GlobalCapital Asia capital markets awards 2018: Loans
GlobalCapital Asia has spent the last two months talking to banks and their clients in a bid to determine the most impressive capital markets transactions and advisers across Asia ex-Japan in 2018. We are pleased to begin our awards announcements in the loan market.
BEST INVESTMENT GRADE SYNDICATED LOAN
China National Chemical Corp’s $5.5bn dual-tranche loan
$3.85bn three year and $1.65bn five year
Mandated lead arrangers, underwriters and bookrunners: Bank of America Merrill Lynch, Banco Santander, Barclays, BNP Paribas, China Citic Bank (Beijing branch) and China Citic Bank International, Commerzbank, Crédit Agricole, Credit Suisse, First Abu Dhabi Bank, Industrial Bank Co, MUFG Bank, Natixis, Rabobank, Société Générale and UniCredit
Mandated lead arranger and bookrunner: ABN Amro
Mandated lead arranger: Bank of East Asia
Lead arrangers: CaixaBank, Mega International Commercial Bank and State Bank of India Hong Kong branch
Arrangers: Fubon Bank (Hong Kong), Hang Seng Bank and Oversea-Chinese Banking Corp
Lead managers: Bank of the Philippine Islands, Bank Sinopac Hong Kong branch, Chang Hwa Commercial Bank, Chiyu Banking Corp, First Commercial Bank, Hua Nan Commercial Bank and Siam Commercial Bank
Managers: E.Sun Commercial Bank Hong Kong branch, Eastspring Investments (Singapore), Land Bank of Taiwan Hong Kong branch, NEC Capital Solutions, Shanghai Commercial and Savings Bank, Shinhan Asia, Taiwan Shin Kong Commercial Bank, Taichung Commercial Bank and Taiwan Cooperative Bank
When China National Chemical Corp acquired the Swiss seed maker Syngenta for a whopping $43bn in 2016, it was closing the largest overseas acquisition by a Chinese corporation at that time. The acquisition was financed by a $12.5bn one year bridge targeting Asian lenders, and a $20bn Europe-targeted syndication. But by the end of 2017, the company needed to refinance.
At the time of launching its $5.5bn refinancing facility, the company had an outstanding bridge loan of $10bn, which it planned to refinance using a combination of both bonds and loans. But finding a balance between the two pockets of liquidity was key. ChemChina navigated the two markets skilfully.
One big question was how to split the refinancing between bonds and loans. With an accurate read of market conditions, the lead banks and the company decided to seek a $5.5bn loan with a greenshoe option for a further boost if necessary, while the remaining was left for the bond market.
One challenge was around timing. The loan was launched in January, while the bond plans were initiated in February and executed in March, which meant the syndication had to be wrapped up within a tight timeframe.
That was no trouble for ChemChina and the MLABs. General syndication went smoothly, and commitments came in by February. The deal was oversubscribed with the underwriters bringing in two dozen participants — including two non-banking financial institutions. The loan was 20% oversubscribed, leading to an aggressive scale back in allocations.
In March, the bonds were also raised successfully, capping ChemChina’s refinancing exercise.
The strong response during syndication was thanks to spot-on pricing. The three year offered 153bp over dollar Libor and the five year 195bp over — appealing for lenders for this investment grade rated name. Given the attractiveness of the loan pricing versus the bonds, the loan was also actively traded in the secondary market.
What also helped was news at the time around a potential merger between ChemChina and SinoChem Corp. While ChemChina raises funds in the high 100bp over Libor area, SinoChem taps the market typically in the low 100bp area, say bankers. This provided lenders an attractive arbitrage opportunity by lending to ChemChina.
There were a few roadblocks to clear, including the borrower’s high leverage owing to a number of significant acquisitions in the recent past. In addition, the sheer size of the fundraising was impressive — this was the largest syndicated deal in Asia ex-Japan during our awards period.
But thanks to the solid groundwork done by the bookrunning group — including through comprehensive bank meetings and long explanations of ChemChina’s future business plans — the loan flew off the shelves. The deal got the largest number of participants in any Asia syndication this year, making it a worthy winner of the Best Investment Grade Syndicated Loan of 2018.
