With Europe held back by a worsening sovereign debt crisis, the rise of the Asian consumer was the theme behind many of the most popular deals of 2011. Global issuers, from Italian fashion house Prada to US luggage maker Samsonite, turned to Hong Kong – rather than New York or London – to list shares closer to their key growth markets, reflecting the growing clout of both Asian investors and Asian consumers.
Bond markets had a rocky ride, and it was the Dim Sum arena that hosted Asia’s first offering of Basel III-compliant bank capital. China’s success story started to show some cracks in the second half, however, after short sellers and ratings analysts raised red flags over corporate governance and excessive leverage.
IFR Asia 684 – February 12, 2011
Hong Kong looks beyond China for next IPO wave
The era of mega Chinese listings may have ended with last year’s record-breaking Agricultural Bank of China IPO, but the Hong Kong equity capital market has already found the next bunch of big players. The new stars currently hogging the limelight are not Chinese companies, but international entities, such as Mongolia’s Erdenes Tavan Tolgoi and Luxembourg-based luggage-maker Samsonite. Both moved ahead with potential Hong Kong listings last week, betting that growing Chinese demand for their products will help them sell shares in the city.
The Mongolian Government’s proposed privatisation of Tavan Tolgoi, which owns the world’s second-largest coal deposit, was the talk of the town among bankers last week.
The scale of the opportunity has, unsurprisingly, triggered some intense competition in the investment banking community, even resulting in a brawl between rival bankers at an Irish bar in Mongolia’s capital, Ulan Bator.
“Mongolia is just like China in the 80s with all sorts of privatisation opportunities. Tavan Tolgoi is just the start. Building a good relationship with the Mongolian Government through this deal would mean more mandates in future,” said a banker.
IFR Asia 700 – June 4, 2011
Sino-Forest report casts shadow over Chinese high-yield bonds
Corporate governance concerns were once again looming over China’s booming high-yield bond market late last week amid allegations of overstated results at Toronto-listed PRC forestry company Sino-Forest.
The company’s stock plummeted 20% on June 2 before it was suspended after independent research firm Muddy Waters highlighted inconsistencies in Sino-Forest’s accounting.
Muddy Waters questioned the value of the forest land Sino-Forest owned in China, as well as sales routed through “authorised intermediaries” and investments in plantation fibre.
Sino-Forest said it had set up a special committee to deal with the allegations. A statement in response to the report was expected after IFR Asia went to press on Friday.
The company’s bonds also sold off heavily on June 3, dragging other Chinese high-yield bonds down around a half to a full point. Sino-Forest’s 2017s were off 20 cents to 70 offered, having traded as low as 65.
“Sino-Forest is not a new phenomenon. Everyone is aware of corporate governance issues in China, but, in a bull market, nobody pays attention to such things until they come back to bite them,” said one banker in Hong Kong.
DCM bankers have made merry bringing transactions for borrowers of all types from China and the pipeline is still robust, although it now remains to be seen how many of the potential deals will materialise in the wake of Sino-Forest’s problems.
IFR Asia 702 – June 18, 2011
Prada’s IPO design may prove impossible to copy
Italian fashion house Prada completed its US$2.1bn Hong Kong IPO last week, despite a slump in market conditions that left the retail portion of the deal well undersubscribed.
Prada’s successful listing came after it had repeatedly tried and failed to list in Europe, and proved that foreign companies could achieve a premium valuation on the Hong Kong bourse. The final price put Prada at a premium of about 20% to the average forecast P/E ratio of London-listed Burberry and Paris-traded LVMH, providing a big boost to the Hong Kong exchange’s hopes of luring more international issuers.
Together with the US$1.25bn listing of US luggage-maker Samsonite International, Prada’s IPO has driven international interest in Hong Kong listings to fever pitch.
Bankers, however, poured cold water on the idea that many other global brands would be able to follow in Prada’s footsteps.
“There is still room for foreign listings in Hong Kong provided there is a clear, well-articulated strategic alignment of the business in Asia, which will get them institutional support,” added the banker. “The ones that come to Hong Kong only for better pricing valuations with no Asian business rationale are better off staying at home.”
Among the names being mentioned is British football club Manchester United. Its owner, the Florida-based Glazer family, bought the club for £790m and took it private in 2005, and is now mulling a Hong Kong IPO of up to US$1bn. Also being talked about is a potential listing attempt by Formula One Group. The common theme behind both names is the well-recognised brand image and a strong Asian following for their respective sports.
One global head of ECM said Manchester United was an example of a company that investors would reject as its revenues are domestic and institutional investors would not be interested in purchasing a vanity share.
“Manchester United has lots of fans in Asia, but how many of those are wearing authentic shirts?” he said.
IFR Asia 722 – November 5, 2011
ICBC sets template with loss-absorbing LT2
The arrival of Asia’s first Basel III-compliant subordinated bond has raised hopes for a rebound in bank capital issuance as financial institutions search for the most efficient means of meeting stricter capital requirements.
Industrial and Commercial Bank of China (Asia), the Hong Kong banking unit of the world’s biggest bank in terms of market capitalisation, priced the landmark deal in the offshore renminbi market on October 28.
The deal adds more depth to the fast-growing offshore renminbi market, while also introducing a new form of contractual loss absorption to the bank capital sector. ICBC Asia’s decision to tap the Dim Sum bond market rather than issue in US dollars, however, has left opinion divided as to the significance of the deal.
“It is really hard to say how many investors fully understand the structure, but, for this deal, there have not been too many worried about that because few believe the parent would let the issuer become non-viable,” said one banker involved in investor education.
The structure forces bondholders to shoulder losses and allows the deal to count towards Tier 2 capital under the latest Basel rules. It is only the fourth issuance of hybrid bonds to include contractual loss absorption since the rules were released in December 2010 and January 2011, according to law firm Linklaters, which has acted on all four such deals.
“The banking industry in many countries is at the start of, what is likely to be, a long period of restructuring of regulatory capital resources to comply with new post-crisis prudential requirements. So, we expect more such deals,” said Nigel Pridmore, a partner at Linklaters.
Bank of China (Hong Kong), HSBC and ICBC International were global co-ordinators on the deal, while Credit Suisse, DBS Bank and Goldman Sachs were joint lead managers and bookrunners.
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