2005: China goes global

Outbound Chinese deals moved to another level in 2005 as industry leaders and newly commercialised banks looked to raise their global profile. Bank of Communications and China Construction Bank had investors rushing to subscribe to their Hong Kong listings, while computer maker Lenovo transformed perceptions by showing that China could take over a well-known global brand.

The global bond markets opened up for Vietnam, paving the way for an investment boom in the frontier market over the following year, and the Philippines was finally back in the action after a turbulent few years.

IFR Asia 389 – January 29, 2005

Lenovo loan launched despite uncertain acquisition

Lenovo Group’s US$600m five-year dual-tranche loan was launched simultaneously into sub-underwriting and general syndication last week amid concerns in some quarters that the company’s US$1.75bn acquisition of IBM’s PC business could run into rough weather. The proceeds will take out the US$500m bridge financing provided to Lenovo by Goldman Sachs for the acquisition.

While Lenovo’s shareholders approved the acquisition last week – around 99% voted in favour – lawmakers in the US expressed national security concerns. Three Republican congressmen in the US have asked US Treasury Secretary John Snow to closely scrutinise the transaction, which represents one of the largest acquisitions by a Chinese company in the US.

Whether this will worry lenders remains to be seen. Lenovo’s senior management will be making a bank presentation on January 31 in Hong Kong. Bankers close to mandated leads – ABN AMRO, BNP Paribas, ICBC (Asia) and Standard Chartered – were confident that Lenovo will be able to address any concerns lenders might have as to the successful completion of the acquisition.

“Should the acquisition fail to get US regulatory approvals, the loan financing will not go ahead,” said Clarence Ta’o, regional head of loan syndications, Asia & Australasia at BNP Paribas. “There is a mechanism whereby the participating banks will be compensated for committing to the deal. We anticipate the drawdown to take place around end of March or early April.”

The facility, split into a US$500m term loan and a US$100m revolving credit, pays a margin of 82.5bp over Libor and features an average life of 4.0875 years.

Given the attractive pricing, the tight security and covenant structure and the rarity value of the loan, it is expected to be well-received. That will mean a big feather in the cap for BNP Paribas, which was the first bank to get a foothold on the transaction.

IFR Asia 426 – October 22, 2005

Phew! US$8bn CCB float finally arrives

Two years, four bookrunners (one got lost on the way), two strategic investors and a US$22.5bn state bailout later, the IPO of China Construction Bank (CCB) has arrived. The HK$62.24bn (US$8bn) listing was marketed during exceptionally choppy markets but, in the end, the offer’s sheer bulk carried it through.

The deal became the largest IPO globally this year and the largest ever in Asia ex-Japan. It priced at HK$2.35 a share, near the top of a range that was revised to HK$1.90–$2.40 (from HK$1.80–$2.25) on the fifth day of bookbuilding.

Some fund managers baulked at the revised range, complaining that the deal was too expensive. At HK$2.35, CCB came in at a price-to-book valuation of 1.96 times on post-money basis, which is more pricy than the somewhat sturdier HSBC (at 1.92 times).

“Fundamentally I don’t understand how these Chinese banks could warrant a higher valuation than HSBC,” said a hedge fund manager who shorted Bank of Communications (Bocom), a recently listed Chinese state bank, a month ago and made a killing.

But as a Russian general once said, sometimes quantity has a quality all its own, and many institutional funds were drawn to the offer by virtue of its vast size. The bank has a market capitalisation of about US$66bn – the third biggest in Asia after Mitsubishi UFJ and Mizuho – and should capture about a 6% weighting in the MSCI China index once admitted.

The book was seven times covered at the top end of the revised range, generating orders north of US$60bn. Several orders came in at US$1bn-plus, one banker said. The book was covered in the first day of bookbuilding with about US$3bn of the deal taken up by tycoons and strategic investors.

Bank of America and Singapore’s Temasek subscribed to US$500m and US$1bn of the offer, respectively, while another US$1bn–$1.5bn went to Hong Kong tycoons.

CICC, CSFB and Morgan Stanley were bookrunners.

IFR Asia 427 – October 29, 2005

Vietnam makes sparkling debut despite aggressive pricing

It may have been some five years or so in the making but it was worth the wait. The Government of the Socialist Republic of Vietnam priced its maiden international bond offering last week via a US$750m 10-year that managed to not only price some 60bp inside Indonesia but was also a true global.

It is hard to think of a more impressive EM sovereign bond since the Asian financial crisis, with only South Korea’s US$4bn transaction in 1998 possibly topping it.

Helping momentum for the bond was a compelling credit story. The transition from a planned economy to a market-driven one is well underway through the reform process known as “Doi Mei”. Since 1990, the share of GDP from agriculture, fisheries and forestry has declined from 38.7% to 21.8%, while the contribution from industry and construction has increased from 22.7% to 40.2%.

This liberalisation of the government and the SOE sectors is starting to generate impressive economic numbers and Vietnam has one of the fastest growing economies in the world with GDP growth of 7.8% in 2004.

In the lead up to pricing, speculation in the market was that Vietnam would do well to come 25bp or so inside Indonesia. The country is rated B1/BB–/BB– (Moody’s/S&P/Fitch) compared with Indonesia’s B2/B+/BB–. (See IFR Asia 426.)

In the end, though, the story, the rarity value and the fact that the bond will go straight into the EMBI+ index had global EM funds clamouring for paper. Orders topped US$4.5bn, allowing the deal to be bumped up to US$750m and final pricing to be pushed in. The bond priced at 98.223 and a coupon of 6.875% for a yield of 7.125%.

At 7.125%, the bond came some 63bp inside Indonesia’s curve. The deal also came almost 100bp inside with the Philippines 16s (rated B1/BB–/BB) which were at the 8.06% mark. Clearly, though, the Philippines is a regular borrower and its well-documented fiscal problems make it trade cheaply.

Even on a global context, Vietnam has still made a splash. Brazil, which is rated the same as Vietnam, has a due March 2015 bond that was at the 7.82% level last week.

The sole bookrunner was CSFB who, after working with Vietnam for several years, must have been pleased to have retained sole books after all the work that it has been put in. The fee worked out at 68.3bp, one of the biggest paid in recent years for an EM sovereign.