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GlobalCapital Asia regional capital markets awards 2015, Part I: Loans

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By GlobalCapital
06 Dec 2015

In the first instalment of our 2015 awards, we present the winners for Best Project Financing, Best Leveraged Financing, Best Investment Grade Loan and Best Loans House.

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BEST PROJECT FINANCING

Pune Solapur Expressway Rp7.88bn ($119m) non-convertible debentures and Rp2bn loan

Sole arranger: Kotak Mahindra Bank

The dual instrument fundraising for the Pune Solapur Expressway project was a triumph in financial structuring that saw the company access a new investor class but avoid having to pay a premium.

The deal was split between an Rp7.88bn non-convertible debenture portion that was funded by three mutual fund investors and an Rp2bn loan extended by Kotak Mahindra Bank. Both paid a starting interest rate of 10.15% based on Kotak Mahindra Bank’s base lending rate of 9.75% at the time of signing in July.

A better cost of funds was one reason the issuer opted to raise a major part of the funding via non-convertible debentures. Tapping mutual fund investors for the non-convertible debentures also had another advantage in that it preserved bank credit lines to the company for future projects.Because the base rate was a floating one and thanks to declining interest rates in India, the cost of funds to the borrower has already narrowed since the deal was wrapped up. The base rate has now stepped down 25bp, making the interest rate at the time of writing 9.90%. By comparison a syndicated loan would have a cost closer to 10.75%.

But accessing mutual fund investors came with its own pitfalls. In India, mutual funds can only invest in an instrument that has a domestic rating of A- or above. To achieve this rating, Pune Solapur Expressway had to provide credit enhancements in the form of cash reserves.

These reserves totalled Rp1.49bn, including a debt service reserve account of Rp260m, a contingency reserve of Rp200m, a critical reserve of Rp225m and a major maintenance reserve of Rp800m over five years.

Under local regulations, a company can invest these reserves into AAA or AA+ rated mutual funds or fixed deposits with an escrow bank. But at the time these would have only returned 7%-8% per year to the borrower, resulting in a negative carry of 2% -3% based on the loan interest rate of 10.15%.

To overcome this, a bank loan was needed. The Rp2bn loan was designed such that it contained a Rp1bn overdraft (OD) facility.

By providing the OD facility as a sublimit, the cash in the reserves could be deposited into the OD facility and interest on the deposited amount was not charged to the borrower.

With a 14 year tenor, the financing marks one of the longest tenor issuances to support a toll project in India. This deal now provides a blueprint for others to follow in a country that has acute infrastructure needs, making it a deserved winner.


BEST LEVERAGED FINANCING

Vistra Group $751m loan

$258m (Libor+375bp) and €238m (Euribor+375bp) seven year first lien term loans and $100m (Libor+800bp) and €78.5m (Euribor+800bp) eight year second lien term loans and $50m five year revolving credit (Libor+375bp)

MLABs: Credit Suisse, DBS, Goldman Sachs, Jefferies

The US term loan B style fundraising for Baring Private Equity Asia’s acquisition of trust businesses Vistra Group and Orangefield Group takes the prize for our Best Leveraged Financing. The deal overcame massive roadblocks including volatile markets and a lack of precedents for the underlying targets.

US term loan Bs, with their incurrence based covenants and quasi bullet repayments, are sought after by private equity sponsors for leveraged buyouts. These borrowings are raised on the target’s books and support more aggressive leverage of up to 8x in certain cases. And unlike a bond, there is limited call protection, giving the borrower more flexibility.

This flexibility is one reason Baring Asia picked a US term loan B for its acquisition. The loan started out at a smaller size as the sponsor was initially looking to only buy Hong Kong-headquartered Vistra Group, a trust services company.

The leads had underwritten this acquisition to the tune of 6x leverage and decided on a strategy that would see the loan being sold in Europe, North America and Asia.

The Vistra acquisition was announced in May, but by July Baring Asia had also decided to acquire Netherlands-based Orangefield Group, another trust services business, on the advice of the leads. This meant a bigger financing package had to be sought after pre-marketing for the Vistra deal had already launched.

The hard work that went into pre-marketing and educating investors for the original Vistra loan paid off and investors were more than happy to get a chance to grab a bigger piece of the debt, once they understood the benefits that would come from the critical mass attained by integrating the two businesses into one.

However, getting there was far from easy. North American investors were not familiar with the trust services industry, so rigorous investor education was needed. This also meant there were no precedents to act as a pricing benchmark.

But the lack of familiarity was not the only issue. The loan was launched in July at a time when the Greek referendum and China’s stock market were generating plenty of volatility. Nevertheless, the leads stuck to their guns and went ahead.

The strategy paid off. Not only did the banks manage to get the deal done, they also managed to shave 50bp off from the upper end of the first lien range and the OID, and price the second lien at the bottom of the range.

In the end the loan saw over 50 investors come on board with a mix consisting of international funds as well as pure Asia play ones. By the time it wound up, the underwriters had successfully distributed 20% into Asia, and 40% each into US and Europe.


BEST INVESTMENT GRADE SYNDICATED LOAN

Istanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme (ISG)

€500m seven year senior secured term loan

Joint bookrunners: BNP Paribas, CIMB and Deutsche Bank

Istanbul Sabiha Gökçen Uluslararası Havalimanı Yatırım Yapım ve İşletme’s €500m loan was an unusual case of an Asian sponsor, Malaysia Airport Holdings (MAHB), backing a Turkish borrower’s fundraising, with the firm also exercising a reverse flex midway through syndication.

MAHB owned 60% of ISG until this year. The holder of the remainder was keen to sell its stake in Turkey’s third-largest airport. MAHB, in turn, was keen to gain full control of ISG, laying the foundation for the €500 loan, which was used to refinance all existing debts of the airport, pay swap unwinding costs and finance working capital.

