2012: Bond breakthrough

The breakthrough growth of Asia’s debt capital markets was the highlight of a challenging year, with uncertainty in the eurozone still weighing heavily on risk appetite. Asian issuers broke the US$100bn mark in G3 bond sales for the first time, and also reduced their reliance on the 144A or global markets as local investors welcomed a range of products from perpetuals to securitisations.

Equity markets diverted their attention to South-East Asia, where the listings of Felda Global Ventures and IHH Healthcare made Malaysia an unlikely hub of activity. Even in the beaten-down markets of Hong Kong and China, companies like Alibaba, Hong Kong Exchanges & Clearing and Swire Pacific proved they could still access the capital needed to meet their objectives.

IFR Asia 748 – May 26, 2012

Alibaba buyback sign of bigger things to come

Alibaba Group’s US$7.1bn buyback of a 20% stake from Yahoo puts an end to lengthy negotiations between the two companies. For the capital markets, however, the deal is just the start.

The Chinese e-commerce giant is already working on a private share placement, a preferred stock issue, a US$3bn syndicated loan and the privatisation of Hong Kong-listed Alibaba.com. Further down the line is the IPO of the parent company – a listing that promises to smash records for Asia’s technology sector.

Before any of that can happen, Alibaba needs to fund the Yahoo buyback. It will issue US$800m of preferred stock to its US partner and use up to US$1.5bn from the syndicated loan. The balance of the US$7.1bn consideration will come from share placements and Alibaba’s own cash reserves (currently at US$1.7bn), which will need to be unlocked from its onshore Chinese operating units.

Alibaba has to raise at least US$2bn from the private share placements and is already said to be in advanced discussions on the matter with several parties, including new investors and existing shareholders.

Among the likely new investors is China Investment Corp, which is considering a significant investment of up to US$2bn. Other private-equity firms, such as Bain Capital, Blackstone Group and Hony Capital, are also in talks with Alibaba for equity stakes. Alibaba is also in discussions with existing shareholders, including Singapore’s Temasek Holdings, for an additional US$2.3bn in equity raising.

Yahoo’s divestment values Alibaba at around US$35bn.

IFR Asia 764 – September 15, 2012

South-East Asia shift gathers pace

International investment banks are devoting more time, money and staff to South-East Asia than ever before, attracted to the region by a recent spate of fundraisings and the promise of growth in countries like Malaysia, Indonesia and the Philippines.

The China equities narrative that dominated boardrooms since the Asian financial crisis has begun to lose its way, while certain South-East Asian growth stories have become more compelling.

“Investors now want to know more and more about South-East Asia,” said Philip Lee, investment banking CEO for the region at JP Morgan. “There is a comfort level in the social and political stability of the South-East Asian countries which has attracted investors to put more focus on this region.”

Equity issuance in Malaysia year-to-date is about twice what it was all of last year, including a recent trade from IGB REIT, whose M$838m (US$269m) IPO this month was more than 30 times covered. Indonesia’s rating upgrade took it to investment grade status early this year. And the Philippines has bolstered its appeal as it pursues an infrastructure build-out.

Malaysia has been one of more lucrative centrepieces for investment bankers. Significantly oversubscribed IPOs from Felda Global Ventures, in June, and IHH Healthcare, in July, have given bankers cause for optimism – and a little opportunism.

Firms that did not have enough focus on Malaysia this summer do not want to make the same mistake twice.

“They are repositioning resources to this part of the world,” a banker said. “You had these major deals for IHH and Felda and others, and all of a sudden a lot of banks found they were caught with their pants down.”

IFR Asia 757 – July 28, 2012

IHH up 10% on twin debut

IHH Healthcare shares rose roughly 10% on their simultaneous debuts on the Malaysia and Singapore stock exchanges last Wednesday. On Bursa Malaysia, the shares rose 10% to M$3.09 from the issue price of M$2.80, while, on the Singapore Exchange, they gained 10% to S$1.225 from S$1.113.

The company raised M$6.3bn (US$2bn) from its dual IPO in early July, selling 2.2bn shares.

Bank of America Merrill Lynch, CIMB and Deutsche Bank were joint lead co-ordinators, while Credit Suisse, DBS, Goldman Sachs and Maybank were the joint bookrunners.

IFR Asia 766 – September 29, 2012

HKEx surprises with biggest CB of 2012

Hong Kong Exchanges and Clearing wrong-footed the market last week in unveiling Asia’s largest convertible bond of the year.

Investors had been expecting a conventional equity-raising exercise to fund the acquisition of London Metal Exchange, with most betting on a rights issue. The CB, however, was launched last Monday at a size of US$400m and was increased fully to US$500m on strong demand.

“The issuer took advantage of the scarcity of high-quality Asian convertible paper to launch this transaction,” said one banker.

Printing a CB meant less potential dilution for HKEx’s existing shareholders, while the terms of the bond allow the issuer to call the paper at 101% of accreted value if it fails to complete the acquisition within six months of October 23. It is thought to be the first time such a clause has been included in an Asian CB.

HKEx has not issued equity or debt since listing in 2000. However, analysts reckon that, in order to meet its stated debt-to-equity target ratio, the exchange operator will need to raise around US$1bn in new equity after the CB. It is prevented from issuing new shares for 45 days.

The bonds yield 1.00% off a 0.5% coupon, and the conversion premium to the September 24 close was set at 34.57%, from a marketed range of 30%–37.5%. That is the highest for an Asian deal since May 2011.

Unusually for an Asian issue, the CB has a five-year tenor, but no investor put before maturity, reflecting the strength of the credit and its hedgeability.

With a credit spread of 150bp, 23% volatility and 50bp stock borrow cost, the bond floor was 93.8. It was quoted the following day at around 100.25. The stock closed down 2.6%, within expectations of 3.0% stock slippage. Deutsche Bank, HSBC and UBS were joint lead managers.