Emerging market awards, Asia, September 2013

Emerging Markets World Bank editions, September 2013

Asia: Most impressive bank for corporate borrowers. HSBC

HSBC was a candidate for every one of the awards in Asia, and it strength in Asia Pacific debt capital markets – both G3 and local currency – is unparalleled. But it is in the corporate space that it really shows its versatility.

Let’s start at the top: the big, blue chip names in international benchmark currencies. HSBC is not short of flagship deals, and one finds them all across the region. In China, for example, HSBC was a joint lead in the $3.5 billion landmark issue from Sinopec in April 2013, having also been a joint global coordinator on Sinopec’s $3 billion, three-tranche deal in May 2012 – a deal which was not only the largest from Asia that year but also logged by far the largest order book, at $19 billion. Later in 2012, and also in Greater China, it helped CLP achieve the lowest ever coupon on an Asian 15-year deal when it raised $600 million in a two-tranche deal, and raised $500 million for Sino Land in an unrated transaction whose books closed in just three hours, this time with HSBC as sole bookrunner.

Elsewhere, the bank was equally active. In Indonesia, Pertmaina’s April 2012 $2.5 billion global, for example, was one of the stand-out deals for the whole region that year, raising 10 and 30-year funding at tight pricing. The $500 million lower-tier two deal for Singapore’s UOB in October 2012 achieved the lowest ever coupon on a dollar bank capital deal – globally.

It also has particular strength in helping Asian corporates make dollar debuts. Over the last 18 months, examples have included India’s Bharti Airtel, which raised $1.5 billion in 10-year funds in March 2013; AIA Group, whose US$1 billion two-tranche deal also came in March; Taiwan’s Hon Hai Precision, with a US$650 million deal in December; Singapore’s CapitaLand, with $400 million in September 2012; and earlier deals for Indonesia Eximbank and Bank of Ceylon.

But it is the diversity of the client base that sets HSBC apart. In addition to the big, highly rated names, HSBC also leads in Asian high yield. In keeping with the nature of the market, many of these deals have been from China: two, for example, from Gerndale, starting with the first ever international bond offering of a China A-share listed company without a guarantee, when it raised RMB1.2 billion in July 2012; and then when it moved into dollars that November, with a US$350 million deal that attracted a US$1.4 billion book from 135 investors, with HSBC as sole global coordinator. Other landmark Chinese deals, whether in dollars or RMB, have included Longfor Properties, Beijing Capital Land – a RMB 2 billlion deal which achieved that amount in the book within 30 minutes of launch on the way to a 10 times oversubscription – and Shimao Property, whose $800 million deal in January 2013 was the lowest coupon yet for this long-time issuer. Outside of China, HSBC was a joint lead manager on something a little different in the high yield space in January, when it took PT Gajah Tunggal, an Indonesian tyre manufacturer, to market with a $500 million global.

On top of that, a great many of the local currency bonds HSBC has led are corporate. This area of excellence is covered in greater detail in the local capital markets category, but a handful of examples would include New World China Land, China Development Bank, Bank of Communications and Axiata in RMB, UOB in Singapore dollars, Korea Eximbank in Baht, National Bank of Abu Dhabi in Malaysian ringgit, and ICBC in Australian dollars. Each of these was something of a landmark for one reason or another – New World China as the largest ever single tranche offshore RMB offering, CBD as the first 20-year dim sum bond, Axiata as the first rated dim sum Islamic – but they only scratch the surface of HSBC’s corporate engagement in Asia, across every major Asian local currency market.

Finally, there are corporate hybrids, another area of strength. The biggest of these in Asia in recent years was Hutchison Whampoa’s US$1 billion perpetual non-call five in April 2012, upon which HSBC was a joint lead and bookrunner. The bank has been involved in many others since, including San Miguel Corporation’s remarkable PHP80.025 billion perpetual preferred shares issue in September 2012, for which HSBC was the sold issue manager; Mapletree’s S$600 million perpetual non call five, the largest ever unrated corporate hybrid in Singapore dollars; a US$500 million perpetual non-call 5.5 for Singapore’s Li & Fung; US$750 million in the same structure for Petron, from the Philippines; and a US$400 million perpetual non-call five for Beijing Capital Land in March 2013.