Here was where the transaction faced challenges. In order to refinance all of ISG’s debt, MAHB required existing lenders to sign a no-objection certificate, particularly as the eventual cost of new fundraising would be lower. It also needed approval from Turkish regulators to go ahead with the acquisition and refinancing. And in another twist, the borrower wanted flexibility to reduce the margin on the loan if demand was robust.

This forced bookrunners BNP Paribas, CIMB and Deutsche Bank to find a structure that would suit ISG as the borrower, its Malaysian sponsor and potential lenders. To solve this MAHB was asked to first guarantee 60% of the new loan by ISG. This would become a full guarantee once all the regulatory approvals were given and ISG became 100% owned by MAHB.

This meant 60% of the loan had investment grade status, with the leads taking care to make lenders comfortable with the structure. Presentations were held in Singapore and Istanbul in addition to one-on-one bank meetings in Dubai and Abu Dhabi to woo banks.

In the end the deal was a blowout. A total of 16 banks formed the syndicate with their commitments making books three times covered. And once the loan became fully guaranteed, the borrower triggered a reverse flex midway through syndication. Even that left banks undeterred however with the final group consisting of Asian, Middle Eastern and European lenders.

The deal was a coup for both ISG and MAHB. Had the entire loan been viewed as Turkish risk, the borrower would have had to shell out around 6% over dollar Libor, in line with what other companies from the country were paying at the time. But the MAHB guarantee, combined with the Europe-Asia syndication strategy, led to ISG shelling out just 250bp.

The seven year deal was fully underwritten and pre-funded by the bookrunners, who were confident of pulling off the trade thanks to the strength of the Malaysian sponsor. For the intricate structuring, successful syndication and for meeting the borrower’s objectives, ISG’s fundraising takes the gong for the Best Investment Grade Syndicated Loan.

BEST LOANS HOUSE

Deutsche Bank

The year 2015 has proved to be an acid test for loan syndicators. The list of adverse factors seemed endless as they battled currency depreciation across key Asian markets coupled with rising credit risks amid a free fall in prices of energy and metal commodities.

Liquidity may have been abundant but margins were thinner and new business was tough to find as Asian borrowers preferred to stay onshore.

To their credit, major loan houses managed to navigate these minefields with various degrees of success but one bank stood out from the rest. Deutsche Bank — our pick for loan house of the year — expanded its geographic footprint even in domestic bank dominated markets and did so while earning a better return on capital for the bank.

Unlike some bigger loan houses, Deutsche Bank only set up its Asian loan syndications franchise in 2010. Despite not having the head start of long established relationships, the division has proved its mettle, and unseated the bank’s regional bonds business in P&L terms for the period under review.  It now occupies the fifth position in G3 currency syndicated loans ex-Japan and onshore China, ahead of heavyweights Bank of Tokyo Mitsubishi-UFJ and DBS.

Deutsche, which has a lean loan syndications team of around 14 people, was among the handful of foreign banks that successfully won business in Thailand, Malaysia and the Philippines, all markets where it did not have a presence before. One of its coups was the sole mandate for a €190m refinancing for state owned PTT Global Chemical Corp Thailand.

The success was a result of a carefully thought out strategy that involved having a specific person on the ground in each of these countries who worked with the coverage team to originate in markets like Thailand. Given the predominance of local banks in the country, the bank was aware that getting a foot in the door to lend to PTT Global Chemical’s parent PTT would be far from easy. Instead, it kept a close eye on offshore units of the state owned giant that might be in need of money.

The bank was also one of three bookrunners on a €500m seven year transaction for Malaysia Airport Holdings, which has been picked as our investment grade syndicated loan of the year (see above).

It’s not just Asean markets where the bank has extended its reach. Deutsche has also consciously bulked up its presence in China this year too with new manpower.  A natural move, considering China continues to be the biggest contributor to offshore syndicated loans in terms of volumes.

The strategy is paying off. Deutsche has manged to capture business in the Mainland despite the challenge mounted by Chinese banks, which have muscled their way into deals on the backs of their massive balance sheet.

Its sole mandate on a $300m borrowing for Ping An Leasing was tripled from its launch size and it was also one of two banks to lead a deal for Dalian Wanda Commercial Properties Co. 

Not only did it innovate on syndicated loan products, it also undertook strategic acquisitions to bolster its business and improve the quality of its book. The bank bought a portion of the highly sought after Asian loan portfolio of Royal Bank of Scotland, giving it access to investment grade Singaporean and Indian credits that were previously beyond its reach.

The bank has been quick to integrate the new business and is already in discussions with some clients to refinance their debt. Along with expanding their client base, the bank also plans to generate more secondary market activity through the on trading of some of these loans.

Not that Deutsche got it right every time.  For example a $195m deal it arranged for vehicle parts producer Hyva Global was slashed by $100m after languishing in syndication for four months. Its prospects were scotched by the company’s poor financial results and plunging sales in China.

Other banks have also proved adept at navigating this year’s torrid market. Standard Chartered had a stellar run this year, and all while grappling with the distractions caused by a huge restructuring of the bank. The bank managed to grow its market share, dealing with curveballs internally as well as externally.

But, unlike Deutsche, StanChart enjoyed certain advantages, with its bigger balance sheet, syndications team and the momentum built during its long years in the loan business.

However, it was Deutsche Bank that proved to be a cut above the rest in what can only be described as an exceptionally challenging year, and this despite being a latecomer to the party. It displayed the dynamism required to thrive in the syndicated loan market and emerged as the winner for this year’s best loan house.

By GlobalCapital
06 Dec 2015