In a rebounding convertible bond market, one bank retained its lead by running deals in all conditions. For its ability to price deals at the top and bottom of markets, and for issuers in sectors deemed untouchable, JP Morgan is IFR Asia’s Structured Equity House of the Year.
Structured Equity House
JP Morgan grabbed a clear lead in the resurgent market for convertible securities this year as a return of Chinese issuers to the sector sparked a rebound.
The US bank played a leading role in every issue in which it participated – no guarantee in a market where lenders are often given a free ride – and it was sole bookrunner on four deals from Asian issuers and just three of those raised a combined US$1.6bn.
One of those, a US$800m convertible bond from Ctrip.com International, was the most lucrative from an Asian issuer this year in terms of fees, and it also provided attractive terms to the Chinese travel booking website.
The underlying stock had risen 144% since the start of the year until the deal was priced in mid-October, yet the company achieved a conversion premium of 42.5%, the highest for a Chinese issuer since 2007 and for an Asian entity year to date outside Japan. A call-spread overlay raised the effective conversion premium even higher.
The 1.25% coupon was much lower than Qihoo 360 Technology’s CB, which had priced through a different bookrunner a few weeks earlier.
JP Morgan also sole managed a US$500m offering for China’s ENN Energy, a clean energy distributor, in January and a US$300m issue for biopharmaceutical company Celltrion in South Korea the following month. The bank continued to make a market in Celltrion’s bonds after comments from the chairman on a possible sale of the company caused wild swings in the price. The fourth was the US$60m issue for Wisdom Marine Lines late in the year.
A novel high-yield issue raised Rmb975m (US$160m) from Fufeng Group in November, using the same security package as existing straight debt and with a short-term investor put. To provide investors with the certainty that proceeds would be used to pay back a loan, a clause was inserted allowing them to put the bonds if the syndicated loan had not been taken out within 30 days.
An added plus for JP Morgan was its ability to adapt to changing market conditions. As a joint bookrunner on the HK$5.4bn (US$700m) deal for paper manufacturer Hengan International on May 20, it achieved top-of-the-market terms for a deal that partially increased in size, less than a week before yields spiked on the first talk of the US scaling back its quantitative-easing programme.
Then, just over a month later, JP Morgan was a joint bookrunner on a HK$1.4bn CB offering from Chinese office software developer Kingsoft, the first public issue in Asia ex-Japan since the US tapering talk. Kingsoft was, by no means, an obvious choice to test the new market environment as it had never issued any type of bond, and the bond floor of just under 90 was the lowest on a new Asian issue for 10 months.
When Shanghai’s Semiconductor Manufacturing International Corp printed a US$200m zero-coupon CB in October, with JP Morgan again in a leading role, the issuer secured such attractive terms that it prompted other Asian corporations to rush to market in the following weeks.
The bank also showed how the instrument could help lower-rated companies raise cost-effective capital.
Taiwanese shipping firm Wisdom Marine Lines, operating in an industry that investors had spurned in recent years, was able to raise a combined US$100m through a concurrent CB and global depositary receipt offering that JP Morgan solely managed. The US$60m CB allowed it to limit dilution, while the GDR offering kept its gearing in check. Asset swaps were offered for about half the CB size rather than the whole deal, to ensure that local banks did not have too much exposure to Wisdom Marine in case it needed to borrow in the future.
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