Deal of the Year, Best Equity Deal, Best IPO, Best Privatization
China Life $3.021 billion IPO
CICC, Citigroup, Credit Suisse First Boston, Deutsche Bank
For Asian equity markets, 2003 has been defined by the lows engendered by SAR's and the highs of the IPO fever, which progressively gripped Hong Kong over the course of the fourth quarter of the year. Much of 2003's business became concertinaed into the last three months, not least the world's largest IPO of the year for China Life.
In many ways, the company's listing on the Hong Kong and New York Stock exchanges in mid-December marks the high water mark for 2003. China Life may not be the world's best company in its space and we have all heard the China growth story many, many times before. But its flotation encapsulates the strength of the Asian bull market, which came roaring back into view during the second half of the year and needed a deep gulp of air to pull off.
Many assumed institutional investors would shut their books early to protect existing gains. Many also assumed the gargantuan life insurance company would be an extremely hard sell given the sector's unprofitable track record and primitive risk controls.
But in the end fundamentals didn't seem to really matter and not since the red chip bubble of 1997 have Asian equity markets seen anything quite like it.
China Life accumulated $80 billion in demand and prompted a week-long allocation meeting to decide which of the 1,000 institutional investors who applied for stock would be granted it. The staggering size of its order book represented the equivalent of two full months trading on the Hong Kong Stock Exchange, with retail investors applying for 168 times their 5% allocation and institutional investors 25 times the remainder.
Like many of its predecessors, China Life had a POWL (public offering without listing) in Japan and a roll call of friendly corporates willing to show faith in the Chinese privatization programme. The mania, which propelled the order book to such inflated levels has had its critics, but China Life's advisors deserve praise for their handling of the syndication process and the restructuring of the company prior to the IPO.
A successful offering only became feasible once a decision was taken to divide the company along a time line in 1999, which left unprofitable legacy contracts with the parent and ring-fenced them there. Investors also believed that the valuation attached to the deal (1.5 times 2004 book) was reasonable.
Best Secondary Offering
Chunghwa Telecom $1.58 billion ADR
Goldman Sachs, Merrill Lynch, UBS
Best secondary offering was one of the more difficult categories to decide, but we decided that it would be hard to ignore the strategic importance of Chunghwa Telecom, nor the successful outcome of a deal, which has been hanging over the Asian equity markets for some years. The Taiwanese government must have breathed a huge sigh of relief after finally and successfully divesting a large chunk of shares in the fixed line giant during July.
The transaction was three years in the making and a record-breaker in a number of respects. It not only marks the largest ever ADR from Taiwan, but also enabled Chunghwa Telecom to become the first SOE to secure a New York Stock Exchange listing.
When the government first announced its intention to sell its 100% stake below 50% in the summer of 2000, it said it was confident it could divest two thirds by the end of 2001. Prior to December 2002, however, it had managed just 5% and watched numerous tortured attempts end in failure.
An ADR offering began to look more promising later that month. Almost without warning, the government suddenly sold a 13.5% stake to a consortium of domestic insurance companies, which realized that the company's high dividend yield would boost investment yields on their asset portfolios.
This dividend yield, which has been consistently over 8%, ranks the highest of any telecom stock in Asia, or company listed on the Taiwan Stock Exchange. It formed the basis for the marketing campaign of the ADR, which was faultless in both execution and timing.
It has subsequently come to be seen as a pivotal deal that marked the turning point as investors turned from yield to growth plays. Had it tried to come one month later, it might not have been able to come at all. As it was, it represented a safe haven for investors still scarred by the impact of SARs on equity markets across the region.
More importantly the leads managed to persuade the Taiwanese government to adopt a new syndication strategy, whose success was later emulated by China Steel. Previous attempts to sell Chunghwa in ADR format had stumbled over the government's reluctance to let foreigners buy the stock at a discount to domestic investors.
The leads persuaded the government to let them go out with a wide indicative price range in order to lure investors with the promise of a large discount and then build enough momentum to tighten the range and secure tight pricing.
