BEST EQUITY-LINKED DEAL
Shandong Ruyi Technology Group’s €250m overcollateralised senior secured guaranteed exchangeable bonds due 2021 into SMCP and concurrent repurchase of €60m exchangeable bonds due 2019
Bookrunner: JP Morgan
The winner of the Best Equity-Linked Deal will have flown under the radar of most bankers in Asia amid the boom in convertible bond sales this year. But even without the pomp and splendour of other equity-linked deals, Shandong Ruyi Technology Group’s €250m bond, which is exchangeableinto shares of SMCP, is deserving in every way.
The underlying asset is European, but the deal involved an extraordinary cross-border effort involving a Chinese issuer and a highly complex solution originated in sole bookrunner JP Morgan’s Hong Kong office.
Ruyi, a textiles group that bought French fashion house SMCP at the height of China’s cross-border acquisitions, faced some serious hurdles in its attempt to monetise the stake.
SMCP was relisted in Paris in 2017, trimming Ruyi’s holding to 55%. But its hands were tied on further sell-downs, as it needed to retain a 51% stake for two years to have super voting rights. Then there was Ruyi’s own weak credit, with bonds that trade as low as 60 cents on the dollar.
The issuer also did not have approval from the National Development and Reform Commission, the body that oversees international debt issuance from Chinese borrowers. But it was these unusual challenges that pushed the bookrunner to eschew business as usual.
The solution was a multi-step fundraising that kicked off in July 2018 with a €60m sub-one year EB. That tenor does not require the regulator’s nod, and JPM used the sale to test the waters with investors. Alongside the notes, Ruyi raised €104m from a placement of SMCP shares.
The lead also made a concerted effort to distance the EB’s credit from Ruyi. The paper was non-recourse to Ruyi and paid a 4% coupon with a 10% premium. It was also 2.5 times collateralised, with the €60m note backed by €150m of SMCP shares and ring-fenced.
The initial deal traded well over the summer, to the delight of the investors who did a lot of the early work. But for Ruyi, this was only a precursor to the actual fundraising, and it applied for NDRC approval immediately after pricing.
Despite the success of the first deal, the bookrunner realised it had to make a crucial change to the legal structure for the follow-up fundraise.
Ruyi’s shares in SMCP are housed in a Luxembourg special purpose vehicle and abide by French law, but English law affords better protection for investors in a default situation. In France, investors get their bonds back at the market price regardless of how much they paid for them. But under English law, the buyers have claims over the principal.
So for the second EB, the bookrunner set up an arrangement for Ruyi’s shareholding to be held with a UK depositary, as moving the shares would erode Ruyi’s voting rights. The effect of this was an English pledge on French shares held by a Luxembourg pledger.
With NDRC approval in hand, the new transaction was launched in September as a buy-back of the EB issued only months earlier alongside a concurrent sale of a larger and longer-tenor EB.
JPM marketed the three year with the same 4% coupon and 2.5 times collateralisation as the first EB, but with an initial target of €165m along with a €35m greenshoe option. Demand was so strong that not only did all existing investors rollover into the new notes, but they also topped up their exposure. Investors who missed the 2019s due to maturity and size concerns also came in.
The 2021s ended up raising €250m at a more aggressive 20% premium with about 15 accounts joining.
This approach was later used to refinance sub-one year equity-linked notes of Country Garden Holdings and Zhongsheng Group Holdings, proving its mettle as a truly innovative solution.
Meituan Dianping’s HK$33.1bn ($4.2bn) IPO
Sponsors, global co-ordinators, bookrunners and lead managers: Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley
Global co-ordinators, bookrunners and lead managers: China Merchants Securities, China Renaissance and UBS
Bookrunners and lead managers: ABC International, AMTD Global Markets, BoCom International, CMB International, Futu Securities and Haitong International Securities
Financial adviser: China Renaissance
Although it was the year for new economy IPOs in Hong Kong, the industry was marred by numerous setbacks, including smaller deals and plummeting stock prices in the secondary market. Meituan Dianping was not immune to the aftermarket volatility either, but its IPO still warrants this award as it came with a strong story for investors and an execution that helped it defy the hostile primary market.
The issuer, best known for its food delivery service, was founded in 2015 through the merger of Groupon-like website Meituan and restaurant review app Dianping. The former was backed by names linked to e-commerce giant Alibaba Group Holding and the latter by technology firm Tencent Holdings.