In short, there isn’t a requirement an Asian corporate borrower could have that HSBC hasn’t demonstrated proficiency in over the last 18 months. It is the complete debt house.

Chris Wright

Emerging Markets

The most impressive innovator in terms of financing for region-specific problems, Asia: CIMB

This award goes to CIMB, and in particular its Islamic subsidiary CIMB Islamic, in recognition of its efforts to innovate within Islamic finance. Many Malaysian institutions, both public and commercial, have contributed to the development of Malaysia as the most sophisticated and resilient Islamic finance industry in the world, including the central bank, Bank Negara Malaysia; Malaysia’s Securities Commission; and its stock exchange, Bursa Malaysia. But CIMB has been the commercial institution most consistently seeking to take it to new places, and to increase the possibilities for individuals and institutions to invest and raise capital in a way consistent with their faith.

CIMB does have scale in Malaysia: it is the clear leader in sukuk issuance, achieving a 49.8% share of Malaysian rated corporate sukuk in 2012, according to data from rating agency RAM, and consistently has around a 30% share of overall sukuk issuance from Malaysia. It is almost as dominant in global sukuk, managing 15.7% of all global deals – and 192 separate issues – in the year to October 31 2012. Moreover, it has growing strength beyond investment banking too, boasting 48% compound annual growth in total assets between 2007 and 2011. CIMB Islamic Bank berhad, which holds the retail businesses, has RM40 billion of assets. And it owns CIMB Niaga Syariah, the Indonesian subsidiary which may yet turn in to the driving force in Islamic finance in that far more populous country.

But scale numbers are not the reason CIMB is receiving this award. A closer look reveals consistent innovation.

So, for example, one of the key sukuk deals last year was the first rated sukuk in renminbi, a RMB1 billion dim sum issue for Axiata. Another was an exchangeable sukuk into Parkson Retail for Khazanah Nasional, one of several Islamically-compliant exchangeable structures CIMB has helped to devise for Khazanah as a way of monetising its stakes in Malaysian assets. Its innovation is sought out internationally, and it was a lead on a US$800 million trust certificate issue for the Islamic Development Bank in Saudi Arabia.

When CIMB handled the world’s largest ever sukuk last year, a RM34.35 billion Islamic medium term note programme from Projek Lebuhraya Usahasama Berhad (PLUS), the highway group, it did so as sole principal adviser and sole lead arranger. This involved negotiating among numerous authorities, regulators, investors and a rating agency connected with the underlying toll highway projects. CIMB has described the challenge as “delivering a successful consent solicitation exercise involving almost the entire RM market,” with a buyback exercise involve nine sets of bondholders and a consent solicitation with another seven.

Alongside the bigger mainstream deals – Shariah compliant IPOs for Felda Global Ventures amd IHH Healthcare , Islamic medium term note issues for Danalfra Nasional, power and energy sukuk raisings for Kimanis Power and TNB Janamanjung – it innovates with a dedicated securitization structured finance team. This specialises in hybrid securities such as tier one and two capital instruments for banks, and corporate hybrids or perpetual capital securities. It has securitized home loans, auto loans, bonds, property and government receivables in Shariah compliant ways.

It also produces a growing range of structured investment products with Sharia compliance. Aside from a host of new flow products, one example of innovation came when a product called 168 Asian Infrastructure Income Protected PLUS-I, an Islamic credit-linked structured product referenced to a sukuk series from PLUS, which CIMB had launched in June 2010, was complicated by PLUS accepting an offer to sell its business in November 2011. This meant that investors couldn’t stay in the product under Islamic rules, since the reference obligation – the underlying assets – would no longer be there. So CIMB Islamic structured a new series to allow investors to remain in a similar structure, referenced to PLUS’s Islamic MTN programme, a replacement for the company’s existing debt following the buyback. Another innovative product was the CIMB Islamic Flippable Range Accrual Structured Product-I.  All told, CIMB has launched over 520 products since 2004 to a customer base of over 70,000 retail and 70 corporate or institutional investors.

More pragmatically, it has brought simple efficiency to retail Islamic banking: it boasts it can usually open an account, provide a debit card and open an online platform within 10 minutes.

But perhaps the highest praise for CIMB Islamic, under the guidance of its CEO Badlisyah Abdul Ghani, is that it is often called upon by the state to assist when Malaysia tries to build something new. An example is Bursa Sua Al-Sila’, a Shariah-compliant commodity trading platform, in whose development CIMB was closely involved alongside Bursa Malaysia.

