Made in China: The best banks and deals of 2016
You know who won, now find out why. GlobalCapital Asia and Asiamoney present the extended results of our 2016 China Deals and Investment Bank of the Year awards, recognising achievement both on and offshore.
BEST IPO – ONSHORE
Shanghai Film Co Rmb10.2bn IPO
Sole bookrunner: CICC
Shanghai Film Co certainly had a long wait for its IPO, even by the standards of the Chinese market, with the company first initiating the process in 2009.
But as the firm was the first Shanghai state-controlled media company to list, there were plenty of technical and regulatory issues to overcome.
Specifically, Shanghai Film Co is one of the few film companies to have a leading position along the entire value chain including distribution, property development and a cinema chain.
Not to mention that during the IPO process, China twice suspending new stock listings.
But during the seven years from application to listing, sole bookrunner CICC was in frequent contact with regulators to smooth the path to an IPO. This included suggesting the best accounting treatment for companies in the film industry which has since been applied as the official industry standard by the China Securities Regulatory Commission.
BEST IPO – OFFSHORE
Zhou Hei Ya International Holdings HK$2.87bn IPO
Joint global co-ordinators: Credit Suisse and Morgan Stanley. Joint bookrunner: China Merchant Securities
That 2016 was a tough year for the Hong Kong IPO market is well known. The volatility and poor investor sentiment meant that issuers ensured their IPOs would price by loading them up with cornerstones to such an extent that there was very little left to sell to institutional investors once books opened.
The IPO for Zhou Hei Ya International Holdings was different. Books for the transaction opened on October with no cornerstones, confident that the company’s story was a strong enough enticement. The company is a well-known brand in China selling casual braised food. Its market leading position in the consumer sector meant that despite the caution and volatility caused by the upcoming US presidential elections, the book was successfully covered on day one.
While the final pricing of HK$5.88 of was towards the bottom of the HK$5.80-HK$7.80 indicative range, in a year that was dominated by friends and family transactions, it was the quality of the order book that stood out. Global long onlys, hedge funds and high net worth individuals made up the lines. For delivering a well sold IPO without the benefit of cornerstones, Zhou Hei Ya International Holdings is our pick for offshore IPO of the year.
BEST FOLLOW ON/ABB – ONSHORE
China Shipbuilding Industry Group Power Co Rmb13.48bn private placement
Financial adviser: Citic Securities
Consolidation in China’s state-owned enterprise sector was one of the big drivers of capital markets activity in 2016. But very few deals were as involved as the asset reorganisation of China Shipbuilding Industry Group Power Co.
The company transformed itself from a vehicle battery producer into the most comprehensive producer of power products including gas, steam, thermal, nuclear, electric, chemical and diesel power. However, as the reorganisation included the transfer of military research institutions, an extra level of regulatory hurdle had to be overcome.
As part of the restructuring the company embarked on a capital raise in the equity market. The Rmb13.482bn transaction was the largest non-public offering in the A-share capital market. And it came at a turbulent time in markets. While the shares were suspended from trading in July, the Shanghai Composite Index tumbled almost 38%. As a result, sole financial adviser Citic Securities had its work cut out educating investors about the long-term merits of the transaction.
But the investment story proved compelling and the deal eventually priced at Rmb29.8, a 15% premium to the minimum issue price of Rmb25.9.
BEST FOLLOW ON/ABB – OFFSHORE
PICC Property & Casualty Co HK$9.68bn accelerated bookbuild
Joint global co-ordinators: Goldman Sachs and Morgan Stanley
In a normal year a large sell-down in PICC would not be much to shout about. But equity markets were far from normal in the first four months of 2016. Investors had been rocked by volatility and specifically in the Hong Kong market, a number of IPOs had performed badly on their debuts. All of this meant that there had been little momentum in the blocks market until the PICC deal came along.
Selling shareholder AIG was looking to sell-down its position in the insurer and the deal had been expected since a lock-up ended in March.
