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GlobalCapital Asia regional capital markets awards 2015, Part III: Bonds

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By GlobalCapital
08 Dec 2015

For the third part of our annual awards, we cover Best Local Currency Bond, Best Securitization, Best High Yield Bond, Best Investment Grade Corporate Bond, Best Financial Bond, Best Sovereign Bond, Best Local Currency Bond House and Best G3 Bond House.

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BEST LOCAL CURRENCY BOND

Hongkong & Shanghai Banking Corp Rmb1bn ($156m) Panda bond due 2018

Joint lead managers: Bank of Communications, Citic Securities, HSBC (China)

Panda bonds finally came back to life in 2015 with a landmark offering from HSBC in September. The market for onshore renminbi bonds issued by foreign entities had been largely dormant since its inception in 2005. That changed this year when the People’s Bank of China signaled its intention to restart the market as the country looks to internationalise its currency.

Having registered its interest to the PBoC in mid-2015, HSBC secured a green light from the regulators a few hours ahead of Bank of China Hong Kong (BoCHK) on September 22. But both institutions ended up choosing the same day to launch – on September 29 – as they wanted to get in ahead of the Chinese Golden Week holiday.

While the title of the first Panda bond by a financial institution goes to BoCHK, which unexpectedly announced the deal’s completion two hours after bookbuilding, the UK lender differentiated itself by carrying out a proper bookbuilding exercise for the transaction.

With this trade HSBC proved that foreign issuers can enjoy multiple advantages by tapping into the Chinese domestic debt capital market including pricing benefits and investor diversification.

The borrower saw a huge following from onshore investors but also attracted demand from offshore international banks with Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) quotas.

The final pricing of 3.5% was only 10bp wider than China Development Bank’s curve and came in 40bp-50bp tighter than other Chinese commercial banks.

The Rmb45tr ($7.02bn) Chinese onshore bond market has simply become too big to ignore for offshore investors and issuers and will get only bigger with the currency now being included in the IMF’s Special Drawing Rights basket.

Thanks to HSBC, the door is now wide open for others to follow.


BEST SECURITIZATION

BMW Automotive Finance (China) Rmb2.57bn Auto ABS – Bavarian Sky China 2015-1

Sole lead underwriter: Citic Securities

Sole financial adviser: HSBC

China securitization might still be in its infancy, but the pace of its development has been nothing short of startling with a slew of new products, standards and structures this year.

Auto ABS has always been at the forefront of the charge of innovation as reflected by last year’s winner of this award — VW’s Driver China one 2014-1 transaction.

This year, auto ABS is once again taking the top gong albeit with a different originator, BMW, via its Rmb2.57bn ($402m) Bavarian Sky China 2015-1.

Not only did BMW build on the successful internationally-rated template VW created in Driver China, it went one step further by pioneering an innovative A1 (fixed)/A2 (floating) structure to gain the attention of a new investor base.

This was the first time a short dated fixed rate senior portion had been seen in a Chinese auto ABS and its inclusion was to cater to domestic money market funds, which are only able to invest in fixed rate maturities of 397 days.

Reaching out to a new investor base certainly paid off handsomely as Bavarian Sky China 2015-1 ended up three times larger than its 2014 iteration.

It also attained, what was at that time, the lowest coupons ever achieved by any Chinese auto ABS with the A1 priced at 3.5% and the B at 4.3%. This record would only be broken five months later by none other than BMW with Bavarian Sky China 2015-2, which was a replica of the first transaction.

While the record low pricing can in part be attributed to China’s loose monetary conditions, this deal also impressed by pushing forward the development of China ABS and providing a budding market with an even better benchmark.


BEST HIGH YIELD BOND

China Auto Rental (CAR) $500m senior bond due 2020

Joint global co-ordinators: Credit Suisse and Standard Chartered

Joint bookrunner: Deutsche Bank

It has been a tough year for the Asian high yield bond market. A staple of this asset class, Chinese property developers, has mostly been missing in action after the sector experienced its first offshore bond default in January. Macro problems, such as a stumbling eurozone economy as well as freefalling commodities prices, led to a flight to quality among investors.

But a newcomer in this asset class, CAR, takes our award for the best high yield bond for demonstrating a seamless execution strategy and achieving a number of milestones.

The bond was the first international dollar offering from a Chinese car rental company and only CAR’s second capital markets outing since an IPO in September 2014. This meant there was lots of preparatory work to be done ahead of launch, including an extensive roadshow in Hong Kong, Singapore, London, New York and Los Angeles.

Despite being an offshore debut issue, CAR successfully rode the 144A route taking advantage of Hertz’s 16.2% of ownership in the company. Having the world’s largest car rental firm as one its key stakeholders gave US investors enough confidence on CAR’s credit story as well as its long-term growth potential.

Investors were excited to get their hands on CAR’s bond when books opened, which allowed the borrower to price a whopping 62.5bp through initial guidance and ramp up the size to $500m from the original target of $300m. The geographical split was balanced with US and Europe taking 55% and Asia 45%, which many market participants believe ideal for a 144A/Reg S deal.

The $500m 6.125% 2020 debut performed well in the aftermarket, nudging the borrower back for another successful bond issuance six months later.