The strategy worked and a 96.5 million unit transaction was priced at a slim 2% discount to the company's spot close. The leads also structured a concurrent domestic offering that allowed local investors to participate in the discounted offer price and negated potential criticism about selling assets cheaply to foreigners.
Chunghwa was also the first Taiwanese deal to incorporate a POWL, another useful lever in building momentum.
Best Equity-linked Deal
UMC/AU Optronics $206 million exchangeable
Lehman Brothers, Morgan Stanley
Choosing between the vast swathes of convertibles, which assail the market every year and particularly from Taiwan is never easy. Our job was also made all the more difficult in 2003 because of the extreme lengths banks were prepared to go in order to win business.
Many have been able to warehouse credits on their own balance sheets, or found that the market moved in their favour after submitting ludicrously aggressive terms. But does that make for a great deal?
In choosing the UMC/AU Optronics exchangeable we opted for a deal, which was perfectly timed and smoothly executed. Both UMC and AUO rank among the best in their sector; both are well known to investors and both have developed a reputation for deals that work.
What made this transaction stand out was its timing. It came to market in early July before interest rates started to move upwards and while investors were still pouring into the equity linked markets.
The intention was to monetize half of UMC's remaining stake in AU Optronics. As such it was important to catch the stock while it was on an upswing, but before it got too high, making conversion unlikely.
At the time of pricing AU Optronics was trading at NT$31.3. It has since risen to a high of about NT$49 before slipping back in late October to current levels around the NT$40 to NT$41 mark.
This means it is now trading in-the-money for those accounts which bought the deal on a 17% conversion premium and six month call option. The transaction is also one of the best performing equity-linked deals of the year and is currently bid around the 121% levels.
The second stand-out aspect is the structure and particularly the negative yield achieved. At minus 1.5% it still stands as the most aggressive this year. Pricing came at 103%, the most aggressive end of a 101% to 103% range, with redemption at par.
Books were closed eight times covered after an hour-and-a-half of launch and individual orders capped at $20 million to prevent demand spiraling out of control. Underscoring how hot the market had become, no orders were contingent on asset swap.
Best Mid-Cap Equity Deal
Maruti Udyog $211 million IPO
Kotak Mahindra (bookrunner), HSBC, ICICI Securities, JM Morgan Stanley
In the midst of recent China-fever, it is all too easy to forget that India has been simmering away this year, with one of the world's best performing capital markets.
The IPO for Maruti Udyog, the Indian carmaker saw the government sell a 27.5% stake in the biggest capital market transaction in India for seven years. With more than 300,000 retail bids, it was the largest bookbuilt IPO in Indian history, and generated over $2.4 billion of demand for a $211 million offering. In another first, it was fully covered on day one of the bookbuilding, the first time this has happened on an Indian IPO.
The deal, which launched in June, seemed to hit a sweet spot in which sentiment had dramatically turned and Indian retail investors at last rediscovered confidence in their local market. It helped that Maruti was a quality company, managed and equity-controlled by Suzuki. It also helped that automobile companies were about to go through a staggering rally globally, and Maruti controlled 50% of the Indian passenger car market and is among the lowest cost producer of cars in the world.
However, what was remarkable was that only a couple of months before rival bankers had been scorning the deal, saying it would fail and that the government would have to fall back on Suzuki's promise to buy the stake at Rs115 per share.
The government therefore told the lead managers that the deal had to be priced at a minimum of Rs115 per share. As it turned out, excess demand allowed them to ratchet up the price first to Rs120 and then Rs125.
And it has proven a great deal for all those investors who bought it. With the Indian market one of the world's best performers this year, this has been one of the stellar stocks to own. It is now at Rs360, up 293.75% from issue price.
Best M&A Deal, Best Cross-border M&A Deal
Newbridge/ AIG's acquisition of 39.6% of Hanaro Telecom for $500 million
JPMorgan advised Hanaro Telecom and Morgan Stanley advised Newbridge/ AIG
This is a deal that encompassed a lot of firsts and signals how far Korea has come since the Asian financial crisis. It was the first time that foreign private equity investors had beaten a domestic chaebol - in this case, LG - in a bidding war for a domestic asset. It was also the first time that both the management and the unions of the domestic company supported the foreign bid rather than the Korean bid.