There are some who feel that innovation in Islamic finance goes too far: that in pushing the industry into new areas to mirror the conventional, it is distancing it from the principles that underpin it. But it is also true that the wider acceptance of Islamic finance helps to enfranchise many more people into the world of financial services, as well as bringing stability and diversity to the region’s financial systems overall.

The most impressive contributor to the development of local capital markets: HSBC

Anyone in Asia will tell you that the development of local currency debt capital markets is the key to the region’s resilience. The lessons of the Asian financial crisis were hard learned, but learned they most certainly were, which is one reason the region sailed through the global financial crisis a decade later relatively unscathed. The better the local bond markets, the less there is any reason for Asian banks or corporates to be exposed to currency mismatches, or to be vulnerable to declines in the values of their currencies.

No commercial bank has done more to aid the development of Asia’s local currency bond markets than HSBC. There are others with considerable and admirable businesses in this area, notably Standard Chartered, but nobody today boasts quite as comprehensive a range of ability as HSBC does.

If one considers there to be 10 major Asia Pacific currencies – CNH (offshore renminbi), Hong Kong dollars, Singapore dollars, Malaysian ringgit, Indonesian rupiah, Philippine pesos, Indian rupees, Thai baht, Taiwan dollars and Australian dollars – then HSBC routinely executes transactions in all 10. It is generally among the leaders in all of them (one recent analysis of the market ranked it as the top international house in six of them, with a 7.5% market share of all Asian local currency bond markets) and has been in most of them for years. In its home base – spiritual home, if not legal domicile – it has been the top name in Hong Kong dollars since 1995 and isn’t going to relinquish the position anytime soon.

The dim sum bond market has been the big local currency story of recent years, and HSBC is consistently among the leaders here; between April 2012 and 2013 it claimed a 22% market share, while Bloomberg league tables for the whole of 2012 put it first with almost double the volume of its nearest competitor. But more than volume, it continues to do new things in that market. When New World China Land raised RMB3.4 billion in 8.5% three-year notes in 2012, it constituted the largest ever single-tranche offer in the market. When, three months later, it brought China Development Bank in a RMB2.5 billion two-tranche deal, the 2023 tranche was the first ever 20-year dim sum deal. When Axiata arrived in September with a RMB1 billion deal, it was the largest and first ever rated Islamic deal in CNH. And when Gemdale raised RMB1.2 billion in three-year funding, it was the first international bond offering of an A-share listed company with a guarantee from an entity onshore.

Staying in Hong Kong, HSBC complements its leadership with clear efforts to develop the market, and has been at the forefront of promoting retail bonds and inflation-linked bonds.

Elsewhere, HSBC boasts particularly strength in Malaysia, Thailand and India in local currency bonds, often ranking the top foreign house in all three. In Malaysia, this covers both conventional and Islamic debt – HSBC is, after all, a leader in Islamic finance too, despite some cutbacks in the Middle East – and has included the largest rated sukuk murabahah issue to date in the Malaysian markets, for Celcom.

What’s particularly interesting about these three markets is that they show another important trend: cross-border Asian local currency bonds. Asian companies raising capital in other Asian markets is going to be an important trend that will help to develop funding sources for the region, reduce reliance on dollars, and generally be to the good of the whole continent. So when one looks at HSBC’s recent local currency client list in Malaysian ringgit, it doesn’t just include the likes of Axiata, Genting, Petrobras and UEM, but the Industrial Bank of Korea. When one looks at the bank’s deals in Thailand, a standout would be a Bt3.5 billion two-tranche deal for Korea Eximbank. And debut issues it has handled in India have included Fullerton India, part of Singapore’s Temasek sovereign investment arm. One could also point to India’s IDBI Bank and ICICI Bank in Singapore dollars.

HSBC is no slouch in the other markets either: the San Miguel Corp PHP80.025 billion perpetual preferred shares issue in September 2012 was the largest ever peso issue in debt or equity markets and made a major contribution to demonstrating the market’s depth. HSBC was also on the largest Basel III compliant tier two issue in the market, for Landbank. It is also a long-standing player in Indonesian ringgit and Singapore dollars.