The leads finally pulled the trigger on April 30 when the stock was trading more than 22% higher than its year-to-date lows. Market risk was eliminated by launching the accelerated bookbuild at 7.15pm New York time on the Friday after US markets had closed.
The result was the largest block in Hong Kong since May 2015, a record that at the time of writing it has still not lost.
And taking place just ahead of AIG’s Q1 results, it allowed the insurer to meet its commitment to return money to investors.
BEST EQUITY-LINKED DEAL – ONSHORE
Guangzhou Autombile Group Co Rmb4.10bn six year convertible bond
Joint bookrunners: CICC, Credit Suisse, Citic Securities, Goldman Sachs and Guangzhou Securities
The time-sensitive approval-based system used for China capital markets means that once an issuer has the go ahead for its transaction, the best strategy is usually to come to the market as soon as possible before the clock runs out.
Unfortunately for Guangzhou Automobile Group, it received the green light for its convertible bond in January 2016. This was an extremely volatile time in the markets. Chinese equities had been roiled by downward pressures on the renminbi and the fallout from the circuit breaker debacle.
Despite the Shanghai Composite Index trading 15% lower and GAC down 8.1% at launch, the leads decided to go ahead with the transaction.
By keeping in regular communication with investors throughout the difficult markets and bookbuilding the deal was able to price at a conversion premium of 6% and receive a whopping 352x oversubscription.
GAC’s convertible ranks as the largest ever A-share convertible in the automotive sector and is a winning example of how to execute a deal in challenging market conditions.
BEST EQUITY-LINKED DEAL — OFFSHORE
SoftBank Group Corp $6.6bn mandatory exchangeable trust securities due 2019
Joint bookrunners: Deutsche Bank and Morgan Stanley
Last year was one of scant supply in Asia’s equity-linked market. So when SoftBank Group turned up with the largest deal globally since 2010, in a structure not often seen in the region, it attracted huge interest.
The deal was the first equity-linked transaction to involve Alibaba Group stock and used a mandatory exchangeable trust securities (Mets) structure.
SoftBank was weighed down by a rising amount of debt and was under pressure to monetise some of its $65bn position in Alibaba Group. But the Japanese company is not registered with the US Securities and Exchange Commission and so couldn’t simply offload stock onto the market.
The leads began working on a Mets structure with SoftBank’s in-house finance team some four months before the launch.
The three year trust securities, part of a $8.9bn sell-down of Alibaba stock, allowed SoftBank to jump the SEC hurdle by automatically exchanging into Alibaba’s American Depository Shares (ADSs) at maturity.
Alibaba was naturally concerned with the impact a multi-billion-dollar sale of its shares could have on its stock price. But the structure cushions the effect on Alibaba’s stock, as the company’s share price at the Mets maturity will determine how many ADSs each trust securities exchanges into.
Meanwhile, on top of a 17.5% conversion premium, investors are paid a healthy 5.75% coupon, so the deal drew the whole gamut of investors. As a result, the leads executed the sale of 55 trust securities in 24 hours and a day later exercised the $1.1bn greenshoe.
BEST BOND – ONSHORE
Global Logistic Properties Rmb1.5bn dual tranche Panda bond
Sole bookrunner: CICC
If you look at the headline figures, 2016 delivered strong growth in Panda bonds, or onshore renminbi debt issued by non-Chinese entities. But interrogate the data and most of the momentum in the market has been driven by so-called red chip issuers – Hong Kong listed Chinese firms incorporated outside of China.
That’s why July’s Rmb1.5bn bond from Global Logistic Properties was such a standout. The dual tranche offering was the first publically issued Panda bond from an international corporate. The transaction is also the first onshore renminbi debt offering from Singapore.
Sole bookrunner CICC had some work to do to educate investors but the borrower’s AAA domestic credit rating and its rarity value encouraged accounts to pile into the deal with the final book three times subscribed. After launching with price guidance of 2.8%-4% for the three year and 3.3%-4.5% for the five year, both tranches closed at the tight end of guidance at 3.12% and 3.58% respectively.