Things, of course, are not that simple. At another level, this was a battle between the big chaebols themselves (LG versus Samsung/ SK) - and for more on this see this month's FinanceAsia magazine account of the deal.
However, Newbridge and AIG, after almost two years of trying have finally got hold of Hanaro, and gained management control and control of the board. With Hanaro resuscitation via new equity and new debt ($500 million) it is now in a position to consolidate and become a close second to KT in the broadband space. Should it win the bidding for Thrunet (which was anticipated in the funding of the Newbridge/ AIG bid) its market share will go to 38% putting it just behind KT, and make it cashflow positive.
From there will follow a new round of consolidation that will transform Korea's telecom space, and should make Newbridge and AIG's exit a profitable one at some future date.
But aside from its strategic significance in the Korean telco space, what also makes this our M&A deal of the year is the manner in which the battle was fought. This is not the biggest M&A deal in Asia this year, but it is the single and only example of an Asia proxy fight. As such the future of Hanaro was decided and voted upon by minority shareholders and not via some chaebol cutting a nice deal for itself.
LG, which formed a late partnership with Carlyle, controlled 18% directly and went into the proxy fight reasonably confident that a super majority could not be raised to defeat it. Amazingly that is just what happened. International investors sided with AIG and Newbridge and more amazing still, the staff and management of Hanaro managed to personally gain proxy votes from the 16,000 retail investors who held almost 50% of the stock. In the event an unprecedented (for Korea) 87% of shareholders voted their stock and 74% of voting shareholders approved the AIG/ Newbridge bid.
This was not just a victory for AIG/ Newbridge, this was a victory for shareholder capitalism in Seoul.
Best Domestic M&A Deal
Shinhan Financial Group's $2.8 billion acquisition of an 80% stake in Chohung Bank
Advisers: Morgan Stanley and Samsung Securities advised the government; JPMorgan advised Shinhan Financial
This deal ranks as Korea's largest M&A transaction of 2003, as well as being the largest bank deal ever from Korea. It was also a deal that had to deal with erratic political considerations, and some of the most aggressive labour unions on the planet.
The sale of the KDIC's interest in Chohung Bank had been mandated to Morgan Stanley and Samsung Securities last December, with JPMorgan quickly gaining the role of advising Shinhan (and initially Warburg Pincus in consortia). The whole process, however, was hampered by the fact that Chohung is Korea's oldest bank (established 1897) and its staff resented the idea of being taken over by a younger upstart. To say they resisted the deal is an understatement. At one stage, staff threatened to turn off all the computers and destroy all the bank records - thus rendering the bank nearly worthless. A run on deposits was rumoured after staff engineered a five day strike, shutting down the entire bank across the country.
An original deal was put on hold, and with the election of a new President, the whole process got bogged down till June. Indeed, the deal became a test case for President Roh, with foreign investors watching carefully whether he would side with unions to veto a deal that made so much sense.
In the wider context, the deal is part of the wholesale reconstruction of the Korean banking sector after the financial crisis. This new entity was set to create the country's second largest bank - after Kookmin - with Shinhan's customers increasing from 5.3 million to 16.3 million. With this deal inked, the structure of the Korean banking market has been transformed from a fragmented one, to one that looks much more like the UK or Australia - and that is a good thing for shareholders.
In order to finance the deal, Shinhan issued W900 billion of ABS, in a transaction that marked the first time preference shares were used as the underlying in a Won preference share issue.
And as to the price, Shinhan ironically got a much better deal thanks to the delays. If all had gone well in December, it would have ended up paying much more. The headline number used by the government was W6200 per share, but if you look at the blended price of the cash, redeemable preferred shares and redeemable convertible prefs, you can get a valuation of closer to W5000 a share. If you take into account that the government is getting dividends that are paying below market price, the actual value of the securities may have a blended price closer to W4500-4600, which equates to a total deal value of W2.5 trillion. Likewise Shinhan has received an indemnification against Chohung's credit card portfolio. Within two years this could change the economics of the deal by a further W820 billion in favour of Shinhan's shareholders.
