Only EQL can do this
Structured equity isn't just about a standalone convertible or exchangeable bond, but it's also about deploying equity-linked products to enhance a wider transaction. This was best exemplified by Mexican holding company Fomento Economico Mexicano (Femsa) using EBs as part of selling €7.36bn of paper across drinks company Heineken and its parent Heineken Holdings in two steps in less than four months.
The exchangeable that was ultimately issued amounted to only €500m, but was an integral part of the overall sale strategy.
On the same day in February as Heineken published its full-year results, Femsa said it would dispose of its 14.76% stake in the drinks company over two to three years. Together these prompted a strong uptick in both lines of equity. Femsa did not need that long, with €3.7bn raised the very next day, and a further €3.66bn at the end of May allowing for a full divestment.
The first trade comprised four components: a €500m exchangeable bond into Heineken Holding which priced at a 2.625% coupon and 27.5% premium, the mid-points of 2.375%–2.875% coupon and 25%–30% premium guidance; €1.9bn of equity in Heineken; €1.3bn of equity in Heineken Holding; and a delta placing for the exchangeable that was expected to total €90m at launch but was ultimately sized at just €23m.
Including the exchangeable doubled the complexity, with four rather than two books to manage and for a modest addition to the funds raised, but Heineken Holding was the less liquid line of stock and therefore the harder to sell.
With so many moving parts and two lines of stock, coordination across all parties for such a complex transaction was key. Femsa wanted to move quickly after Heineken's results and ahead of its own reporting.
Heineken said it would buy back €1bn of shares across both lines during the bookbuild, with the Heineken family also expressing a desire to participate. There were also two very large anchor orders, from an institution and a family office, with the group representing more than half the final deal.
With this being the first European secondary in more than 18 months to see meaningful long-only participation, numerous investors topped up their positions in the following days, providing for a strong pick-up in both stocks.
When Femsa returned in May a €250m tap of the exchangeable was included and quickly covered, but dropped during bookbuilding in favour of a cash trade.
The EB added a distinct investor group, maximising demand and increasing price tension, while retaining full flexibility.
Barclays was sole financial adviser to Femsa, with Bank of America, Goldman Sachs and Morgan Stanley executing the trades and Credit Suisse and Citigroup advising Heineken.
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