In a year when Asian high yield market took a huge blow from heightened volatility with some issuers pulling deals due to weak demand, CAR was a welcome and noteworthy addition. 

BEST INVESTMENT GRADE CORPORATE BOND

Petroliam Nasional (Petronas) $5bn conventional and sukuk bond

$1.25bn due 2020, $750m due 2022, $1.5bn due 2025 and $1.5bn due 2045

Active joint bookrunners: Bank of America Merrill Lynch, CIMB, Citi, JP Morgan, Morgan Stanley

Passive joint bookrunners: Deutsche Bank, HSBC, MayBank, MUFG

If size alone is the best gauge for which deal should win the best investment grade corporate bond, then Alibaba’s $8bn trade stands out as the largest Asian G3 bond ever sold.

But our pick this year is Petronas as it demonstrated top-notch timing and execution that allowed the borrower to navigate through the unfavourable conditions surrounding the sector and Malaysia.

Ahead of its first dollar outing in more than five years, the state-owned oil company found itself in a difficult position due to the weak global commodities market. Global oil prices had fallen sharply since mid-2014, leading to significant revenue shortfalls in many energy exporting nations and companies. Also since the company was sitting on net cash of $25bn at the time of issuance, it wasn’t in dire need of funding.

But A1/A- rated Petronas had to come to the market as the sovereign wanted it to set a good benchmark for its own upcoming dollar bond. While it is more typical for a sovereign to go first, Petronas carries a higher rating than the sovereign’s A3/A-.

Since the issuer wanted to sell both conventional bonds and sukuk at the same time to raise an expected $6bn, bankers on the deal set different tenors for each tranche – five year sukuk as well as seven, 10 and 30 year conventional notes — in order not to cannibalise the yield curve.

And despite the company’s long hiatus, orders poured in with the 30 year proving the most popular thanks to demand driven by Taiwanese insurance companies. Petronas eventually sold the bonds at 110bp over Treasuries, 130bp over, 150bp over and 190bp over across the four tranches, repricing its existing secondary yield curve by 15bp-25bp.

With the deal amassing an order book of $12.6bn, there was room for Petronas to push a few basis points tighter and trump Alibaba in size, but the issuer did not want to raise more than necessary.

In hindsight, the timing was top-notch as conditions for oil and gas names have continued to deteriorate since Petronas came to the market in March. It also set a solid foundation for the sovereign to return one month later. For this reason, Petronas is the winner of our Best Investment Grade Corporate Bond.


BEST FINANCIAL BOND

Bank of China four-currency six-tranche $3.5bn One Belt, One Road bond

$2.3bn due 2018, 2020 and 2025, €500m ($530m) due 2018, S$500m ($354m) due 2019 and Rmb2bn ($313m) due 2017

Joint global co-ordinators for all tranches: Bank of China, Barclays, Citi, DBS and HSBC

Joint bookrunners for dollar tranches: Commonwealth Bank of Australia, Goldman Sachs and JP Morgan

Joint bookrunners for the euro tranche: BNP Paribas, First Gulf Bank, Société Générale and UBS

Joint bookrunners for the Singapore dollar tranche: OCBC and Standard Chartered

Bookrunner for the offshore renminbi tranche: First Gulf Bank

Bank of China’s One Belt One Road transaction set a new standard for complexity in the bond market, raising $3.5bn from an ambitious four-currency, six-tranche trade.

While it would have been easier to execute the tranches separately, that was not what the Chinese lender had in mind. Instead, it wanted to make a statement that reflects one of the most talked about global developments of this year – China’s One Belt, One Road initiative.

The scheme aims to recreate the ancient Silk Road that connected Asia with Eastern Europe. And to underline this theme, four different BoC branches issued the bonds – Hong Kong, Singapore, Abu Dhabi and Hungary.

As a result, it was paramount that the banks involved were able to execute it in one fell swoop, which was easier said than done given the unstable market backdrop in June because of the Greek debt crisis.

Still, those running the trade were able to get things together thanks to a well-choreographed strategy. The leads announced the dollar, CNH and SGD tranches in the Asia open while at the same time gauging indications of interest (IOI) for the euro portion.

That shortened the bookbuilding time for the euro floater to just three hours once the leads started accepting orders when Europe opened. The reduced timeframe proved to be key since investor sentiment took a bad hit in the afternoon with negative news out of Greece affecting the market.

If split into their individual parts, the tranches are no different to any other BoC bond, one head of syndicate working on it told GlobalCapital Asia. But it’s the sheer amount of work and co-ordination that needed to be done to get all the moving parts working in harmony that was the key — a real testament to the efforts behind the scenes.

If that wasn’t enough, the transaction also broke a bunch of records. It holds the Asian record for being the largest Reg S only bond, the first four-currency trade and the most number of tranches. It is also the first euro floater as well as the first public SGD bond from a Chinese bank. A worthy winner of this year’s Best Financial Bond.


