By Nick Ferguson, In-House Community
Asian-mena Counsel’s review of the top transactions and matters that closed during 2018, with a congratulatory nod to those counsel who helped make them happen.
Dealmakers had a tough time during 2018. Heightened volatility, a trade war between China and the US, one of the worst equity markets in recent years and rising borrowing costs all contributed to challenging conditions. Even so, there was no shortage of landmark deals around the region, with the help of hard-working and creative advisers.
We review some of the stand-out transactions across all practice areas below. See the table for all the advisers on each of the winning transactions, as well as those that we have given honourable mentions.
BANKING & FINANCE
We didn’t see a lot of innovative banking and finance work during 2018, but there were some interesting transactions in the securitisation area, where we saw a few notable market firsts, including the US$500 million Astrea IV private equity securitisation in June, which was the first transaction in Singapore to make private equity accessible to retail investors through a private equity bond structure. The retail tranche was for S$242 million (US$177m).
Just a month later, Bayfront Infrastructure Capital infrastructure issued US$458 million of notes backed by cash flows from a portfolio of project and infrastructure loans in Asia-Pacific and the Middle East, which was the first infrastructure project finance securitisation in Asia — and marked the creation of a new asset class to facilitate institutional investor access to infrastructure debt in Asia-Pacific and the Middle East. Given the huge need for infrastructure across the region, structures like this could become extremely important.
A more conventional banking deal saw Pacific Basin Shipping close a US$325 million seven-year secured reducing revolving credit facility. Donald Trump’s trade war with China hasn’t helped Hong Kong’s shipping industry, particularly after several years of difficult operating conditions brought about by the global financial crisis and slowing economic growth on the mainland, so this transaction was an important one for the company. It increased the company’s funding flexibility and overall amortisation profile, providing access to long-term committed funding on a revolving basis for the next seven years at a very competitive borrowing cost. The security package involved 50 dry bulk vessels owned by the Pacific Basin Group, 41 of which were subject to existing mortgages.
On the restructuring side, Monnet Ispat & Energy’s corporate insolvency resolution process stood out. Referred by the Reserve Bank of India under the Insolvency and Bankruptcy Code 2016, it is the third of the “dirty dozen” cases to be resolved, with 98.97 percent of the financial creditors voting in favour of the resolution plan. The process led to the sale of the company to a consortium, comprising of AION Investments Private II and JSW Steel.
Other notable deals included financing for the project to develop, construct, complete, own, operate and maintain a state-of-the-art, high capacity fibre-optic submarine cable system connecting Japan, Guam and Australia; a US$1.6 billion revolving credit and term loan facility for Perusahaan Listrik Negara; and Piramal Capital and Housing Finance structured investment in SAMHI Hotels Group.
Introducing new issuers to the market always involves heavy lifting for the lawyers involved, so we were particularly impressed by the inaugural sovereign bond from Papua New Guinea. The resource-rich frontier market had been trying to get a deal off the ground since 2016 (and first contemplated one 20 years ago), but has been plagued by corruption, violence and weak governance. Finally getting a deal away was undoubtedly one of the most impressive achievements of the year.
One of the challenges faced by PNG has been competition from some of Asia’s other frontier borrowers. Last year saw Sri Lanka raise US$2.5 billion in its largest offshore bond offering to date and Development Bank of Mongolia borrow US$500 million, both of which were also notable deals in their own right.
On the corporate side, NagaCorp became the first Cambodian issuer of offshore bonds, overcoming a weak Asian high-yield market to raise US$300 million, while Hoan My Medical Corporation closed the first bond issuance from a private and unlisted group in Vietnam, raising the equivalent of US$100 million in dong-denominated bonds.
Indonesia’s debt markets got off to a positive start in 2018, showing continued support for sustainability through strong demand for the Republic of Indonesia’s US$3 billion dual-tranche green sukuk — the world’s first-ever sovereign green sukuk and the first issuance under the Republic’s green bond and green sukuk framework. At the same time, a US$95 million bond issue from the Tropical Landscapes Finance Facility marked the first corporate sustainability bond in Asia and the first sustainability bond in Asean. It will help finance a sustainable natural rubber plantation on heavily degraded land in two provinces in Indonesia.
Other market firsts during the year included India Grid Trust’s private placement, which was the first bond issue by an infrastructure investment trust and paved the way for other investment trusts to issue debt securities, and Temasek’s US$3.6 billion MTN programme, which allows for notes to be offered to retail investors in Singapore.
In terms of sheer size, ChemChina’s six-tranche bond was hard to ignore. The sale raised the equivalent of US$6.4 billion and was Asia’s biggest ever Reg-S bond, while the euro-denominated tranche was the biggest ever euro deal by a Chinese borrower.
Singapore has made great strides during the past few years to establish itself as a regional arbitration centre, and this was demonstrated once again in one of the few cases to be disclosed publicly in 2018 — Posco ICT’s SIAC arbitration proceeding against Hitachi. The dispute arose during the building of new railway infrastructure in Ho Chi Minh City in Vietnam, with PICT suing Hitachi for breach, termination of the agreement and for damages and Hitachi filing a counterclaim. The case was decided in Hitachi’s favour by the arbitral tribunal and PICT’s claim was dismissed, with Hitachi granted US$51.79 million in damages, plus interests and costs.
Other disputes around the region included a case involving major players in the dye industry — DyStar Global and Kiri Industries — which centred around Kiri’s investment in DyStar and served to emphasise that directors must not put the interest of the majority shareholder, who nominated them to the board, above that of the company’s interests. In this case, DyStar’s ultimate parent, Longsheng, was found by the SICC to have engaged in oppressive conduct and was ordered to buy out Kiri’s shareholding in DyStar, as well as writing the losses it caused back into the value of the shares in DyStar.