Unicorn Meituan Dianping, which competes with China’s internet giants, had been on equity investors’ wish lists for some time. And after the second quarter was capped by Xiaomi Corp’s multi-billion-dollar landmark but messy IPO, Meituan Dianping decided to waste no time coming to the market after the summer break.
The start-up was looking for a large chunk of capital — the most ever from an internet company in Hong Kong and the second largest globally behind Alibaba’s $25bn listing in 2014.
But when it came time to take orders for Meituan Dianping, markets were roiling amid global volatility, with the Hang Seng Index down 5%, the so-called FAANG stocks (comprising Facebook, Apple, Amazon, Netflix and Google) off 3% and Alibaba and Tencent down around 7%-8%.
To de-risk the situation the sponsors rounded up a handful of quality cornerstones, including global asset manager Oppenheimer & Co and Tencent, to lock-up 37% of the stock for six months.
Thanks to that support, Meituan Dianping quickly drew a horde of investors soon after launch, turning the final book into a bulging clutch of 350 accounts. The turnout was all the more impressive considering that just days before launching the deal Alibaba announced a move to combine its food delivery app Ele.me with local services platform Koubei, a direct challenger to Meituan Dianping, backed by Ant Financial and SoftBank among others.
But the listing sailed through and was priced at HK$69 per share, from a HK$60-HK$72 range. This translated to a 27 times 2020 price-to-earnings multiple — a premium of more than 20% to China’s national champions.
The last bit of the puzzle was Meituan Dianping’s decision to float with dual-class shares in Hong Kong, only the second to test this structure after Xiaomi’s disappointing deal. But the strong interest for the IPO despite the novelty of weighted-voting rights showed a vote of confidence for Meituan Dianping’s stock and management — making it the Best IPO of 2018.
BEST ACCELERATED BOOKBUILD
BEST ECM DEAL
Naspers’ HK$76.9bn ($9.8bn) stake sale in Tencent Holdings
Bookrunners: Bank of America Merrill Lynch, Citi and Morgan Stanley
When even the bankers away from a trade are rooting for it, there really is no contest. GlobalCapital Asia’s Best ECM Deal and Best Accelerated Bookbuild for 2018 is Naspers’ sell down in Tencent Holdings, which is taking the award not only for its size and ambition, but also for its spectacular showcase of the bookrunners’ global distribution and ability to execute.
Naspers’ investment into then-unknown Tencent back in 2001 is already the stuff of legend, so it is fitting that the secondary share sale by the South African media group this year should be too.
The accelerated bookbuild kicked off on the evening of March 22. It involved the sale of a 2% stake in Tencent, the Hong Kong-listed gaming and social media giant, worth up to $10.6bn. Given the sell-off that has ensued since in Chinese stocks on the back of the US-China trade war, the timing could not have been more prescient.
But even though Tencent was still the darling of global funds then, and the shares could have sold themselves, success was far from guaranteed.
The lead banks had worked on the sale for some time but kept it so well hidden to prevent leaks that only a handful of bankers had any inkling right up to the launch. They decided at that point, without wall-crossing investors, to go in blind by launching without a price range — a practice used elsewhere but rarely in Asia.
This transaction required true global distribution and watertight co-ordination between the bookrunners. As the deal was marketed without price guidance and with only Tencent’s last close of HK$439.4 a share as reference, the syndicate consolidated investor orders into multiple price bands to build a model that would guide the pricing decision.
If building a $10bn book was not enough of a challenge, the bookrunners had to do it against the backdrop of a 700-point plunge in the Dow Jones and as most US indices flashed red throughout the trading day.
Still, the banks were surprised by how quickly the bids came. They originally planned to release a post-launch message after US investors showed up. But the book was covered in just two hours by Hong Kong orders alone. One fund said it was prepared to either take $1bn of the shares or nothing at all, and the bookrunners obliged.
Investors were guided towards a HK$400 to HK$410 range, before this was tightened further to HK$403 to HK$406. The deal was closed after receiving a whopping $20bn of orders from 330 accounts. The shares were priced at HK$405 apiece, or a 7.8% discount.
As well as raising $9.8bn from the sell down, Naspers can boast of having done the second largest overnight placing on record.
“The kind of deal ECM bankers dream about” and “the holy grail of my career” — these were but some of the superlatives bankers on and away from the sale used to describe it. Indeed, the trade will loom large over all others for years to come.
BEST ECM HOUSE
In a year of severe volatility, where Asia’s equity markets were hit hard by the US-China trade war tensions, Citi’s resilience and ability to boost its market share across the region makes it our choice for the Best ECM House.
