due 2018, Rmb5.5bn portion due 2020 and Rmb5bn tranche due 2022

Global co-ordinators: Bank of China (Hong Kong) and Standard Chartered (Hong Kong)

Cross-border advisers: Agricultural Bank of China Hong Kong branch, ABCI Securities Company, Bank of Communications Hong Kong branch, BoCom International Securities, CCB (Asia), CCB International Securities, HSBC and ICBC (Asia)

China is a country perpetually in a state of flux, with eye-catching growth, rapidly changing regulations and giant institutions combining to allow the country to achieve in a year what it would take other countries a decade to pull off.

This perpetual motion can lead to fatigue, including among those capital market bankers who have long become used to every other deal being billed as unique. But the importance of China’s market liberalisations last year should not be understated. The launch of Bond Connect on July 3 was a crucial attempt by Chinese authorities to chip away at the many roadblocks that have long stopped international capital from flowing into the country.

That made Agricultural Development Bank of China’s Rmb16bn bond, the maiden transaction under Bond Connect, a particularly important one. The deal did not just herald the dawning of a new age for foreign investors and Chinese issuers, it also served as a test case for how smoothly foreign accounts can be integrated into bookbuilding.

GCAsia_awards_logo_2017_384pxAlthough Bond Connect, which links the mainland interbank bond market with Hong Kong investors, had been a long time in the making, the relevant guidelines for trading and settlement were rolled out only three weeks before launch. In addition, the regulators gave the market less than 48 hours’ notice before officially opening up Bond Connect.

Needless to say, the tight schedule and the novelty of the product presented some challenges to the issuer and the lead banks on the trade. But they navigated all the roadblocks and managed to explain Bond Connect’s arrangement to foreign investors over a three-day roadshow in Hong Kong.

The final outcome spoke for itself. The policy bank’s offering had an almost 10 times covered book, with a notable 13% of the bond allocated to foreign accounts — the highest ratio for an onshore non-Panda bond. The execution also reflected the impressive co-ordination between the onshore and offshore bookrunning teams, necessary to price all three tranches of the transaction tightly. 

While still in its infancy, there’s no doubt Bond Connect is critical in opening up China’s capital markets to foreign investors. The scheme only features northbound trading for the time being, but eventually China’s investors will likely be able to use it to invest overseas as well. With Bond Connect’s ease of access to the Mainland, the country’s debt issuers will find more international investors, providing a diversified source of liquidity that the onshore market needs to mature.

The importance of the scheme, and ADBC’s symbolic role in opening the market, makes it easily one of the most notable bonds of the year — and a worthy winner.

BEST HIGH YIELD BOND

Azure Power Energy’s $500m 5.25 year green bond

Global co-ordinators: Barclays, HSBC and JP Morgan

Bookrunners: Credit Suisse, Deutsche Bank and Société Générale

Indian company Azure Power Energy’s $500m green bond is GlobalCapital Asia’s winner of the Best High Yield Bond, winning in part because it so successfully navigated a choppy market and a cumbersome regulatory environment.

The solar energy producer hit the market in late July, just days after three other high yield bond issuers from Asia were forced to pull their offerings. But the company persevered, managing to entice orders of around $900m by paying a small new issue premium. That allowed it to allocate more than half of the deal to European and US investors, and an impressive 95% to fund and asset managers.

But a rocky market backdrop was not the only challenge for the issuer and the leads. Azure’s maiden dollar bond issuance was nearly hampered by a last minute change in Indian offshore funding regulations.

Less than a week before the sale, the Securities and Exchange Board of India suspended the issuance of offshore rupee notes because foreign holdings of rupee bonds had exceeded the authorised limit. As a knock-on effect, Indian issuers selling dollar notes were forced to check their use of proceeds was compliant with the foreign holding limit.

This was a problem as Azure planned to use the dollar proceeds to buy rupee-denominated debt issued by 17 of its Indian subsidiaries. Other issuers, including Greenko Energy Holdings earlier the same month, had used similar structures to sell bonds offshore while using the funds onshore to subscribe to senior unsecured rupee-denominated non-convertible debentures (NCDs) issued by subsidiaries. But Azure had to deal with the regulator’s additional scrutiny of the structure.

As a result, the leads had to find a way around the restriction by tweaking the bond’s structure.

The company, which sold the notes through a special purpose vehicle, still purchased some NCDs, but relied more on track III of India’s external commercial borrowings (ECBs) rules to move the proceeds onshore. Under track III, funds raised offshore can be used to provide loans or on-lending to domestic entities.