BEST HIGH YIELD SYNDICATED LOAN
Birla Carbon’s $1.2bn dual-tranche loan
$1.05bn 2.5 year term loan and $150m 2.5 year revolving credit facility
Mandated lead arrangers and bookrunners: ANZ, Axis Bank, BNP Paribas, Citi, Crédit Agricole, DBS, ICICI Bank, JP Morgan, Mizuho, Société Générale, Standard Chartered and State Bank of India
Mandated lead arrangers: Barclays, Export Development Canada, Federal Bank, First Abu Dhabi Bank and Siemens
When Indian company Birla Carbon first reached out to its relationship banks to put together a refinancing package in March, its initial plan was to raise $1.2bn equally split between loans and bonds.
But things did not go according to plan. Tensions in the Korean peninsula at the beginning of the year, combined with rising trade pressures between the US and China, made the bond market increasingly turbulent, causing many borrowers to cancel their issuance plans.
This pushed Birla Carbon, a maker and supplier of carbon black additives, to change tack. The borrower, with guidance from its nine original mandated lead arrangers and bookrunners, reacted quickly and made the decision to shelve the bond plan. Birla Carbon boosted the loan size to $1.2bn to meet its capital needs — ensuring its fundraising was all but guaranteed thanks to the reliability of the syndications market.
That created a problem. One of the main objectives of Birla Carbon was to reduce its funding cost, but by doubling the size it expected to take from the loan market was that still possible? The leads came up with a solution, structuring the loan with a shorter tenor of 2.5 years.
Both the term loan and revolving tranches were priced at 135bp over Libor, fulfilling Birla Carbon’s requirement of a funding cost reduction while also still being appealing to lenders.
That was reflected in the final result. Despite the bigger loan size, reduced price and large participation tickets, the transaction went well in senior syndication. It received a robust response from 17 banks — a mix of local, regional and international firms. The response was so overwhelming that the MLABs decided against taking the loan into general syndication.
The loan was raised by SKI Carbon Black, a Mauritius-based holding company that is part of the Aditya Birla Group, rated Ba2 by Moody’s. For quick thinking when faced with challenges, as well as for ticking all the boxes for itself and its lending group, Birla Carbon’s deal is our pick for the Best High Yield Syndicated Loan of the year.
BEST LEVERAGED/ACQUISITION FINANCE
Global Logistic Properties’ $4.108bn take-private loan
$750m five year term loan, $750m three year term loan, $2.108bn two year term loan and $500m five year revolving credit facility
Mandated lead arrangers and bookrunners: Bank of China, Bank of Communications, Citi, China Merchants Bank, DBS, Goldman Sachs, Industrial and Commercial Bank of China, Mizuho and MUFG Bank
Mandated lead arranger: Sumitomo Mitsui Banking Corp
Lead arrangers: BNP Paribas and Norinchukin Bank
Arranger: Mega International Commercial Bank
Lead managers: KGI Bank and Taishin International Bank
Despite a certain amount of criticism against this fundraising from rival bankers, GlobalCapital Asia has picked the $4.108bn financing package for the take private of Singapore’s Global Logistic Properties (GLP) as the year’s Best Leveraged/Acquisition Finance as well as Best Loan.
One of the biggest management buyout financings in Asia during our awards period, the transaction stood out not just for its size, but also the complexity of the structure put in place to meet the client’s various targets.
The loan was to take logistics company GLP private by a consortium that included SMG, the vehicle controlled by GLP chief executive Ming Mei, Hopu Investments, Bank of China Group Investment, Vanke and Hillhouse Capital.
The target’s management had two key objectives: to put in place a long-term capital structure, and maintain its investment grade ratings. The four-tranche financing helped tick both those boxes.
An optimal capital structure was important to GLP, which wanted to have as much flexibility as possible after the buyout to continue growing its business. The loan was split into four tranches: three term loans with tenors of two, three and five years, and a five year revolving credit facility. Lenders were required to make their commitments on a pro-rata basis, but the different tenors gave them flexibility in putting their balance sheet to work, as part of the loan is repaid in as little as two years.