Finally, it continues to do interesting things globally that involve Asian local currency markets, another trend that will help the region if it becomes more prevalent. If you want to take the Development Bank of Kazakhstan into Shariah-compliant ringgit, or bring the first CNH transaction to be executed in London, HSBC is the bank you go to.

The most impressive adviser on privatizations, PPP and infrastructure financing: Standard Chartered

With the equity markets too quiet to support many privatisations in Asia in the last 18 months, this is a time to award a bank that excels in project finance. Both Standard Chartered and HSBC are candidates, but it’s the particular strength in ex-Japan and ex-Australia Asian infrastructure, and the commitment to clean energy, that tips it Stanchart’s way.

Standard Chartered reckons it has advised, structured and arranged financings on clean energy transactions that have created, or will create, over 2,500MW in renewable energy. Under the Clinton Global Initiative, Standard Chartered committed to mobilising US$8-10 billion in renewable energy and clean technology, and by early 2013 had passed the US$8 billion mark.

Examples of individual transactions are not always big, but significant. Take, for example, the successful close of a US$32 million senior secured financing for Green Infra Limited in September 2012. This was the first non-recourse financing of an Indian solar photovoltaic system portfolio. Along the way Stanchart became the first international commercial bank to provide a long-term non-recourse financing to an Indian solar PV project.

Standard Chartered also closed a US$85 million 18-year financing for the Tongwei Wind Power project in Taiwan in October 2012, a project backed by Infravest.

While green initiatives gather traction, Standard Chartered has continued to be involved in bigger and more mainstream deals, some as big as US$4 billion. The bank has been one of the key names committed to Rio Tinto’s US$4 billion financing to fund the Oyu Tolgoi mine in Mongolia, for example. That deal will be the largest project financing in the mining sector, and will transform Mongolia, potentially accounting for 30% of the country’s GDP. As well as being a key lender, Standard Chartered is one of the two structuring banks.

While that deal moves slowly towards conclusion, an interesting transaction was the US$315 million limited recourse project financing for OM Materials (Sarawak), signed on March 28 2013, to develop a ferrosilicon smelter in the Malaysian Borneo province. Standard Chartered was financial advisor and an arranger on the complex financing. A $162 million six-year reserves-based lending facility for Horizon Oil, covering projects including the Beibu Gulf project in China and the Stanley project in Papua New Guinea, also involved innovative structuring. And a $162 million financing for BC Petroleum will fund the appraisal of a 15-year risk service contract with Petronas to operate and develop the Balai cluster fields in offshore Malaysia.

The bank is a long-standing fixture in power transactions, having been involved in some of the more celebrated financings in the region such as Mong Duong II in Vietnam and GNPower in the Philippines. More recent financings have included a US$194 million 13.5 year financing for a 200MW off-gas captive power plant for PT Krakatau POSCO in Indonesia, and several others in India and China. This often takes the bank out of G3 currencies and in to local currency, such as in a RMB235 million project financing for Dalkia Changyang Thermal Energy to fund an expansion of a power plant in Chongqing.

In telecommunications, an example is a US$90 million six-month bridge financing for MEASAT International.

For the future, Standard Chartered became a founding shareholder last year in Clifford Capital, a new start-up specialising in infrastructure and structured asset financing, backed by Singapore’s Temasek.

In mainstream debt, Standard Chartered is often an arranger on bond deals that will have knock-on effects on infrastructure development in the region. An example would be the joint lead role on Bharti Airtel’s US$1 billion 10-year deal, a debut in dollars for the Indian telco. It took another Indian telecommunications group, Tata Communications, to Singapore dollars.

Another would be a PHP11 billion local-currency private placement for the South Luzon Tollway in the Philippines. South Luzon is the concessionaire for one of the major expressways in the Philippines, linking Metro Manila to key southern provinces including Cavite, Laguna, Batangas, Ruzal and Quezon.

Standard Chartered was also a lead on the first high yield issue from Indonesia in 2013, a 10-year deal for PT Indika Energy; a US$450 million five-year non-call two high yield deal for Hong Kong Broadband Network, which has 649,000 contracted broadband internet subscriptions; and PHP5 billion for the National Grid Corporation of the Philippines in November 2012, notes that will provide the issuer with the necessary funding to improve the Philippine power grid and build infrastructure to support the demands of the rapidly growing economy.

