2015: What goes up…

Volatility was the one constant of 2015, affecting everything from Chinese equities to US Treasuries, from South-East Asian currencies to global commodity prices. After a 12-month bull run, the wheels fell off the A-share bandwagon in June, and underwriters had to cope with massive syndicates on the deals that did come to market. A rout in oil prices resumed in the second half of the year, contributing to a miserable year for South-East Asia.

There were some bright spots, however. Equity underwriters made money in India, global corporate issuers sold bonds in Australia, and tobacco group HM Sampoerna added a spark to the Indonesian equity markets.

IFR Asia 890 – April 25, 2015

Sun block shows India’s appeal

A record overnight block trade has underlined the confidence of investors in Indian equities at a time when surging Chinese stocks have stolen most of the limelight.

Last Monday, Japan’s Daiichi Sankyo sold 215m shares, or a 8.9% stake, in Sun Pharmaceutical Industries for Rs200bn (US$3.2bn), exiting its investment in India’s largest drugmaker.

The sale is comfortably the largest block trade in India’s equity market, beating Citigroup’s sale of a Rs96bn stake in HDFC in 2012. It also came on the worst day for Indian equities in nearly a month.

Sole bookrunner Goldman Sachs had a number of challenges to overcome. For one, the recent rally in China’s stock markets – and a glut of 11 block trades in Hong Kong the previous week – drew investors’ attention away from India, a market that gained 30% in 2014.

The stock had also run up before the deal on the completion of Sun’s merger with Indian rival Ranbaxy. Rumours that Dilip Shanghvi, owner of Sun Pharma, would be buying Daiichi’s stake in the merged company had also pushed the stock higher.

As a result, Goldman launched the sale with a discount running into the double digits, a rarity in the Indian capital markets.

The 215m shares were marketed at an indicative price range of Rs930.0–Rs1,043.8 each, or at a discount of 0%–10.9% to the pre-deal spot. The final price was set at the bottom end of the range.

The sale’s biggest challenge was to find investors that did not already own the highly liquid stock. Sun Pharma accounts for 3.4% of the Sensex index.

“It’s a great deal. Usually investors complain that Indian deals don’t offer value to investors, but here is a good name available at an attractive discount,” said a banker away from the deal.

Goldman’s sole role was no surprise, as it had advised Daiichi throughout the Sun Pharma -Ranbaxy merger.

Sun Pharma traded down to the block price the following day, closing 8.8% lower at Rs952.20 on the NSE last Tuesday. A day later, the company clarified that Shanghvi had not bought any shares in the sale.

IFR Asia 899 – June 27, 2015

BOC sets Silk Road landmark

Bank of China underlined the scale of China’s ambitions for a new Silk Road last week with a US$4bn multi-currency bond to fund infrastructure projects linking Asia and Europe.

It was the first public bond issue to fund the recreation of the ancient trading route, which will require billions of dollars in the coming years. The offering also marks the first four-currency deal out of Asia, reflecting the transcontinental nature of the projects.

The state-owned bank sold notes in US dollars, euros, Singapore dollars and renminbi, raising funds through overseas branches that will lend to Silk Road projects. BOC also sold four tranches of renminbi bonds in Taiwan’s Formosa market, adding Rmb3bn across tenors of five to 15 years.

Altogether, BOC’s offering is the largest Reg S senior bond from Asia ex-Japan, and set a record for the highest number of tranches on a single Asian issue.

The proceeds will be used to provide credit to businesses working on the “Belt and Road” projects. Investments under way include building the Eurasian Land Bridge and connecting China to Russia and Central Asia, as well as setting up maritime links through major sea ports.

The bonds were issued through BOC’s branches in Hungary, Hong Kong, Singapore, Abu Dhabi and Taipei.

IFR Asia 904 – August 1, 2015

DBS makes covered debut

DBS Bank has set Singapore’s first covered bond benchmark with a US$1bn three-year offering, setting a foundation for Asian banks to access a market that has proven resilient in times of crisis.

The long-awaited offering finally introduces the senior secured asset class to Aaa/AAA/AAA rated Singapore and will provide a pricing benchmark for South Korea’s first statutory covered bond, expected from Kookmin Bank in the coming months.

Singapore and South Korea want to ensure their banks have access to a steady investor base even when markets turn volatile, a lesson learned at the height of the financial crisis when many global banks needed government guarantees to attract investors to their debts.

“It opens up an entirely new investor base given that the buyers of covereds are typically bank treasuries and the rate space on the asset management side,” said a banker on the deal.

“It also speaks volumes of the progression of the banks here and their ability to tap global markets and be compared on a scale with the Australians, Canadians and Nordics.”

By preemptively setting covered benchmarks, issuers hope they will be able to raise funds from different investors in difficult times through the sale of high-grade bonds secured against mortgages and protected by law.

DBS was able to experience the resilience of the covered bond market first hand. The roadshow, which took place in Asia, Europe and the US from late June, was held at the peak of the Greek debt turmoil, while plummeting Chinese equities roiled global markets.

Bankers on the deal said DBS would have been able to print even against that backdrop, but decided to wait.

“The market was open, but, given the ability to choose the window especially for an inaugural deal, the decision was taken not to,” said one of the bankers. “It doesn’t negate the fact that, in times of stress, the covered market is available. They absolutely could have done it.”

Markets began to settle in the past few weeks, supporting a deluge in covered supply from peripheral banks in Europe. The improved sentiment prompted bankers to begin marketing last Wednesday at around 40bp over mid-swaps, eventually pricing at 37bp.

IFR Asia 908 – August 29, 2015

Apple makes Kangaroo leap

Apple’s stellar Kangaroo debut has confirmed that a lack of supply, rather than a lack of demand, is holding back Australia’s stunted corporate bond market.

Hopes are rife that the A$2.25bn (US$1.65bn) trade, which dwarfed all previous Australian dollar offerings from non-financial companies, will help expand the country’s fixed-income market.

“The deal should encourage other large global borrowers to look at the Australian dollar market as an alternative and diverse source of funding, with Apple having shown it to be a competitive and deep jurisdiction in which to raise funds,” said Rod Everitt, manager director syndicate at lead manager Deutsche Bank.

Domestic issuance remains constrained due to the competitive terms on offer in the local loan market, but bankers hope Apple’s debut will attract other global issuers, especially at a time when heightened volatility is underlining the importance of a diversified funding base.

Local DCM bankers do not believe offshore demand will suffer any impact from the latest PRC market gyrations and deepening concerns over a hard economic landing, even though Australian assets are viewed as a liquid proxy for Chinese risk.

Fund managers, drawn to Apple’s status as a rare blue-chip technology issuer and its decent pick-up over sovereign, supranational and agency Kangaroos, bought 60% of the bonds.

Apple’s four and seven-year tranches priced in line with its US dollar curve and just inside its euro curve, but offered plenty of value in terms of Australian comps.

The A$1.15bn seven-year tranche, rated Aa1/AA+ (Moody’s/S&P), priced at 110bp over asset swaps, three days after the University of Sydney, rated Aa1, paid 95bp for a domestic issue of 10-year medium-term notes.

“Apple’s success, combined with SAB Miller’s recent A$700m print, raises the profile of the Australian dollar market, especially in volume terms,” said another syndicate banker. “The big take out is that it shows investors are willing to get involved if issuers are prepared to put value on the table.”