The year started strong, but soon spiraled into turbulence, making IPO execution a challenge and dampening the flow of block trades. Some banks faltered and lost key members of their team as others struggled to expand. But through it all, Citi was able to keep its ship steady and tackle all the hurdles head-on.
Admittedly, Citi is not the dominant house for Greater China, Asia’s biggest market for equity issuance, but it capitalised on its strengths in India, South Korea and southeast Asia to not just maintain its overall regional position but also grow its share of the business. Across Asia Pacific ex-Japan ex-onshore China ECM, its market hold jumped from 6.50% for the previous awards period to 7.45% based on $13.25bn of league table credits for deals, according to Dealogic data.
The bank sustained its top spot in the Indian ECM market with $2.4bn in credits, beating off fierce local rivals for a 12.23% share. It also led the way in South Korea through its consistent block and follow-on business, handling jumbo trades such as Kakao Corp’s $1bn Global Depository Share offering and Temasek Holdings’ $991m concurrent sell-down in Celltrion and Celltrion Healthcare.
While Citi maintained its strong position in southeast Asia thanks to its dominance in the real estate investment trust market, it also redoubled its effort to expand into frontier countries this year. This was evident in its role in Vietnam’s headline act, Vinhomes’ D30.7tr ($1.3bn) initial equity offering and $853m pre-IEO investment combination — the largest equity offering in southeast Asia.
That regional presence ensures Citi’s name is always at or near the top of the list when issuers are planning on coming to the market. But the bank also constantly leverages on its long-standing relationships to bag repeat business, which came to fruition with some record-breaking transactions during the awards period.
Its ability to understand a client and respond to their needs with advice on structuring, timing and distribution came together in the $9.8bn Naspers overnight block in Tencent Holdings, our pick for Best Follow-on/Accelerated Bookbuild and Best Deal of 2018. Working with a small team, the sale was launched with no pre-deal advertising and, after a precise read of investor appetite, it was covered in less than two hours.
Citi also played to the strengths of its relationship with Alibaba Group Holding, securing an advisory role in Ant Financial’s $14bn Series C Equity Financing round.
While 2018 had its share of mega-deals that Citi featured on, the bank was also at the forefront of capturing one of the key themes of the year: technology IPOs. Citi embraced the sector under the stewardship of tech savvy banker Jan Metzger — made Asia Pacific head of corporate and investment banking in March before being promoted to head of the newly created banking, capital markets and advisory division in December. Deals abounded in Hong Kong, and the bank also helped bring numerous Chinese issuers to the US.
What was important in our decision making process was the fact that despite some of the worst volatility in the markets in years, Citi remained close to infallible. It wasn’t unscathed of course but continued to work on an array of money-making deals, ranking within the top 10 in the Asia ex-Japan ECM revenue league table with $135.8m and a 3.88% market share, shows Dealogic. In comparison, top ranking Goldman Sachs nabbed $268m for a 7.65% share.
By using a combination of its skills in new economy sectors, long-standing relationships, regional breadth and product diversity, Citi scored across the board this year.
Others did come close, especially Bank of America Merrill Lynch. The bank had a strong year after a concerted effort to grow its franchise. The firm approached 2018 with an eye on the big game in the region, winning senior roles on a number of headline deals, including our Best Follow-on/Accelerated Bookbuild and Best IPO.
With a focus on bagging top-tier roles on transactions, the bank climbed during the awards period to fifth place among the Asia Pacific ex-Japan ex-onshore China bookrunners with $8.8bn in credits from 31 deals, compared to $3.4bn and 23 for the preceding 12 months, according to Dealogic.
BAML’s success is thanks to an expansion plan coming to fruition. In April, the firm hired Credit Suisse veteran banker Tucker Highfield as co-head of Asia Pacific ECM, to work alongside former head of Japan ECM coverage Shu Nagata. London-based Anvita Arora was brought out to Hong Kong to lead the region’s equity-linked origination and also take on the newly created position of South Asia ECM head.
Also in October, Jessica Li was promoted from a research role to head healthcare investment banking for Asia. Her move is telling of the bank’s desire to be at the forefront of trends such as biotechnology.
These moves are early signs of BAML’s drive and ambition, and it’s worth watching how the US firm fares in 2019 and if it can maintain its growth momentum.
But for now, for consistently holding a top position across the region, weathering 2018’s volatile backdrop and keeping up with trends in the market, Citi is our pick for Best ECM House.