A senior source at GLP told GlobalCapital Asia that had the firm come out with a typical LBO financing, it wouldn’t be in a position to continue growing. As GLP had outstanding bonds, perpetual securities and change of control debt, each had to be addressed in a way to allow it to have a better capital structure.
The funds were raised at the holding company level, and will be pushed down to GLP’s China and Japan operating companies, which have historically been under-levered.
GLP’s second goal of remaining investment grade-rated was also met. This was considered important from a transparency point of view as the firm wanted to show its new and existing shareholders following the buyout that it was not highly leveraged and that its credit profile remained stable. GLP is rated Baa3/BBB/BBB. In late November, Moody’s changed GLP’s outlook to stable from negative on the back of a decline in leverage since March and on expectations that the leverage will continue to improve.
The transaction was also notable in that the margin was pegged to GLP’s rating instead of its leverage ratio. This decision was made with the consideration that banks have different views on the borrower’s Ebitda, making the credit rating a better measure for the company’s overall financial performance.
The source added that the flex structure and matrix worked for GLP, and that the banks were creative in coming up with that as a solution.
There were some challenges of course, including the deal’s long gestation period — the buyout had been in the works since December 2015 before the financing was wrapped up early this year. In addition, the buyout of a multinational listed company with operations spanning Asia, North America and South America required extensive due diligence and credit analysis.
But the lead banks overcame the difficulties. Even with tight pricing with margins ranging from 110bp to 135bp over Libor for the different tranches, the deal managed to attract participants from the US, Japan, Singapore, China and Taiwan, including a top-heavy underwriting group.
Some rival bankers added that the deal was priced too tightly and claimed that Citi, one of the MLABs, dumped the deal in secondary market. In fact, Citi, which was allocated $500m, sold only around $200m in the secondary market and still holds about $300m on its book.
There was also a more philosophical objection to this deal: as an investment grade-rated company, should it really be considered for our leveraged and acquisition finance category? GlobalCapital Asia thinks so. In fact, GLP’s skill in taking on additional debt without putting undue pressure on its leverage ratios was one of the most impressive features of this deal.
There was one close competitor to GLP: a $1bn-equivalent term loan to support the acquisition of Japanese auto parts company Takata Corp by China’s Ningbo Joyson Electronic Corp. The deal deserves recognition for being the first of its kind chapter 11 bankruptcy situation in Asia after Takata and its US unit filed for bankruptcy last year.
But GLP’s $4bn-plus deal is a clear winner. Kudos needs to be given to the leads’ ability to structure the loan in a way that fulfilled the company’s key requirements, while allowing for flexibilities for it to run, and grow, its business. GLP’s assets under management have jumped from $39bn before the buyout’s announcement to close to $60bn by the year end.
BEST LOANS HOUSE
This year was a tough one for syndicated loans in Asia ex-Japan, with volumes slumping by around 5% year-on-year during the 2018 awards period, according to Dealogic. A big drop in M&A-related activities due to China’s control on capital outflows and a tougher regulatory environment globally resulted in the decline.
Against this difficult backdrop, banks were forced to adapt to the changing times. HSBC, GlobalCapital Asia’s Best Loans House for 2018, proved more adaptable than most. Perhaps most surprisingly, the bank shed an established image of being a conservative house with little risk appetite.
Take the example of Belle International’s HK$30bn ($3.8bn) dividend recapitalisation loan, underwritten jointly by HSBC and Bank of America Merrill Lynch. The latter had been the sole original lead on a HK$28bn take-private loan last year for shoemaker Belle, with HSBC managing to squeeze into the top level this time around — a calculated risk on its part given Hillhouse Capital, the sponsor behind Belle, is a relatively new client for HSBC.
The largest dividend recap transaction in Asia was a hit during syndication, attracting eight participants.