BEST SOVEREIGN BOND

The Government of Malaysia  $1.5bn sukuk

$1bn due 2025 and $500m due 2045

Joint bookrunners: CIMB, HSBC, Standard Chartered

The Government of Malaysia is no stranger in the offshore sukuk bond market as the country has strived to make itself a hub for Islamic financing. But this year’s April offering was a truly landmark transaction that broke new ground in terms of structure and tenor, and created a blueprint for other sovereign sukuk issuers in the region.

In one of many firsts for a sovereign borrower, Malaysia included intangible assets in its wakala structure, which in this case was the rights to services.

Malaysia’s bond also included the first 30 year sukuk by a sovereign. This was a bold move for Malaysia as the main investors for sukuk are bank treasuries in the Gulf region and typically they only buy bonds with maturities of up to 10 years.

But in a bid to extend its debt maturity profile the sovereign pushed ahead with a 30 year, alongside a more traditional 10 year.

The deal saw strong participation by real money funds, asset managers, and US blue-chip investors across both tranches. And although sukuk usually pay 15bp-20bp of premium over conventional notes, the sovereign was able to price its deal almost flat. 

The success of the bond is especially laudable as it came just a month after Fitch warned in March that there was a more than 50% chance it would downgrade the sovereign’s A- rating.

The asset light wakala structure has already provide to be a winner with Hong Kong adopting the format for its own sovereign sukuk a month later. For setting a standard in Asia’s sukuk market and re-establishing Malaysia’s credentials as an Islamic finance hub, the deal wins this award.


BEST G3 AND LOCAL CURRENCY BOND HOUSE

HSBC

The last few years have been exceptionally strong for Asia’s debt capital markets as good liquidity, a favourable economic environment and the global hunt for yield provided an abundance of opportunities. All that changed in 2015 as headwinds from within and outside the region meant bond desks had to fight harder for every single trade.

The majority of the banks interviewed for these awards agreed that it had been hard to repeat their success over the last few years especially since two of the region’s main sectors — high yield and offshore renminbi bonds — have been closed for extended periods because of heightened volatility.

As one head of DCM put it: “Any monkey in a suit can do a bond during a bull market. But it’s during the bad times that the market can truly tell the best from the rest.”

In this environment HSBC once again showed that its debt platform was more than up to the challenge and wins our awards for Best G3 Bond House and Best Local Currency Bond House for the second year running.

Pick just about any trend in Asia’s bond market and HSBC was there playing a leading role.  Sovereigns, euro-denominated issuance, Chinese state-owned enterprises and capital raising to name some. Across G3 and local currency the breadth and depth of HSBC’s debt business is unmatched.

HSBC’s high ranking in the league table often draws criticism that the bank is just a flow house jumping on every transaction that passes its desk. The bank is top of the Asia ex-Japan G3 league table and third on the local currency rankings with market shares of 9.6% and 6.4%, respectively for the period under review.

But the bank puts a strong premium of securing the best economics on the trades it undertakes, using its strong ratings advisory, structuring and execution capabilities to win as many joint global co-ordinator mandates as possible. Underlining HSBC’s strong year in debt capital markets is that the bank has a leading role on four of the six bond deals awarded by GlobalCapital Asia this year.

A strong driving force behind the franchise in recent years has been the close collaboration with the commercial banking unit (CMB) which has been used to identify first time high yield issuers to bring to the market. But in a year where high yield was a tough sell, the bank used its CMB relationship to help lead the charge on bringing Chinese provincial SOEs offshore for the first time. The bank’s ratings advisory business also aided these transactions, allowing the bank to get close to management teams ahead of mandates being awarded. HSBC worked on 10 of the 22 deals from provincial SOEs during the awards period including the first euro deal from this issuer group sold by Beijing Infrastructure Investment Co, as well as trades for Shanghai Construction Group and Tianjin Binhai New Area Construction.

And one area in high yield where there was an opportunity was in liability management, with the bank arranging deals for issuers including Agile Property and International Container Terminal Services in dollars, and Republic of the Philippines and Thai Union Frozen Foods in local currency.

Much like high yield bonds, the volumes of offshore renminbi (CNH) debt has been badly dented by China’s slowing economy as well as the currency’s surprise devaluation. However HSBC was quick to spot the opportunities available in Taiwan’s Formosa market in addition to its existing strong CNH capabilities.

It has also begun positioning itself for the opening up of China’s onshore renminbi markets. In September it became one of the first financial issuers of a Panda bond, winner of Best Local Currency Bond award (see above). In addition it is building a strong track record as a financial adviser in China’s asset backed securities market with a Rmb2.57bn ($402m) transaction for BMW Automotive Finance (China), winner of our Best Securitization.

HSBC was not the only bank to take a nimble approach to the market this year. Citi has continued to build on its strong G3 bond business and is probably the only bank that can begin to rival HSBC in terms of breadth of coverage. And in local currency Standard Chartered can lay claim to being active in the same amount of Asian currencies. It’s also worth noting that Chinese banks are starting to challenge these positions. Bank of China, Citic CLSA Securities and Industrial and Commercial Bank of China look set to pose a serious competitive threat in the future.

But for now, when it comes down to identifying themes early and capturing the best opportunities for issuers and investors, HSBC is still out in front. 

By GlobalCapital
08 Dec 2015