And with the borrower receiving an overall Panda bond quota of Rmb10bn from the China Securities Regulatory Commission (CSRC), its debut has ensured it will get a good response when it returns.
BEST BOND – OFFSHORE
Bank of China (London) $500m three year green covered bond
Joint global co-ordinators: Bank of China, Citi and HSBC. Joint bookrunners: Barclays, Bank of America Merrill Lynch, China Construction Bank, Crédit Agricole, Société Générale and Standard Chartered
When Bank of China first announced it was issuing a green covered bond, the market reaction was a mixture of excitement and head scratching. The confusion came from the ‘covered’ element of the transaction as the country has no covered bond law and the assets backing the transaction were bonds rather than mortgages.
What became clear as the transaction progressed was that the bond would be dual recourse meaning investors would have claims against a pool of ring-fenced assets and another claim against the state-owned Bank of China.
Once the technicals were clarified, the deal was recognised as an important step for the market and China’s leadership of green bonds.
The transaction, which priced in November, was backed by a portfolio of domestic Chinese climate-aligned bonds and as a certified green bond the proceeds were to be used to fund eligible green projects in renewable energy, pollution prevention and control, clean transportation, and sustainable water management.
And even though the trade was not a conventional covered bond, it set a precedent of standards for establishing and monitoring a covered pool in China. A genuine first for the market!
BEST STRUCTURED FINANCE TRANSACTION – ONSHORE
Jinmao Investment Management (Shanghai) Rmb4bn commercial mortgage backed securities
Joint underwriters: China Merchant Securities and CICC
Since Chinese regulators removed the obstacles to a revival in the securitization market in 2011, the volume of transactions has grown rapidly, though admittedly from a small base. That progress has also brought with it innovation as banks and originators seek to internationalise the market and test out new structures.
Chinese securitization has largely been dominated by auto ABS and more recently, non-performing loans have become an approved underlying asset. But it was only in 2016 that China welcomed its first commercial mortgage backed security.
The deal was structured in two tranches. The senior tranche was issued at a size of Rmb4bn for three years. It pays a fixed rate and the amortising structure pays Rmb50m of the principal annually with the balance paid on maturity. The subordinated tranche was for Rmb1m and was fully subscribed by Beijing Chemsunny Property – a subsidiary of the originator’s parent China Jinmao Holdings Group
As for the underlying asset, this was structured as a beneficial interest in Founder BEA Trust, a trust of Beijing Chemsunny Property. The success of the deal means the door is now open for a CMBS market in China.
BEST STRUCTURED FINANCE TRANSACTION – OFFSHORE
Blu Zenith Designated Activity Co $300m aircraft loan securitization
Joint bookrunners: CICC, HSBC, Jefferies and Standard Chartered
Bank of Communications Financial Leasing opened a new source of funding through its $300m securitization of loans backed by aircraft assets in December. Not only was this one of the few internationally marketed structured finance transactions out of Asia, it also marked the return of a rare credit support structure last seen publicly in 2014.
For BoCom Leasing, the deal was more about diversifying its funding channels, having already ventured into the international debt market three times during the year.
As a result it chose to securitize asset loans that were secured by part of its aircraft portfolio.
However, the trade differed from conventional aircraft ABS. The asset pool consisted of eight loans with each individual loan secured by a specific aircraft, the lease payments of the planes, and the associated insurance and requisition proceeds. The total outstanding principal balance of the portfolio was $300m. Normally asset pools are bigger and more diversified.
Under the structure, Blu Zenith Designated Activity Co — a special purpose vehicle under BoCom Leasing — issued the notes and used the proceeds to make loans to three private limited companies incorporated in Ireland.
As protection, the loans had embedded put agreements. In the event of a default, BoCom Leasing as the put agreement provider would be obliged to purchase the associated planes and make the necessary payment within seven business days.