Transactions like these help to maintain steady progress in Asia’s vast and urgent requirements for new infrastructure. There is plenty more to be done.

Most impressive bank for sovereign borrowers, Asia: Deutsche Bank

Deutsche Bank has been ubiquitous on important sovereign deals over the last 18 months. Not only is it involved in the vast majority of sovereign issues, it also shows impressive range in the number of currencies – G3 and Asian local – and structures it helps put together, in both conventional and Islamic formats.

Indonesia is the most prominent example of Deutsche’s sovereign relationships. Between November 2012 and September 2013, Indonesia issued five tranches in dollars across four deals, two of them conventional and two sukuk, and covering a range of terms from 5.5 to 30 years. Deutsche was a bookrunner on four of the five tranches, raising $5.5 billion between them. The most recent, a $1.5 billion sukuk in September, raised a $5.7 billion book at a time when Indonesia’s fundamentals were supposed to be in decline, with a widening current account and trade deficit and a plunging currency; the deal showed, beyond doubt, that there remains ample appetite for Indonesian credit in the long term.

The role of sukuk has become vitally important for Indonesia, which otherwise has very little diversification in its international paper bar an occasional samurai deal. It has opened up new pockets of funding in the Middle East, and the buyers who are attracted are buy-and-hold conservative investors who, in turn, attract other conventional investors into the book who like the idea of having such a steady anchor in the deal. Deutsche has been on the last two sovereign sukuks from Indonesia.

Another sovereign landmark came from a less familiar name when the Government of Mongolia raised US$1.5 billion in a two tranche deal in November 2012. This was the biggest Asian sovereign debut in more than a decade, and was a quite extraordinary deal given the country’s fundamentals: it was equivalent to 15% of Mongolia’s entire projected GDP for 2012, and was greater than the country’s entire net foreign exchange reserves at the time. Despite this – and normally a bond bigger than the foreign reserves to cover it would be a cause for concern – the deal’s bookrunners, Deutsche among them, pulled in an order book of $16 billion. Not bad for a sovereign rated BB-.

The Republic of the Philippines is a more familiar issuer, but with specific needs, as it aims to take advantage of its strong standing in international debt markets but also increase the proportion of funding that is conducted onshore in pesos. In November, Deutsche was a bookrunner on a 10 year global peso deal worth $750 million, denominated in dollars but with coupon and redemption linked to the peso. Then, later that month, Deutsche was also on a $1.5 billion buyback across 14 dollar transactions and one euro deal in November, part of a continuing exercise to redenominate dollar debt into pesos. Doing so helps the Philippines avoid foreign currency exposure, while also boosting the local currency market itself, which is to the benefit of the country’s growing corporate and banking base.

Sticking with local currency deals, another landmark came from Thailand, where Deutsche was a joint bookruner on a Bt40 billion 15-year inflation-linked bond in March 2013. Quite apart from adding five years to Thailand’s curve, the deal priced exceptionally well, coming in at the bottom end of price guidance and paying a spread over CPI that is pretty much flat with Thailand’s existing 10-year funds. Despite its size, equivalent at the time to US$1.34 billion, it was three times covered with orders from 107 investors. And despite its local currency composition, 60% of the bond was sold offshore, including 21% to the US and 8% to Europe.

Aside from the pure sovereigns, Deutsche was also consistently on deals for quasi-sovereigns, state-owned entities and policy banks. An example was the Eu750 million seven-year bond for Export-Import Bank of Korea in May 2012, upon which it was a joint bookrunner. In India, Deutsche has had joint lead roles on a $1 billion deal from State Bank of India in April 2013 and Syndicate Bank, a state-owned lender in India which raised $500 million in October 2012. And it often appears on the debt of Singapore’s state investment arm Temasek, such as on a $1.7 billion raising of 10.5 and 30-year maturities in July 2012 that drew $7.6 billion of demand.

There was a period of the better part of a year when Deutsche was on every sovereign trade in the G3 public market from Asia, and had conducted sovereign deals in Australian dollars, Swiss francs, Chinese renminbi, euros, sterling, dollars, yen, Philippine pesos and Thai baht. Helping too with liability management around the region – the Philippines being the standout example – it simply could not have been more widely active than it has been since 2012.