Best IPO

Starbucks Coffee Japan Ltd IPO

Goldman Sachs

Starbucks is fast becoming a ubiquitous presence on the streets of Tokyo. This year it also made its presence felt in the Japanese equity market when it successfully completed a blow out IPO in perhaps the worst market conditions for launching a deal in recent memory.

The IPO was launched on September 10, one day before the terrorist attacks in the US. Yet the company and its lead underwriter Goldman Sachs decided to carry on in the face of adversity. To put how bad the market was in perspective, there were no IPOs in the month of September in the US - the first time this has happened since 1976.

Despite this adversity, the deal progressed and its success was due to the quality of Starbucks Japan and the execution of its IPO. One unique aspect to the deal that was key to its success was the decision to make the deal an institutionally-led transaction. Japanese equity deals are usually aimed at the retail market due to historic and regulatory reasons. Starbucks managed to meet the regulatory requirements by placing 40% with the retail market. But 60% went to institutions, which provided a strong book on which the deal was built. The deal was priced at Y64,000, raising Y17.9 billion ($149 million). This translated into a price earnings ratio of 63.

The share price jumped at the start of trading by as much as 30% as unsatisfied retail demand poured in, ending the day up a very respectable 9%. Starbucks aims to use the proceeds of the transactions to build 180 new stores adding to the 291 Starbucks outlets that already existed in Japan. This quality deal showed how a tight execution strategy allied to a strong marketing campaign and growth story can ensure a hugely successful deal even in the most adverse market conditions.

 

Best Secondary Offering

NTT DoCoMo $8.1 billion global follow on

Goldman Sachs, Nikko Salomon Smith Barney

Follow on deals and secondary offerings are a stern test for companies as they are one of the most brutal ways that the market can support or desert a company and its strategy. For NTT DoCoMo, this stern test was passed with flying colours.

Nikko Salomon Smith Barney and Goldman Sachs launched the deal in January 2001 at a time when the telecom tide had turned. It was by no means an easy sell, not least because of the amount of comparable paper in the market. NTT - DoCoMo's parent - had just completed its own follow on deal and Orange was undertaking a European offering. Moreover the minority investment strategy of NTT DoCoMo was coming under scrutiny and had to be explained to investors.

Despite all the challenges, the deal was a huge success. There was more than $23 billion of demand - a figure that in today's bleak markets seems incredible. Strong demand came in equal measure from both international institutional investors and domestic retail investors. The execution of the deal was likewise excellent. Strong direction from the lead managers ensured that the underlying price appreciated 8% between launch date and pricing. When priced, the offering came in at a 3% discount to the underlying, which was at the top end of the range. Significantly, NTT DoCoMo's share price continued to rise by some 40% in the four months after the deal showing the strong momentum the company had generated for its stock during this offering.

 

Best Equity Linked Deal

NEC Y100 billion Euro Yen Convertible

Daiwa Securities SMBC Europe, Morgan Stanley

NEC's Y100 billion EuroYen Convertible, which was priced in November 2001, was a blow out success by every measure. The deal was lapped up by investors. And in the process, the joint book runners Daiwa Securities SMBC Europe and Morgan Stanley managed to achieve the most favourable terms to date for a Japanese issuer in either the domestic or the international convertible markets.

With a relatively long maturity of eight years three months, the deal was priced at 102% and carries a 0% coupon. This translated into a yield to maturity of -0.24% and a conversion premium of 34.95%. At Y100 billion the deal was also the largest convertible bond of the year by a Japanese issuer.

Most importantly, the choice of instrument allowed NEC to raise long-term cost effective finance on terms and pricing much more favourable than its usual domestic funding sources. International convertible investors tend to give higher conversion premiums than the domestic, retail focused convertible investors. Also, with diminishing offshore Euro Yen assets available globally, there was strong underlying demand for such a product. Allied with the company's on-going restructuring efforts, this deal is testament to the forward thinking management of NEC. The deal's execution was very smooth. A three-day book build produced Y1.3 trillion of gross demand - or a 13 times over subscription. This allowed the book runners to exert considerable price tension on the underlying stock. Indeed the price actually rose 9.5% during the deal's progress, allowing NEC to price its convertible at a 45% effective premium to the underlying stock price at the launch of the deal. In the end 370 investors took part in the transaction.

 

Best Securitization Deal

Shinsei Funding One Y115 billion CLO

Nikko Salomon Smith Barney, Shinsei Securities

The award for best securitization deal goes to Shinsei Bank's collateralized loan obligation (CLO), brought to market by Nikko Salomon Smith Barney and Shinsei Securities. Even at a sizeable Ñ115 billion ($859 million), the transaction was not the largest Japanese securitization of 2002, but it was certainly the most important.

Shinsei Bank, formerly the Long Term Credit Bank of Japan, emerged from bankruptcy in 2000 under new ownership and management, and with a new set of objectives including tighter lending policies, better risk management and to become a benchmark issuer in the global capital markets. As a means to achieving these goals, the bank decided to establish a global facility from which it could securitize assets from its corporate loans book. After it brought NSSB and SSB on board, it was decided to use a master trust structure.

This structure gives Shinsei enormous flexibility as it allows the bank to issue notes of different maturity, ratings, even currencies at any given time from the same vehicle, which will facilitate Shinsei's desire to become a regular visitor to the markets. It is also the first master trust CLO structure to be used in Japan.