All in all this is a deal that was good for all parties. The government will become a 13% minority shareholder of the new Shinhan empire and looks likely to recoup most of the W2.7 trillion it injected into Chohung in 1999. Meanwhile it is creating a strong financial services company and benefiting the economy as a whole.
Best Overall Bond Deal, Best Investment Grade Bond Deal
Hutchison Whampoa $5 billion eurobond
Citigroup, Goldman Sachs, HSBC, Merrill Lynch
When it came to bond deal of the year it had to be Hutch, the borrower, which has dominated the 2003 league tables accounting for almost one third of all G3 issuance. The main problem was deciding which trade to go for - the first of the year, which re-established its market presence after a difficult end to 2002, or its last. In the end, we decided that the "silver bullet" trade of November could not be ignored and not least because it represents the largest bond offering in Asian history.
Critics have said that the $5 billion seven, 10 and 30-tranche issue was cheap and that any bank could have sold paper at such wide levels. But the fact is that this monster deal could have been the one to sink Hutch's hard won reputation and make for an extremely difficult 2004 had it not been completed. Instead the success of the deal showed just how well the company's treasury officials understand the international bond markets.
Having raised almost $5 billion earlier in the year, officials were conscious they couldn't keep hitting investors with deal after deal. They also realized there was probably not a great deal more appetite among investment banks to hard underwrite large bought deals at aggressive spreads to secondary levels.
So the company gathered its house banks together and tried to ensure success by getting as many to work on the transaction as possible. Alongside the four bookrunners, the company also appointed joint bookrunners on each tranche, with Deutsche Bank working on the seven-year, JPMorgan on the 10-year and Morgan Stanley on the 30-year.
In addition, it opted to pay reasonable fees to make sure the leads supported the market in the run up and pricing of the deal.
Sensibly the lead manager group went out with wide price guidance in the hope of generating momentum and in the knowledge that secondary spreads would blow out in the interim period. In the end, secondary spreads and the primary book met in the middle, with most fixed income analysts deeming final pricing to be fair.
For Hutch, the last deal of the year was the one that completely mitigated re-financing risk ahead of potentially bad news about slow 3G take-up. It topped a year of many firsts for the borrower and accumulated a satisfyingly large order book of $13 billion and 698 separate accounts.
Best Non Investment Grade Bond Deal
Hyundai Motor $400 million eurobond
Credit Suisse First Boston, JPMorgan, Morgan Stanley
Non investment grade is something of a misnomer where Hyundai Motor is concerned since the true strength of this company lays with investors' perceptions of it as an investment grade credit. In September, when it raised $400 million to re-finance an exchangeable bond, it was rated BB+/Ba1, but was on positive outlook from Standard & Poor's.
Since then Moody's has also followed suit and most market participants expect the company to gain investment grade status from both agencies during 2004.
The company's ratings momentum set the stage for the success of the five-year eurobond and enabled pricing to come much closer to mid-triple B levels. Instead of the 100bp to 120bp differential some accounts had been expecting, the deal was priced about 40bp to 50bp wide of domestic comparables such as LG Caltex and Kumgang Korea Chemical.
Demand was much stronger than expected and having built an order book of $1.5 billion, the company was encouraged to lift the deal size from $300 million to $400 million without having to sacrifice pricing.
The deal also sat well with investors because Hyundai Motor is considered a rare borrower and one that provides diversification away from the mass of genco and bank deals which fill the Korean bond universe. Hyundai Motor is also a company developing an increasingly well known international brand that appeals to US investors at a time when their own domestic car companies are on a downwards rating trajectory.
The transaction, therefore, had more balanced distribution than is often seen with Korean deals and saw Asia take 46%, the US 32% and Europe 22%.
What also made this transaction unique was its structure. The deal was necessitated by the redemption of a $500 million exchangeable in August. This deal had been structured by CSFB back in 2001 as a novel way for Hyundai Motor to monetize 13.1% of its stake in Kia Motor.