Azure also extended the maturity of its notes by three months to 5.25 years to account for the use of ECBs, as they require a minimum average tenor of five years if classified under track III.

Once the structure was in place, all that was left was the actual execution. While investors were still comfortable with the credit, Azure took additional time to explain the slightly different structure to investors before launching the deal. The meetings helped secure enough indications of interest beforehand — key given that fellow Indian renewable energy company Continuum Energy Levanter’s planned deal had flopped just a few days earlier.

Azure had enough hoops to jump through even for a conventional deal. The fact that the company pulled off this tightrope walk while selling India’s first solar green bond made the transaction all the more impressive.


BEST FINANCIAL BOND

Postal Savings Bank of China’s $7.25bn Basel III-compliant additional tier one bond

Global co-ordinators: Bank of America Merrill Lynch, CICC HK Securities, DBS, Goldman Sachs, Haitong International, HSBC, ICBC (Asia), JP Morgan, Morgan Stanley and UBS

Bookrunners and lead managers: ABC International, BOC International, CCB International, China Merchants Securities (HK), Citic CLSA Securities, Crédit Agricole, Deutsche Bank, Huarong Financial, ICBC International, Ping An of China Securities (Hong Kong), SinoPac Securities (Asia) and Standard Chartered

When bond market participants look back on 2017, one notable story will be the emergence of additional tier one bonds from Chinese banks outside of the big four names. Postal Savings Bank of China’s landmark $7.25bn Basel III compliant AT1 will be the undeniable star of the show.

The size of the transaction alone was impressive. Apart from being the largest bank capital issuance and the largest single-tranche transaction from Asia, the deal was also the second largest Chinese offshore bond following Alibaba Group Holding’s record six-tranche $8bn transaction in 2014.

But it wasn’t just size that helped Postal Savings Bank win our award for the Best Financial Bond. The deal also reflected the maturity of the Asian debt market, while the execution showed the adeptness of the lead banks and the issuer in tackling the challenges that came their way.

The trade marked a significant moment for the Reg S only market by showing what was possible in the format. The ability to absorb over $7bn in a single tranche transaction was impressive, offering a clear sign of the development of Asian bonds and the depth of its buyer base.

Similar to many other subordinated deals from China this year, mainland investors wanted sizable allocations. But Postal Savings Bank also saw international fund managers play in a big way. Admittedly, 70% of the notes naturally went to China, but allocating over $2bn of paper to non-Chinese — including European — accounts was notable.

Postal Savings Bank also managed to price its debut 35bp inside initial price guidance of 4.5%. In comparison in 2014, Bank of China and Industrial and Commercial Bank of China printed their AT1s at a 6% handle. Postal Savings Bank showed how far the Chinese debt market has come over the years.

It wasn’t all smooth sailing. Mid-way through bookbuilding, the leads and the issuer were in for a surprise, when S&P downgraded China’s rating to A+ from AA-. 

Two things helped reduce the impact. One was the fact that the deal had been a long time in the making, so the leads had a shadow book in place to ensure a watertight execution. Second was that S&P’s downgrade was the second time in four months that China’s ratings had been cut by an international agency. Its move had simply put its rating on the Mainland in line with Moody’s and Fitch — something investors quickly realised and got comfortable with.

That allowed the deal to sail to a smooth finish, offering a staggering example of just how far Asia’s bank capital market has come.

BEST SSA BOND

The Ministry of Finance of the People’s Republic of China’s $2bn dual-tranche bond

$1bn due 2022 and $1bn due 2027

Bookrunners and lead managers: Agricultural Bank of China Hong Kong branch, Bank of China, Bank of Communications Hong Kong branch, China Construction Bank (Asia), CICC, Citi, Deutsche Bank, HSBC, ICBC International and Standard Chartered

There were few deals more hotly-anticipated than China’s return to the international bond markets in 2017. The $2bn dual-tranche represented the sovereign’s first dollar bond since 2004. The scarcity value alone was enough of a selling point, but the fundraising deserves kudos for much more than that.

Many bankers and investors had speculated that China’s aim was to print tighter than the spreads on South Korean sovereign bonds. But the Ministry of Finance had bigger targets. It was looking at the likes of Japan Bank of International Cooperation and German development bank KfW as references.

It came as little surprise that China managed to achieve ultra-tight pricing for both the five and 10 year tranches — at 15bp and 25bp over US Treasuries, respectively, and inside most double-A rated sovereigns globally. The bonds even traded to just a few basis points over US Treasuries in the secondary market, further reflecting the strength of investor demand for the credit.

