Global transaction
Asia’s best high-yield bond issue of 2021 was a rare type of deal for the region. Hexaware Technologies’ US$1.01bn bond was sold as part of a bridge-to-bond transaction to help fund Carlyle Group’s US$3bn acquisition of the Indian IT company.
Carlyle signed a bridge loan of US$1.01bn in August, putting the wheels in motion for the bond sale to follow in late October.
The five-year non-call two bond offering priced at par to yield 5.375%, tightening from price talk of 5.5%–5.75%.
The final price likely included about 12.5bp of new issue premium, by one banker’s estimate, but given that the notes are rated B1/BB– (Moody’s/Fitch) and the company was seeking a large size, the trade came at a tighter level than some had expected.
The deal benefited from the two names attached to it. Hexaware has a strong track record and, though it is headquartered in India, it operates globally, meaning that it has a different profile to a typical emerging market credit. More than 70% of the company’s revenue in 2020 came from clients based in the US.
Hexaware is popular with investors, although it had not been seen in the US dollar bond market since 2017. The company has been growing since then, as its technology offerings have continued to be in demand during the pandemic.
The backing of the Carlyle name was also a huge selling point for the transaction.
Notwithstanding the strength of the Carlyle-Hexaware duo, the syndicate team still had to negotiate a challenging market to sell the deal. The issuer began investor calls near the end of October in the thick of the China property crisis. Payment problems at China Evergrande Group, which later defaulted, caused most Asian high-yield issuance to dry up, and investors were nervous about taking on risk in the asset class.
The syndicate team decided to open the 144A/Reg S transaction during US hours, tapping into Carlyle’s presence in North America and Hexaware’s strong business in the US. The bankers were able to wall-cross investors there, securing enough interest for the deal to begin taking orders from Asian accounts with confidence. The leads found US$2bn of indications of interest, and the order book later reached US$7.8bn at its peak.
Special purpose investment holding company CA Magnum Holdings acted as the issuer for Carlyle Group. The proceeds from the deal helped Carlyle to fund the purchase of its 95.42% stake in Hexaware from Baring Private Equity Asia.
Goldman Sachs and HSBC were joint global coordinators. Barclays, BNP Paribas, Citigroup, MUFG, Nomura and Standard Chartered were joint bookrunners.
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