However a large number of investors did not covert into stock leaving excess shares sitting in a Korean SPV. And because of the accounting and regulatory true sale treatment given to the original deal, Hyundai Motor no longer technically owned them.
What the leads came up with was a derivative structure through which the issuance vehicle (Equus) entered into a swap arrangement with a couple of counterparties (CSFB and JPMorgan). This enabled it to immediately remove the shares from the Korean SPV and liquidate them over time.
Best Structured Loan
Hanaro Telecom $600 million loan
JP Morgan, DBS
In a relatively uninspiring year in the Asian syndicated loan markets JP Morgan and DBS were able to bring a $600 million equivalent TMT financing to the market for Hanaro Telecom.
The deal was noticeable from the outset since it was the first to be awarded as the result of a proxy bid. For the leads it was also never certain that domestic banks loyal to LG would sign up. Sponsors AIG and Newbridge had gained the necessary shareholder support over a rival group containing LG, supported by Citibank, on October 21.
The financing package totalled $1.1 billion and included a $450 million to $500 million equity injection from the sponsors. The loan is split between a W660 billion portion available in US dollars and Korean Won and a W60 billion tranche.
In addition to being one the largest telco deal in Asia ex Japan, there were tight deadlines that had to be met for the fundraising to be successful. The initial underwriting had to be in place by mid November with ABN AMRO, KDB and KEB signing up.
Proceeds will provide a complete solution to the borrower, enabling it to address maturing debt issues that comprise payments of some W1 trillion ($833 million) over the next 24 months. Additionally it provides funds for the potential W400 billion ($333 million) acquisition of Thrunet, another player in the Korean broadband market.
It also allows for a great degree of flexibility with respect to repayment. The borrower can prepay and repay its existing debt under an extended availability period of two years.
Market observers had suggested that the credit story would be a difficult one for the arrangers to sell. The borrower is competing with the number one player, KT Corp, which accounts for a large portion of the market.
Furthermore investors have adopted a cautious view towards Korean corporates with SK Global impacting sentiment as well as the troubles affecting the credit card companies. Banks have also pointed to the unstable political conditions on the peninsular as another hindering factor.
There were also many plus points for banks considering the deal. The experienced management team was retained under the takeover and the market has plenty of potential for further growth as well as the considerable yield pick up with US dollar lenders earning 340bp over Libor.
The first phase of syndication began on October 21 with banks being invited into an expanded joint co-ordinating arranger group. A 100% hit rate was achieved at this level with a further six banks joining, creating positive momentum for the financing.
General syndication was then launched and a further three banks came in by the official closing date of December 15. Two further banks are waiting for credit approval before formally committing to the deal.
This response was encouraging considering the high risks that the transaction involves. The success proves that banks have the appetite for assets and this may pave the way for further financings of this nature in 2004.
Best Vanilla Loan
ST Treasury Services $300 million
In 2002 BA Asia won the mandate to arrange an S$500 million ($280 million) three-year fundraising for Singapore Technologies Holdings. This deal struggled through syndication and was eventually pulled in the early part of 2003.
Banks shied away from the tight pricing offered on the credit - just 48bp at the top level. This made it all the more surprising when Barclays sent out invitations for a $300m five year loan for ST Treasury services in May.
Market observers questioned the validity of the new deal, especially considering the pricing was only a shade above the earlier transaction at just 52bp all-in for a longer tenor. In addition they suggested that the impact of Sars in Asia on an already struggling Singapore loan market was likely to impede syndication.
Not all bankers, however, expressed such scepticism over the financing as many agreed that there were differences between the two deals that made this facility more attractive. Furthermore the very absence of new transactions in the market - just $700 million worth of loans had been signed by the beginning of May - was bound to ignite some interest among Singaporean bankers.
The borrower's directives were to achieve an aggressive pricing benchmark while regaining credibility following the collapsed BA deal. To achieve these goals the pricing was left constant while all other facets of the syndication were examined to tailor the transaction to these requirements.
Barclays first step was to offer a tight security package with a number of covenants attached including consolidated interest cover, minimum net worth and gearing ratios. This is something that is not normally associated with Temasek linked entities, which have depended upon name lending in the past.