In addition to Belle’s transaction, HSBC also worked on a complex non-recourse real estate deal for Glory United Development. It was the sole underwriter for the HK$6.6bn three year acquisition term loan, demonstrating its ability to arrange sophisticated deals for its clients.
What also stood out from HSBC — whose regional syndicate business is led by Phil Lipton, while James Horsburgh heads up the leveraged and acquisition finance team — was its concerted effort to diversify its business geographically. While remaining a strong player in North Asia, where it ranked second in terms of loans revenue during the awards period behind Bank of China, HSBC also made big headway in Southeast and South Asia.
It boosted its revenue share in Southeast Asia to 3.61% this awards period from 2.89% during the same period last year, while in South Asia, HSBC’s revenue share went up to 3.13% from a measly 0.77%, shows Dealogic.
The bank has put big effort into bulking up its presence in those markets through key appointments. HSBC named Pradeep Rao as head of corporates for Southeast Asia in March, adding to his responsibilities overseeing consumer and retail for Asia Pacific. HSBC also poached Ashish Gala from Credit Suisse, tapping him as head of structured banking for India, one of its first senior hires on the ground in the country.
In Hong Kong, former Credit Suisse banker Ashish Sharma joined HSBC mid-year as head of complex and leveraged loan syndication, Asia Pacific.
The rejig has paid off, with bankers at the firm saying they are starting to see more deal flow and revenues from India and Southeast Asia, leading to a better revenue split geographically.
Loans and bonds combo
The numbers show HSBC’s strengths. During the awards period, the lender ranked third in Asia ex-Japan loan bookrunners league table, up from fifth position last year. It had credit for 69 deals worth $11bn, only slightly lower than second place Standard Chartered, which raked in credits for 94 trades worth $11.1bn, according to Dealogic. Revenue wise, HSBC came third with $55.39m — behind leader Bank of China with $175.7m and Standard Chartered with $75.3m, shows data provider Dealogic.
The close co-operation between HSBC’s loans and DCM teams proved useful this year, with the loans syndication team getting numerous referrals from its bonds desk when the debt market was buffeted by volatility. This helped HSBC bag deals for the likes of property names Agile Group, as well as Greentown China Holdings, Shimao Property and Country Garden Holdings, when their access to the bond market was temporarily shut.
HSBC also established a joint venture between its bonds and loans teams, giving clients further flexibility in terms of fundraising solutions. With a one-stop shop debt solutions platform, it provided both bonds and loans for eight companies — Agile, Country Garden, Greentown China, NatSteel Asia, Powerlong Real Estate, State Bank of India, Shimao and Yes Bank.
HSBC’s story this year was one of innovation, whether in finding the right financing solutions for its clients, bringing debut borrowers to the market or unearthing new pockets of liquidity.
For example, HSBC was the sole lead on an up to S$800m syndicated asset-backed facility for Grab Holdings, the Singapore-based car-hiring company. The fundraising, which was worth S$500m at the base and came with an accordion option, was 2.5 times oversubscribed from more than 16 banks and non-bank financial institutions. It was the first of its kind asset-backed facility for a Southeast Asian technology firm.
HSBC also helped arrange a $305m facility for Trans Maldivian Airways’ buyout by Bain Capital Private Equity and Shenzhen Tempus Global Business Services Holdings — a deal that was executed at a time of political turmoil in the Maldives. The bookrunning group managed to bring in commitments from Sri Lankan banks and institutional investors.
That’s not all. A key part of the market that HSBC dominated was green loans, which started to blossom after the Asia Pacific Loan Market Association published its green loan guidelines in March. HSBC was quick to find opportunities in green financing, leveraging also on its strengths in the green bond market.
The bank joint-led and participated in seven out of nine sustainability-linked transactions during the awards period, including for names such as Leo Paper Group (Hong Kong), Ho Bee Land, Beijing Jingneng Clean Energy (Hong Kong) Company, Olam International and New World Development.
Whether it was coming out of its comfort zone to take big underwriting risks, or revamping its strategy to have a deeper geographic reach, HSBC made its mark in Asia’s loan market — making it the Best Loans House for 2018.