The execution was flawless. The leads had an 11 times covered book from around 280 investors, making allocation a headache. But the issuer and the leads proved they were a class apart, putting more than half the notes in the hands of non-Chinese investors. A diversified investor base was one of MoF’s objectives, and the results showed that while it did not necessarily need foreign investors for its bond, it wanted them.

The explicit absence of an international deal rating to the transaction did not stop investors from jumping on board, although it no doubt helped that the sovereign itself is rated by the international agencies.

Whether the finance ministry will indeed be back in the international debt market soon is a big question. But its successful and long-awaited return will certainly stick in bankers and investors memories for a while. It was a deal with no apparent flaw.


BEST INVESTMENT GRADE BOND, BEST PROJECT FINANCE DEAL AND BEST BOND

Paiton Energy’s $2bn dual-tranche bond

$1.2bn tranche due 2030 and $800m portion due 2037

Global co-ordinators: Barclays and HSBC

Bookrunners: Citi, DBS and Deutsche Bank

Lead manager: SMBC Nikko Capital Markets

Co-managers: Mizuho Securities and Morgan Stanley

In a record year for Asia’s bond market, one deal stood out and was consistently mentioned by bankers as the deal they wished they’d worked on. For its complex structure and seamless execution, as well as its re-opening of the project finance bond market, Paiton Energy’s $2bn dual-tranche transaction is GlobalCapital Asia’s Best Investment Grade Bond, Best Project Finance Deal and Best Bond of 2017.

Paiton’s bond, sold through Minejesa Capital BV, a finance entity created by its shareholders, was years in the making. The second largest domestic independent power producer in Indonesia structured its transaction as a 13 year amortising portion and a 20 year amortiser, in addition to a six year amortising loan — using an innovative fully amortising deal to eliminate refinancing risks.

That wasn’t the only feature that made the transaction unique. The leads also put together an almost airtight covenant package to provide comfort to investors, a necessity given this was the first benchmark dollar project bond issued by an Asian power company in more than a decade. 

For starters, the bond was secured — a relative rarity in the region. The proceeds were set to be transferred to one of the company’s wholly-owned subsidiaries, which in turn lent the funds to Paiton as an intercompany loan. Paiton is dependent on an offtake agreement with Perusahaan Listrik Negara (PLN) as its main source of revenue, but PLN was unwilling to pledge shares. The leads got around this with a power of attorney agreement that would protect investors in a default situation.

Other features included an irrevocable and unconditional guarantee from Paiton and a collateral package that included its assets and accounts in a cash flow waterfall. It also included assignments by Paiton of the operation and maintenance documents and insurances, as well as a pledge by Minejesa Power relating to intercompany loan receivables. There were restrictions imposed on the accumulation of debt, asset sales and business activities.

All this meant that a while a lot of hand-holding and investor education was required, the buy-side ate up the deal, pushing the order book to more than $9bn and allowing the leads to price the notes tightly.

The transaction got an additional boost with its investment grade rating of Baa3/—/BBB-, rare among Indonesian private sector debt issuers. Paiton’s deal would have initially been considered high yield, but the banks crafted the sizes of the tranches to fall in line with investment grade metrics for Moody’s and Fitch, using project bond methodologies that focus on the cash flow for the project.

What also showed Paiton’s savvy is the fact that it continued to work with the ratings agencies, and returned for a $100m tap to the 2037 portion in December. The additional funds were capped by the agencies so as to keep the bond investment grade, while also allowing the company to reduce the size of the original loan. The tap attracted far more demand than expected, with books closing at more than $1.3bn.

The deal not only met all of the borrower’s objectives, it also marked the first 144A/Reg S project bond in Asia since 1997. That could potentially usher in a new age for project finance bonds in the region. It is hard to imagine a better legacy for a deal that undoubtedly deserved a clean sweep of the awards it was eligible for this year.


BEST HIGH YIELD BOND HOUSE 

Credit Suisse

When it came to high yield bonds, one bank excelled during GlobalCapital Asia’s awards period, finding top spots both on the issuance league table and share of wallet in Asia ex-Japan, while boasting a broad geographic footprint. For its unrivalled performance, Credit Suisse was our choice for the Best High Yield Bond House of 2017. 

The Swiss bank has come a long way in the high yield market, given that a year ago it ranked sixth on Dealogic’s Asia ex-Japan G3 high yield bond bookrunner league table, with credits for 15 deals worth $859m. During this year’s awards period, it ranked second after Haitong Securities, with $3.8bn in league table credit through 30 deals. Haitong, in comparison, had credits for $3.9bn and 36 transactions.