The British house also structured the facility to include a guarantee from the group head. This again was breaking away from traditional structures, and it provided further comfort to lenders as the nerve centre of the operation was backing the deal.
Finally the facility was denominated in US dollars rather than Singapore dollars. This countered any funding issues that may have arisen for foreign banks lending in the domestic currency.
A five strong group of banks were signed up pre-general including BNP Paribas, Credit Lyonnais, Credit Agricole, ING and SG. These joined as equalstatus arrangers - a level not offered on the original facility. More cleverly, Barclays targeted syndication at those banks which are normally not given first right of refusal on Singapore deals.
Syndication, however, was hit with a blow when C2C - a joint venture between a group of Asian Telco concerns including SingTel - collapsed on massive unsold capacity of its network. While the credits are from totally different spectrums, market confidence took a further knock after the Sars crisis earlier on in the year.
Despite this threatening to derail the loan, Barclays was able to attract commitments from five further banks with contributions totalling $90m. This was especially encouraging given that no domestic banks joined due to exposure aggregation issues.
Proceeds partly refinanced a bridge that was put in place by Barclays in December 2002.
Best Local Currency Bond Deal
PT Indosat Rp2.5 trillion ($300 million) bond
ING, AAA Sekuritas
Indosat's Business Transformation Programme was a landmark event for Indonesian capital markets during 2003 and at its heart lay the country's largest ever domestic bond issue. Even a year ago, many would have questioned the likely success of raising so much from the corporate bond market and indeed, the transaction represented 10% of all the year's issuance at the time of pricing in late October.
The domestic bond also came at the same time as a Rp3.165 trillion syndicated loan and $300 million high yield bond deal, both of which sucked a lot of liquidity out of the market.
All three financings were designed to re-finance the telco's existing debt and remove covenants, which prevented the company formally merging its two cellular subsidiaries (Satelindo and IM3) and raise new funds for capex. Together the three deals raised $973 million, termed out the company's debt profile and achieved a better balance between rupiah and dollar debt.
Many felt the domestic bond was perfectly timed as the markets turned bearish shortly afterwards. Despite its large size the AA+ rated deal closed two times oversubscribed and was upsized from Rp1.75 billion.
The bond also met the company's desire for unsecured debt and was priced at tighter levels than previous issues as a result of the company's improving credit profile. A five-year tranche came at 12.5% and a seven non call four at 12.875%.
Part of the deal's success undoubtedly derived from the halo effect of Singapore's ST Telemedia, which owns 41.9%. But it is also testament to the leads' structuring skills and particularly ING, which acted as merger adviser and overall co-ordinator of the entire re-financing package.
Best Cross-Border Securitization
KAL Japan ABS 1 Y27 billion
Originator: Korean Air Lines
If imitation is indeed the most sincere form of flattery then Nomura's ¥27 billion securitization for Korean Air Lines (KAL), followed almost immediately with an imitative deal from Asiana, deserves praise.
This securitization of KAL's yen receiveables from its Korea-Japan routes was fiendishly complicated, multi-jurisdictional and notched up a number of firsts, as well as setting a world record as the largest ever airline ticket receiveable deal.
It was Japan's first future flow securitization of airline ticket receiveables, the first airline deal to securitize International Air Transport Association (Iata) receiveables rather than credit card payments and KAL is the first non-Japanese Asian originator to tap yen investors.
Even in a busier year KAL would have stood out as an extraordinary deal. Despite a KDB guarantee the deal's underlying structure is solid and provided funding to an originator struggling amid growing fears of terrorism, a tourist slump prompted by Sars and simmering tension between North and South Korea.
KAL still had to go to the ends of the earth to get the deal done. Being a truly cross-border deal the advisers had to make certain aspects of the deal work in numerous jurisdictions, including both South Korea and Japan. By using Iata receiveables it was necessary to ensure a true sale in Canada, where the association is based. And the double SPV structure took those receivables off to Ireland and the Cayman Islands. All in, lawyers from seven different firms had a hand in the deal.