BEST LEVERAGED FINANCING – OFFSHORE
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
At an enterprise value of $9.5bn, representing 6.7 times 2016 estimated Ebitda, the acquisition of Helsinki-based mobile gaming company Supercell by Tencent 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.
Given the challenges, the MLABs decided to rigorously study the target business 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 a sizeable amount of equity into the Finnish company, indicating its belief in Supercell’s ability to deliver.
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.
BEST EQUITY HOUSE – ONSHORE & BEST INVESTMENT BANK – ONSHORE
China’s capital markets have been in a period of flux for a number of years now as Beijing attempts to internationalise its financial industry with mixed results. The changes are creating opportunities for new entrants and challenges for incumbents as they navigate the shifting landscape.
But Citic Securities has proved it can adapt to the changing market place to extend its dominance over China equity capital markets and investment banking.
The reorganisation of state-owned enterprises has been one of the policy goals of the Chinese administration and Citic has been well positioned to serve that client base.
But policy makers have also made it clear that for the economy to continue to grow, there needs to be more development in private companies and new industries. Keen to capture more of that business, last year Citic set up a new division to focus on new energy and new technology companies.
Equity capital markets is one of the bank’s undoubted strengths. It grew its market share last year to capture almost 10% of China’s onshore ECM with a deals value of $16.6bn, according to Dealogic. It dominates across all product areas, leading IPOs, follow ons and convertibles. This strength is underpinned by the fact the bank worked on two of our picks for onshore equity deals.
Citic was the sole financial adviser for China Shipbuilding Industry Group’s Rmb13.48bn private placement which we have awarded Best Follow on/ABB – Onshore. The capital raising was part of a complex restructuring to two energy SOEs including military research institutions which required special regulatory sign off.
And it served as a joint bookrunner on our choice for Best Equity-Linked deal – Onshore, Guangzhou Automobile Group’s Rmb4.1bn convertible bond which overcame the turbulence of January 2016 to deliver a strong outcome.
The bank’s debt franchise continued to put in a strong performance, ranking at number two for all onshore China DCM with a deals value of $52.8bn. One major development was introducing more regional coverage to get a deeper understanding of clients outside the major centres of Beijing and Shanghai.
Key transactions include a Rmb10bn dual tranche green bond for State Grid Corporation of China and a Rmb555m securitization for Citics WanxinYuejia that is linked to the rental incomes from bookstores.
For its market innovation and dominance, Citic Securities is our pick for Best Equity House – Onshore, and Best Investment Bank – Onshore.
BEST EQUITY HOUSE – OFFSHORE
Haitong International Securities
For a number of reasons, last year was a tough one for Chinese companies looking to raise equity offshore. But despite the headwinds, Haitong International Securities built on the strides it has made in recent years to gain an even bigger share of the market.
The underwriter was the leading bookrunner for offshore Chinese IPOs in 2016, coming ahead of China Construction Bank, China Merchants Bank, Morgan Stanley and Bank of China, according to Dealogic. It is also increasing its participation in blocks business with six transactions under its belt last year.
The list of transactions it worked on during the year includes the HK$59bn listing of Postal Savings Bank of China, the world’s biggest IPO in almost two years. But it also delivered transactions in the blossoming areas of education and biotech such as Virscend Education Co and Genscript Biotech Corporation.
Haitong International’s strength has been in harnessing onshore relations to bring capital to the international markets, primarily Hong Kong. It consistently secures the cornerstone investors that are the foundation of Chinese IPOs offshore. In a break with many of its peers, it has also been able to channel retail money into new listings. While this may be an unusual approach, senior bankers at Haitong International defend their model by pointing out they are able to source new liquidity for a mature market.
And while its focus has mainly been on the Hong Kong market, with last year’s acquisition of an Indian securities and investment banking business from the legacy bank of Banco Espírito Santo de Investimento, Haitong International is well positioned to grow its business beyond Greater China.