Credit Suisse’s strategy was clear: focus on its clients, leverage its private banking relationships, and do its best to innovate — all while making money from each deal.

On the last point, the firm scored a clear win: it managed to beat its full-year revenue target in the first quarter. During the awards period, it ranked first in the Asia ex-Japan dollar high yield bond share of wallet, raking in $74m for a 13.84% market share, according to Dealogic. 

Its achievements were thanks in part to the investment Credit Suisse has made in its staff over the past few years, including hiring from firms such as BNP Paribas and HSBC. But at the top level, Credit Suisse has been remarkably consistent.

Derek Armstrong, a veteran at the Swiss bank, has run the DCM team for more than a decade. Terence Chia, head of debt syndicate for Asia Pacific, has been in the job since August 2013. Michael Lam, the greater China DCM head who has helped the bank boost its revenues from an essential region, has already been in the job for three-and-a-half years.

Credit Suisse undeniably stepped up its focus on Greater China during the awards period, a move that paid off handsomely. It was one of three bookrunners on China Evergrande Group’s $1.5bn trade on March 17, and also on its $3.45bn liability management whopper in mid-June.

Just a few days after that, it was one of the leads on a jumbo $6.6bn exchange-plus-new money outing for fellow property developer Kaisa Group Holdings. But Credit Suisse also showed prudence when it made a conscious decision not to join follow-up tap issuances from Kaisa.

The bank worked on perpetual deals for Chinese credits like Cifi Holdings, Greentown China Holdings and Yuzhou Properties Company, while also putting together undocumented private placements for Mainland clients, where it financed investors that purchased the private bonds — an alternative way for fundraising when the public bond market was not an option.

But China was not its only focus. The bank also actively led transactions in southeast Asia and south Asia, including for many first-time bond issuers.

Its roster of clients included Malaysian production storage and offloading company Yinson Holdings, Indonesia’s energy and natural resources company Medco Energi Internasional, tire producer Gajah Tunggal, India’s Vedanta Resources and Azure Power Energy — the winner of our Best High Yield Bond. Where there was a tricky credit and a solution to be found, there was Credit Suisse.

It has also been the bank of choice for the Government of Mongolia over the past two years and retained its position this year too. It was one of two leads on the sovereign’s $600m bond in March, and one of three on Mongolia’s return in October.

Credit Suisse’s long-standing collaboration between the private bank and investment bank clearly worked in its favour in 2017. The firm used the private banking team to help both pitch and structure high yield deals for clients — finding success with the likes of Singapore’s Fullerton Healthcare Corp, which raised $175m from a perpetual non call three in March.

GlobalCapital Asia’s inaugural High Yield Bond House award was hard fought, with a number of firms winning eye-catching deals in a highly competitive market. But for its geographical reach, its structural diversity, and its ability to marry skilful execution with plucky origination, Credit Suisse was a deserving winner.


BEST G3 BOND HOUSE

BEST LOCAL CURRENCY BOND HOUSE

HSBC

It was difficult to pick the best bond houses in Asia after a record year for issuance. But 2017’s Best G3 Bond House and Best Local Currency Bond House awards went to a bank that proved its geographical sweep, its deft execution skills, its smart eye for structuring and — perhaps most impressively of all — its unprecedented consistency in Asia’s debt market.

HSBC has sat at the top of Asia’s DCM league tables for so long that it should be suffering from altitude sickness. Instead, the bank appears to get healthier every year.

It was the top G3 bookrunner during our awards period, working on 203 trades worth $28.1bn, giving it an 8.51% market share, according to Dealogic. It had also ranked first during the same period in 2016, with credit for 142 deals totalling $22.1bn.

Across all currencies in Asia ex-Japan, HSBC ranked fifth with 270 deals worth $33.47bn, or a 2.73% market share. It was one of only two non-Chinese banks to rank in the top 10 alongside Citi.

These numbers are eye-catching, but they don’t tell the whole story. While 2017 was a strong year for pretty much every debt house on the street, the market still took some crafty navigation as volatility cropped up, Chinese regulators proved sporadic with their offshore bond approvals, and investors became overwhelmed with the surplus of high yield bonds at different points in the year. HSBC was adept at finding appropriate windows for its roster of clients — reflecting its deep understanding of the region’s debt markets.

The bank’s presence in high yield was particularly notable, thanks in part to the continuous collaboration between its investment banking and commercial banking divisions. Of the 37 high yield deals helmed by HSBC, 29 were for existing CMB clients. The partnership has clearly gone from strength-to-strength over the years.

