GlobalCapital Asia regional capital markets awards 2016, Part I: Loans
In the first instalment of our 2016 awards, we present the winners for Best Leveraged/Acquisition Finance, Best Investment Grade Syndicated Loan, Best High Yield Syndicated Loan and Best Loans House.
BEST LEVERAGED/ACQUISITION FINANCE
Tencent $3.5bn term loan and revolver due 2021
MLABs: ANZ, Bank of America Merrill Lynch, Bank of China, China Merchants Bank, Deutsche Bank, HSBC and Shanghai Pudong Development Bank
The quest by Chinese companies for quality overseas assets led to several acquisition financing opportunities this year. And the $3.5bn two tranche loan that backed the acquisition of Helsinki-based mobile gaming company Supercell by Tencent and a consortium of undisclosed investors was a standout example.
At an enterprise value of $9.5bn, representing 6.7 times 2016 estimated Ebitda, the Supercell purchase was the biggest investment by a Chinese privately owned company into EMEA. But readying and syndicating the loan to support the acquisition was no simple feat.
For starters, the smartphone gaming business was pretty much uncharted territory for banks in Asia. In addition, as Tencent wanted to include other investors in the Supercell buyout, their presence meant the trade had to be remote or non-recourse, adding another level of uncertainty. As a result, borrower Inari Sàrl was set up by Tencent and the consortium to acquire the Supercell shares.
Given the challenges, the MLABs decided to study the target business rigorously rather than relying on Tencent’s reputation for a successful syndication. One of the outcomes of this assessment was the decision to give the loan a five year tenor, given that the average lifespan of successful mobile games tends to be between five and seven years.
Other supporting arguments included the potential benefits to Supercell, which by tying up with Tencent would gain access to the world’s biggest smartphone market. Moreover, the tech giant was putting in a sizeable amount of equity into the Finnish company, indicating its belief in Supercell’s ability to deliver.
A detailed dossier was shared with Chinese lenders that later came on board as MLABs, with the loan structured and launched just six weeks from the announcement of the acquisition.
In the end, the investor education and six-year-old Supercell’s consistent track record of successful releases was so convincing that the loan proved a hit in syndication, attracting a 2.4x oversubscription from a diverse group of lenders. A well-deserved winner of this year’s Best Leveraged/Acquisition Finance.
BEST INVESTMENT GRADE SYNDICATED LOAN
Baidu $2bn term loan and revolver due 2021
MLABs: ANZ, BNP Paribas, Bank of America Merrill Lynch, Bank of China, Bank of Communications, China Cinda Asset Management, China Construction Bank, China Merchants Bank, Citi, Deutsche Bank, HSBC, Industrial and Commercial Bank of China, JP Morgan, Mizuho, Standard Chartered
Chinese technology companies keep a close eye on their peers and their fundraising activity. Sitting on huge piles of cash, these firms are acquisitive and constantly on the lookout for suitable overseas targets, and syndicated loans are a key source of funds.
Building and maintaining these war-chests is essential because of capital controls on the Mainland. A sudden change in regulation could make it difficult for firms to move money out of the country, which is critical in a time sensitive acquisition situation.
It was against that backdrop that Baidu, taking cue from the likes of Alibaba and Tencent, which have been prolific issuers of syndicated loans, chose this year to make its debut.
But being the new kid on the block did not stop the Chinese search engine service from pulling off a pricing that had been the preserve of its larger, more experienced peers. The three original MLABs — Citi, Deutsche Bank and HSBC — launched the deal the same week Alibaba closed its $4bn syndication. Both transactions paid a margin of 110bp above Libor.
Notwithstanding the tight pricing, 13 retail lenders piled into Baidu’s deal and the robust demand led the company to double its borrowing to $2bn.
Banks were eager to start a relationship with Baidu, which is far and away the biggest internet search provider in China, with 90% of internet users turning to its service for searches.
In addition to the prospect of more business from future acquisitions, Baidu’s status as a new economy company in an industry that is driving much of China’s economic growth, also reeled in demand.
The bullet was split 50-50 between a term loan and revolver, with the flexibility around drawdowns offered by the latter making it ideal for potential overseas investments.
With this maiden outing, Baidu managed to kill the proverbial two birds with one stone. It clinched crucial funds for future ventures overseas and cemented relationships with a diverse group of lenders from Asia, all while paying a margin reserved for only the most prestigious names from China.
For these reasons, Baidu’s debut borrowing walks away with the title of Best Investment Grade Syndicated Loan.
BEST HIGH YIELD SYNDICATED LOAN
Birla Carbon Group $925m term loan and revolver due 2020
MLABs: ANZ, Axis Bank, Bank of America Merrill Lynch, Crédit Agricole, ICICI Bank and Standard Chartered
The $925m dual tranche refinancing for the Birla Carbon Group is our pick for Best High Yield Syndicated Loan. Not only did the borrowing help Birla Carbon consolidate debt scattered across multiple geographies, it did so while overcoming the different risk profiles of its operating entities.
Aditya Birla Group’s acquisition of Colombian Chemicals in 2011 was underpinned by a three pronged financing, comprising a $500m five year raised in the US, a $175m facility for the Thai entity and a second $175m financing for the Egyptian part of the business.
With less than a year to spare before the US portion fell due, Birla was understood to be leaning towards a term loan B to refinance the debt. But a proposition by bank units in Asia led to a rethink.