The strength of the initial offering from Shinsei - which was backed by a portfolio of almost 2,300 loans from 610 corporates - can be seen in the strong investor demand, responsible for upping the size from an initial Ñ100 billion to Ñ115 billion. Although there was no external guarantee, investors are well protected by subordination and an agreement between the issuer and the government that if any of the underlying loans go bad, the government will take the bad loans off Shinsei's hands, with better performing loans added to the pool instead. Around 85% of the pick up came from Japanese accounts, with overseas investors taking the remainder.

 

Most Innovative Transaction

Aiful Corp's acquisition of Life Company and securitization of its assets

Morgan Stanley

Selecting the most innovative deal of 2001 was a fairly simple process with the outstanding candidate being October's Ñ245 billion securitization for Aiful Corp, one of Japan's major consumer loans companies. Morgan Stanley acted as sole lead manager on the transaction. Aside from being the largest ever ABS deal out of Japan, the transaction ù launched via the Life Funding Company 2001 special purpose vehicle ù also fits into the M&A category, as it helped the borrower finance its purchase of the assets originated by the now defunct Life Company.

In March 2001, Morgan Stanley and Sumitomo Trust and Banking Corp. provided a Ñ273 billion bridge loan for Aiful to buy Life's assets, and proceeds from the securitization were used by Aiful to pay off the loan. The issue, backed by a portfolio of consumer loans with a market value of around Ñ300 billion, was split into four tranches with average lives ranging from 2.3 years to 5.3 years. Sensibly, four rating agencies - Fitch, Moody's, Standard & Poor's and local agency R&I - were brought in to rate the deal, boosting the confidence of investors at a time of great domestic and international uncertainty. Pricing ranged from 40 basis points over one-month Libor on the Ñ214.5 billion triple-A notes to 150 over on the Ñ20.4 billion triple-B notes.

The transaction was the first ever securitization-based acquisition financing to be completed in Japan. It was also the first time that four different asset types - instrument loans, shopping card receivables, consumer loans and auto loans ù have been included in the same deal. This was made possible by using a master trust structure, which allows Aiful to issue more deals from the same vehicle should it wish to do so in future.

 

Best M&A Deal

Vodafone's acquisition of 66.7% of Japan Telecom

UBS Warburg, Goldman Sachs, Merrill Lynch

Vodafone's acquisition of Japan Telecom and its subsidiary J-Phone stands out as the finest M&A deal of the year for the sheer scale and complexity of the transaction and the ambition of Vodafone in making it happen in the first place. The deal consisted of a series of five interlinked stake purchases, which took Vodafone from owning none of Japan Telecom to taking control over a period of just 10 months. The British carrier first bought the stakes of JR West and JR Central - two Japanese train companies that were the founding shareholders of Japan Telecom.

Then Vodafone purchased the stakes held by AT&T and BT - a combined 30% of the company. Vodafone then negotiated the merger of all of J-Phone's subsidiaries into one company, which was itself a subsidiary of Japan Telecom. Finally and most ambitiously, Vodafone launched a public tender offer to acquire an additional 21.7% of Japan Telecom from public investors to take its stake to the all-important 66.7% level. In total, Vodafone paid an equivalent of $11.5 billion for its stake in and control of the company.

The deal stands out as the largest foreign investment ever into Japan and Vodafone is now the largest foreign investor within the country. Indeed the determination of Vodafone to conclude the deal meant that its public tender offer, at $2.6 billion is nearly four times larger than the next biggest public tender offer ever attempted in Japan.

Finally, for anyone familiar with doing deals in Japan, the fact that this acquisition - itself a series of five separate transactions - was concluded in under 12 months is astounding. Loud applause must go to Vodafone and its advisers UBS Warburg for having the vision and guts to be able to pull off such an ambitious deal. This deal shows that inward investment can be done into Japan if one has the brains, tenacity and intelligence to pursue the right deals. Other advisers were involved along the way including Goldman Sachs and Merrill Lynch who advised the selling shareholders of Japan Telecom.

 

Best Bond Deal

Federative Republic of Brazil Y200 billion Samurai

Nomura

Described as the 'mother of all Samurais', the record breaking Y200 billion bond for the Federative Republic of Brazil was significant in many ways. Not only was it the biggest Samurai issued by an emerging market borrower, it was equalled only in size by Sweden in 1993 (when arguably it looked rather like an emerging market too). But perhaps the most significant thing this deal showed was the astounding buying power of Japanese retail investors, and what a house like Nomura can do when it uses its retail network to the maximum.

About 75% of this gigantic deal went through the retail network, with 30,000 individual tickets written. Bear in mind that this deal was brought to market in July just as the first bad news about Argentina was starting to flow. An article in the Nikkei used phrases such as 'chaos' and 'imminent default', while a deal for Columbia was postponed. Indeed total emerging market bond issuance plunged in July to $3.4 billion from $13 billion in June (thus the Brazil deal accounted for over 50% of all emerging market issuance in July).

Nomura's joint lead manager, Daiwa decided to withdraw its own six year tranche for Brazil. Not Nomura, which explained to its retail base why Brazil was not Argentina and got its two year deal away with aplomb. As the above numbers show, that was quite an achievement and testifies to real placing power.

The 3.75% coupon represented a US dollar funding cost of 430 basis points over treasuries. This can be benchmarked against Brazil's dollar 04s which were trading at 688bp over. So not only did the issuer manage to diversify away from its dependence on the dollar market, it also got attractive pricing at a time when virtually every market was closing to Latin American names. There is such a thing as delivering for your client in a time of adversity, and this could truly be said to be one of those moments.