Pan-Asia focus

No bank in Asia would be able to consistently top league tables without a strong presence in China. This year, HSBC led the majority of the largest Chinese offshore deals, including as a bookrunner on China’s noteworthy $2bn return to the international debt market in October — our winner of the Best SSA Bond of 2017 — and as one of the global co-ordinators on Postal Savings Bank of China’s $7.25bn additional tier one bond, our Best Financial Bond.

One of the oft-cited criticisms against HSBC is that it is effectively a Hong Kong/China bank, a criticism the bank’s rivals have been making every year for at least the last decade. But every year, that sounds less and less convincing.

The bank moved some of its team from Hong Kong to Singapore this year, putting more focus on the southeast Asian business.  That renewed vigour paid off. HSBC, alongside Barclays, worked as a global co-ordinator on Paiton Energy’s $2bn dual-tranche bond. The Indonesian transaction was awarded GlobalCapital Asia’s Best Investment Grade Bond, Best Project Finance Deal and Best Bond of 2017 for its complex, bespoke structure and impressive execution.

Likewise, HSBC was one of the lead managers and bookrunners on our Best High Yield Bond — Azure Power’s $500m trade, noteworthy for successfully navigating new Indian regulations.  The transaction was additionally complicated by a weaker market backdrop at the time. Azure is also an example of HSBC’s work as a green structuring adviser in Asia.

HSBC managed to take an important role in some key themes this year. Technology-related companies, for instance, were busy in 2017, and the bank worked hard at strengthening its relationships with TMT and private sector names. 

It was one of the leads on a $1.5bn offering by Baidu, one of the largest dollar bonds by a private enterprise in China during our awards period, and also worked on Huawei Technologies’ $1.5bn dual-tranche outing.

While dollars make up the mass of HSBC’s volume, the bank also took Asian issuers to the euro market. It was a lead on China Development Bank’s $4bn equivalent five tranche deal in January, the first Chinese issued euro deal of the year, and also worked on Bright Food Group’s €800m trade.

Local currency franchise

HSBC’s local currency business also excelled during the awards period, be it in Hong Kong dollars, Singapore dollars, renminbi or Indian rupee.

It topped the list of bookrunners in Hong Kong dollars, and led the way among foreign banks in the Singapore dollar debt market. In China’s Panda bond market — where HSBC blazed the trail with an issuance in its own name back in September 2015 — its strength was unrivalled.

It led Hungary’s first Panda bond, as well as Maybank’s maiden Panda, a first from southeast Asia. HSBC was also the only foreign bank to act as a lead underwriter on China Citic Bank International’s Panda bond — the first financial Panda of 2017.

HSBC also did not miss out on the opening of the Bond Connect scheme, connecting Hong Kong and China’s markets. It was a cross-border adviser on the first deal out of the gate, Agricultural Development Bank of China’s Rmb16bn issuance, and was one of just two foreign banks on the transaction.

Although the dim sum market was all but closed this year, HSBC still managed to get in on whatever action there was. It was one of the bookrunners on a Rmb1.5bn dim sum from Bank of China (Johannesburg) — the first public offshore renminbi bond of 2017. 

Outside of China, it was the bank of choice for many issuers. Its clients included Singapore Airlines and UOB in Singapore dollar market, Indian Renewable Energy Development Agency’s green Masala bond and HDFC’s Masala deal, as well as Cheung Kong Property Holdings’ Hong Kong dollar note.

HSBC’s breadth of coverage and geographical reach, both in the G3 and local currency markets in the region, have come to define the bank’s Asian division over the years. They were also more than enough to ensure the bank was considered a clear winner in both of these markets.



  • By GlobalCapital
  • 09 Jan 2018

Panda Bonds Top Arrangers

Rank Arranger Share % by Volume
1 Bank of China (BOC) 28.62
2 CITIC Securities 21.06
3 China CITIC Bank Corp 9.72
4 China Merchants Bank Co 9.18
5 Industrial and Commercial Bank of China (ICBC) 7.56

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 2,041.17 5 15.43%
2 Huatai Securities Co Ltd 1,006.47 5 7.61%
3 Morgan Stanley 816.96 5 6.18%
4 Citi 773.86 5 5.85%
5 China Merchants Securities Co Ltd 684.68 6 5.18%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 3,253.25 9 4.09%
2 Citi 2,657.81 16 3.34%
3 JPMorgan 2,627.80 6 3.30%
4 HSBC 2,497.09 21 3.14%
5 Morgan Stanley 2,299.31 10 2.89%

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