Transaction counsel: Paul Hastings, Shin & Kim.
Best Domestic Securitization
IBT CLO NT$2.8 billion
Originator: Industrial Bank of Taiwan
Taiwan is set to become one of the busiest securitization markets in Asia next year and this groundbreaking deal was the first to test the country's new securitization law.
Faced with an inexperienced and cautious regulatory establishment SG's NT$2.8 billion corporate loan securitization for Industrial Bank of Taiwan (IBT) was, in effect, a continuation of the legislative development that it had been involved with, alongside IBT, since 1999.
A host of professionals working on their first securitization had to get up to speed and the deal advisers also had to cope with the usual stresses of being first to market; ironing out myriad structural, legal and regulatory headaches.
Bankruptcy remoteness had never been tested for special purpose trusts, the collateral transfer to the trust was a totally alien concept, legal rulings had to be issued before the tranches could be properly structured and tax treatment was agreed only after lengthy clarification, discussion and approvals from the finance ministry.
In straightening out these and many other issues the advisers to IBT have paved the way for a boom in Taiwanese securitization. This is no mean feat; Taiwan is the third biggest economy in ex-Japan Asia, behind China and South Korea. It has a large pool of securitizable assets and a mature investor base. Indeed, Moody's reckons that the securitization market could reach as much as $18 billion in five years' time.
The next landmark in the Taiwanese market will be the first securitization of physical assets, something that is not yet possible. But in a market with so much potential this debut deal was comfortably the most significant domestic securitization of the year.
Transaction counsel: Lotus International Law Office, Russin & Vecchi
Best Project Finance Deal
Nanhai Petrochemical Project $4.3 billion
Sponsors: Royal Dutch/Shell, CNOOC, Guangdong Investment
Lead Arrangers: Bank of China, China Development Bank, Industrial & Commercial Bank of China, ANZ Investment Bank, Bank of Tokyo-Mitsubishi, Credit Agricole Indosuez, HSBC, IntesaBci SpA, Mizuho Corporate Bank, Sumitomo Mitsui Banking Corp and WestLB.
Following a year-long syndication period the mammoth $2.7 billion project financing for CNOOC & Shell Petrochemicals closed in August. The deal was split between a $1.977 billion onshore portion and a $700m offshore tranche that includes a $400m export credit financing.
The borrower is a Sino-foreign joint venture set up by sponsors: Royal Dutch/Shell Group, which has a 50% stake, China National Offshore Oil Corp (CNOOC), which holds 45% and Guangdong Investment with the remaining 5% share. This company was incorporated to finance and develop the Nanhai Petrochemical project in Huizhou, Guangdong Province.
The project entails the construction of an 800,000 ton per year ethylene manufacturing plant with nine downstream facilities. The total cost of the project is $4.3bn, with the remaining $1.7bn to be provided by the sponsors via an equity injection.
The transaction features heavy export credit support with five agencies providing insurance to the deal. These include Export-Import Bank of the USA, Gerling NCM of the Netherlands, HERMES of Germany, Japan Bank for International Cooperation and Nippon Export and Investment Insurance of Japan.
Apart from the sheer scale of this project, it captures neatly many of the themes that have driven the regional project finance market in 2003. Most notably it is remarkable for the level of local bank funding in the deal, which at nearly $2 billion equivalent set the trend for massive local bank participation in Asian projects this year.
Also the deal uses a judicious mix of sponsor support in the construction phase followed by pure project risk taken by the lenders. This even extended into market risk for the offtake, a studied bet on the future of the Chinese economy. This complex transaction has set the benchmark for other super-deals from China to follow and marks a renaissance in China's lagging project finance market.
Lawyers on the deal included Latham & Watkins (lenders' counsel), Allen & Overy (advising the project company), Freshfields Bruckhaus Deringer (advising the ECAs), Linklaters (advising CNOOC), Gongcheng & Jiantian (borrower's PRC counsel), and Commerce and Finance Law Office (Lenders and ECAs' PRC Counsel), Mallesons Stephen Jaques (EPC Contractors).