The idea of a single Asian syndicated loan to replace the three original facilities, while ensuring significant cost savings for Birla, had obvious advantages, but executing it was far from simple.
Birla Carbon’s operating companies were located in countries as diverse as Brazil, Egypt, Hungary, Thailand and the US. One struggle was coming up with a unified pricing that would address volatility in Egypt, heightened political risk in Thailand, and account for the relatively stable environments in which the Hungarian and US companies operated.
To deal with this, the MLABs suggested the setting up of a holding company called SKI Carbon Black (Mauritius), under which all seven entities would sit. To deliver on the promise of cost savings for Birla, weaker opcos were shored up with the help of entities in developed markets, which were able to cross-guarantee obligations of the entire facility.
Then there was the issue of foreign exchange movements and the impact they may have on the consolidated dollar earnings of the business. This was tackled through a debt-to-Ebitda covenant that capped leverage at 4x. This gave the company sufficient headroom as its leverage was around 3.3x.
Other covenants too, were designed to be tested on a pro-forma basis, so that the company could benefit from the financial performance of the more robust co-guarantors.
The effort that went into structuring certainly paid off, with the leads selling down 60% during syndication, netting commitments from European, Australian, Canadian, Brazilian, Indian and Taiwanese lenders.
The Birla Carbon loan was a pioneering transaction that set a template for others to follow. And follow they are. Novelis, another constituent of the Aditya Birla Group, is now in talks to take out US TLB debt with an Asian loan.
The Birla Carbon trade showed that Asia can offer competitive terms versus the institutional US TLB market, making it a clear winner in the high yield category this year.
BEST LOANS HOUSE
This year was a challenging one for syndicated loans. With declining volumes, ample liquidity squeezing pricing and the ascendance of local competitors, loan desks were forced to rethink how they conducted business in the region.
At ANZ, our pick for Best Loans House, the evolving market backdrop coincided with a bank-wide shift in strategy. New CEO, Shayne Elliot, overhauled the Asian business at the beginning of the year, putting in place a new structure that saw the bank focus on key clients and sectors.
For the loans team, headed by John Corrin, this meant devoting more energy to clients where the bank had or felt there was opportunity to gain a bigger share of wallet. While this shift has been evident in other banks for a while it marked a departure for ANZ which over the past seven years has developed into one of the biggest loan houses in the region
Yet despite the more selective approach, ANZ has held on to its market position. It was second in the bookrunner league table for G3 Asia ex-Japan ex-China-onshore syndicated loans during the awards period.
The bank still offers a breadth of operations. Greater China and India were the biggest contributors to the loans desk’s PnL this year — even outstripping the bank’s home market of Australia — but during the awards period, ANZ also led transactions in 14 different jurisdictions including frontier markets such as Cambodia, Laos, Mongolia and Vietnam.
One way it has managed to maintain volumes and stay profitable is by pitching harder to secure sole underwrites and mandates.
Take the instance of TML Holdings. In the company’s previous deals ANZ featured as a joint MLAB but successfully clinched a sole mandate this year after offering a loan for a bond buyback that resulted in sizeable cost savings to the firm. The $250m loan attracted several new lenders from Taiwan.
That transaction was one of seven sole mandates in Asia ex-Japan ex-China onshore the bank won during the awards period. To support this effort, ANZ spent time expanding its distribution channels with a focus on identifying new liquidity from retail banks in Taiwan and Japan.
In a year full of surprises, ANZ proved able to help clients navigate choppy water. The prime example is a $500m syndication for Fosun Industrial which came to a halt after Fosun Group co-founder Guo Guangchang went temporarily missing. It later emerged that he had been invited to be a witness in an investigation by Chinese authorities but was not considered to have done anything wrong.
Although Fosun Industrial eventually trimmed its borrowing from the original amount it sought, the fact that most of the participants that committed before the incident were still part of the final syndicate, is testament to the leads’ ability to get them comfortable with the unforeseen political risks.
The new approach has also not stopped the bank from establishing lending relationships with new clients including a $330m term loan facility for Midea International Corp and the first Asian syndication for Santander Consumer Finance.
While ANZ posted a sterling performance this year, some of its competitors also deserve a mention for their efforts. Chief among them is Credit Suisse, which made the most of the greater autonomy given to the Asia Pacific division by chief executive Tidjane Thiam.
The Swiss bank was able to put serious balance sheet to work, with risk weighted assets increasing 21%. Its expertise in frontier and emerging markets was once again on display as it brought several sovereigns to the loan market in 2016, including Sri Lanka, Mongolia, Pakistan and Papua New Guinea. It also tapped into the capabilities of its Asian private bank to place loans with family offices, unearthing a new investor base for syndications in the region.
And while it has typically been viewed as a niche arranger, Credit Suisse's efforts this year saw it enter the top 10 bookrunner league table for Asia ex-Japan ex-China-onshore loans.
All that remains to be seen is whether the Swiss bank will be able to sustain the momentum it has whipped up in 2016.
This is where ANZ edged out its European rival. It has been a consistent performer as an arranger of quality trades in Asia and has proved the ability of its franchise by maintaining its dominance in a year of more difficult trading conditions and a new strategic focus. This is borne out by its presence in the MLAB groups in all three of our loan deals of the year.