BEST BONDS HOUSE - ONSHORE
On the surface, HSBC may not seem an obvious winner of this award. Certainly, if the awards were based on league table performance, the bank would struggle to make a compelling case. But in a year when the emphasis from regulators has been on opening up China’s bond market to international investors and issuers, HSBC has led the way. As an international bank, HSBC may have a natural advantage over its Chinese rivals but it has also outperformed many of the other global banks operating in China’s domestic market. Thanks to holding licences that allow it to underwrite corporate, financial and ABS bonds, the bank has been at the forefront of the market’s international developments.
It was a joint bookrunner on the World Bank’s SDR500m bond, the first publically syndicated SDR transaction. It was a lead underwriter for the first ever bond issue from New Development Bank - a Rmb3bn green bond. HSBC has also pioneered in Panda bonds working on deals for the Republic of Poland and the Province of British Columbia, respectively the first onshore renminbi bonds from a European sovereign and from North America.
HSBC has also worked to internationalise China’s securitization market. Key transactions include the country’s first RMBS with international ratings for Postal Savings Bank of China, the first auto ABS to employ a fixed rate scheduled amortization A1 structure for Dongfeng Nissan Auto Finance and the Rmb4.7bn trade for Mercedes-Benz Auto Finance – the largest auto ABS in China.
For its success in introducing international issuers, investors and standards to China’s domestic bonds, HSBC wins the award for Best Bonds House – Onshore.
BEST BONDS HOUSE – OFFSHORE
Bank of China International
China’s offshore bond market is fiercely competitive as the large and growing size of the sector attracts more banks keen to win a share of the business. This means it is no easy feat to stay ahead of the pack but Bank of China International has once again proved itself a debt powerhouse and is our pick for Best Bonds House – Offshore.
Of course as the subsidiary of the one of the biggest banks on the Mainland and internationally, BOC International is in a stronger position than many but it does not rest on its laurels. Operating independently from its parent, it has to compete for mandates and is continuously looking for ways to expand its business.
Innovation has been one hallmarks of the bank and last year saw it work on a number of market opening transactions. These include serving as joint global co-ordinator for BOC’s $500m landmark green covered bond, which is the winner of our Best Bond – Offshore. Away from its parent, its deals cover a broad spectrum of clients from state-owned enterprises, international SSAs and corporates and local government financing vehicles across US dollars, euros and offshore renminbi. And with plans to expand its presence in southeast Asia and Europe, the bank is positioning to win mandates away from its China base.
BEST INVESTMENT BANK – OFFSHORE
China International Capital Corp
A year in which China outbound activity reached record levels was always going to play to the strengths of China International Capital Corp. As the country’s first joint venture investment bank and one where the focus has always been outward looking, it was well placed to capture a large chunk of this year’s business.
But across equity and bond capital markets as well as M&A, CICC has been at the forefront of innovations in Chinese capital markets both on and offshore.
Offshore, its highlights include serving as an adviser on China National Chemical Corp’s $47bn acquisition of Swiss seeds and pesticide manufacturer Syngenta— the largest outbound investment by a Chinese firm. But CICC had a role to play on many of the year’s headline grabbing deals across a broad range of industries including Dalian Wanda’s $3.5bn purchase of Hollywood production company Legendary Entertainment Group, and Qingdao Haier’s $5.4bn takeover of General Electric’s appliance business.
CICC’s structuring expertise came to the fore in 2016. It was a joint global co-ordinator on Kunlun Energy’s renminbi-denominated but US dollar-settled convertible bond that was one of Asia’s few equity linked transaction to secure a rating from an international agency.
It was also a joint bookrunner on our pick for Best Structured Finance Transaction – Offshore, Bank of Communications Financial Leasing’s $300m securitization of loans backed by aircraft assets.
For combining blockbuster transactions with market innovation, CICC is a deserving winner of Best Investment Bank – Offshore.
For commercial opportunities please contact Deputy Publisher, Danny Cheung: firstname.lastname@example.org or +852 2912 8080.