Most Innovative Deal
Korea Road Infrastructure Fund
Innovation comes in all shapes and forms and the creation of the Korea Road Infrastructure Fund deserves credit for the innovative way in which it is revolutionizing the financing of Korean roads and earning returns for investors.
The fund originally raised W367 billion ($300 million) with around 20% of that money seeded by Shinhan and Australia's Macquarie. The latter is managing the fund, based on its experience of doing the same in Australia. So successful has the project been that it is about to close its third round of new funding - for $560 million.
The fund has pioneered the use of non-recourse funding in the local market and has engineered financing that allows investors to be paid steady dividends even in situations where the roads are still under construction.
The assets include 100% of the Kwangju Beltway and a unique convertible subordinated debt structure into Daegu Busan Expressway. Transactions being signed and awaiting financial close include a significant stake in the Incheon Expressway, a controlling stake in Seoul's Woomyeonsan Tunnel and Korea's first non-recourse and pure investor-financed greenfield project, the Machang Bridge.
It is extremely innovative to be financing Korean roadbuilding - which incidentally is much needed - via a fund structure. It has also proven an excellent way for chaebol such as Samsung, Hyundai and LG to offload roads and free up the capital for other business areas.
In doing so, the fund has established clear precedents for pure investment, non-recourse, greenfield equity financing, and within a year has become the leading toll road operator in the country.
It has also set new operational standards with, for example, both the Soojungsan and Kwangju tunnel projects setting new safety standards in respect of fan requirements and fire safety, for example replacing all existing cabling with non-toxic, low flammable cabling.
Country Deal Awards
For the first time in our end of year awards, we have decided to include a new category - best deal by country. We made the decision late in the awards process after realising that virtually every award would be monopolized by one or two big transactions out of North Asia. We didn't feel these results fully reflected the true spread of business across Asia in 2003 and that many transactions, particularly from Asean countries with small market capitalizations, would be unjustly missed. We have therefore picked one defining capital markets or M&A transaction from each Asian country.
China Life $3.021 billion IPO
CICC, Citigroup, Credit Suisse First Boston, Deutsche Bank.
Our deal of the year and the defining transaction of 2003 - underlining the return of an Asian bull market after the depression of SAR's.
Hutchison Whampoa $5 billion eurobond
Citigroup, Goldman Sachs, HSBC, Merrill Lynch
The transaction that concluded the company's re-financing needs and set a new record for Asian bond markets.
ICICI $300 million eurobond
Deutsche Bank and Merrill Lynch
The bond issue, which re-opened the international debt markets for Indian borrowers. ICICI surprised those who thought it would be placed with bank rather than institutional investors and priced through loan market levels.
Bank Mandiri $327 million IPO
ABN AMRO Rothschild, Credit Suisse First Boston, Danareksa Sekuritas
The IPO that few doubted would get done even at the beginning of this year. The forerunner and benchmark for a hugely successful privatization programme by the Indonesian government.
Astro $532 million IPO
CIMB, DBS, Goldman Sachs, UBS
The deal, which marked the turning point from yield plays to growth stocks. Yet to turn a profit, but Astro's IPO was hugely oversubscribed as investors renewed their faith in the Ananda Krishnan group.
RTB4 Ps74.3 billion
The Republic diversifies its investor base to domestic retail investors with the fourth offering from its retail treasury bond programme. HSBC advised the government on how to structure the deal and standardize the syndication process.
SingPost $452 million IPO
The only IPO to brave SAR's and the first from Singapore to incorporate a POWL. Clever timing, a high dividend yield and strong management underpin the SingTel spin-off.
Hanaro Telecom $500 million M&A
Foreign equity investors beat a local chaebol with support from management and the unions.
Chunghwa Telecom $1.58 billion secondary offering
Goldman Sachs, Merrill Lynch, UBS
After a many false starts, the government's privatization programme gets a huge boost after Chunghwa Telecom is well received by international investors.
Krung Thai Bank $745 million secondary offering
One of the most potentially daunting transactions of 2003, Krung Thai benefits from huge secondary market momentum to complete its long awaited offering at a relatively aggressive valuation.