In Thailand, dtac became the first telecom company to reach an agreement with its concession grantor, settling a long-standing tower dispute.
While 2018 was a poor year on stock markets around the world, law firms in the region nevertheless helped their clients to raise billions of dollars. Indeed, the equity deals we recognised alone contributed more than US$45 billion in fresh capital.
By far the smallest of our winners was TMH Telecom Myanmar’s initial public offering, which generated just US$1.2 million in new capital. However, that small sum of money made it the first true IPO in the country, as the first four listings were all by way of introduction of existing shares.
TMH’s deal was also one of the first IPOs to get done in 2018. During the rest of the year there were several deals that weighed in at the other end of the scale in terms of size — and broke ground in their own ways. Foxconn’s US$4.23 billion deal was the biggest A-share IPO since July 2015, Xiaomi’s US$4.7 billion IPO was the first Hong Kong offering to adopt a dual-class share structure and the first to list under Hong Kong’s new regime for innovative technology companies, which was followed closely by Meituan Dianping’s own US$4.2 billion IPO, which also adopted a weighted voting rights structure.
In Vietnam, Vinhomes JSC raised about US$1.3 billion in the country’s biggest ever equity issue, while in Japan Mercari’s US$1.2 billion IPO and listing in Tokyo made it the country’s first unicorn (a startup with a valuation above US$1 billion). Even Thailand, which has had a lacklustre IPO market for years, generated some buzz with the US$1.4 billion Thai Future Fund IPO, a government-backed infrastructure fund that investors quickly snapped up. India’s IndInfravit Trust raised US$461 million in the first private placement of units of an infrastructure investment trust.
Further afield, several Chinese issuers made a splash in the US with New York IPOs, including Baidu-backed iQiyi, China’s largest video streaming service provider, which raised US$2.25 billion; Pinduoduo, China’s hottest e-commerce startup, which raised US$1.6 billion; and NIO, China’s leading developer of high-performance electric vehicles, which raised US$1 billion.
Outside of the primary market, we also recognised San Miguel Food and Beverage US$640 million follow-on offering by parent company San Miguel Corporation. The offering follows the consolidation of San Miguel Purefoods, leading beer-maker San Miguel Brewery and leading gin-maker Ginebra San Miguel into San Miguel Food and Beverage, the largest consumer company in the Philippines.
Other notable secondary deals included Naspers’ US$9.8 billion stake sale in Tencent, which was the biggest secondary share sale in the Hong Kong market to date.
The overall value of M&A in Asia fell slightly during 2018, partly as a result of the continued decline in activity from Chinese buyers, but the figures would have looked even worse without Walmart’s extraordinary US$16 billion acquisition of a 77% stake in Flipkart, India’s biggest e-commerce marketplace, which also includes group companies Myntra, Jabong, PhonePe and eBay.in. This was the world’s largest single acquisition in the e-commerce space and was a standout deal in every respect.
It remains to be seen if Walmart’s deal will make sense in the long run, but some of the other deals we saw during 2018 reinforced well-established themes, such as Japan’s continued interest in outbound acquisitions, particularly in Southeast Asia. Examples included MUFG’s acquisition of a 40% stake in Bank Danamon, completed in two stages for a total of US$4 billion, as well as Toyota’s US$1 billion investment in Grab and Tokio Marine & Nichido Fire Insurance’s acquisition of Safety Insurance from IAG in Thailand.
Grab was also active as a buyer, acquiring the Southeast Asian operations and assets of Silicon Valley rival Uber in exchange for a 27.5% stake.
When it comes to themes, there are no stronger associations than Singapore and real estate investment trusts. It can sometimes seem as though lawyers in the Lion City do nothing but Reits, so it comes as no surprise that the outstanding M&A deal of the year was a merger between two Reits — the US$687.5 million tie-up between ESR-Reit and Viva Industrial Trust by way of a trust scheme of arrangement. Perhaps surprisingly, it is the first such merger to take place.
Hong Kong also hosted some interesting Reit activity with Spring Reit’s defence of a hostile takeover launched by activist private equity group PAG Real Estate. It was the first voluntary general offer for a Reit in Hong Kong and a rare hostile bid in the city. PAG argued that the Reit’s external manager was inexperienced in the types of assets it had acquired, resulting in poor returns for investors, though shareholders were ultimately unconvinced.
Things got hostile in Taiwan too, with Advanced Semiconductor Engineering’s US$3.35 billion merger with Silicon Precision Industries, though the outcome this time was more successful. It was a marathon deal that took almost two years to complete after the signing of the merger agreement and was heavily negotiated. Although the initial bid was criticised, the result is a company that is better equipped to withstand takeover attempts from Chinese buyers, thus keeping Taiwan’s industry expertise onshore. All told, this was perhaps the most complex, interesting and economically significant deal in recent Taiwanese history.
In India, we saw significant consolidation in the troubled steel industry, with ArcelorMittal and Japan’s Nippon Steel & Sumitomo Metal winning an auction to acquire the debt-laden Essar Steel and rescue it from insolvency, although the deal remains mired in controversy as the company’s promoters fight in the courts to retain control. Meanwhile, Vedanta bought 90% of Electrosteel Steels for US$813 million in a deal that was also implemented pursuant to a resolution plan approved by the Indian National Company Law Tribunal, in accordance with India’s Insolvency and Bankruptcy Code 2016.
In Indonesia, 2018 finally brought to conclusion a US$4 billion deal that results in the creation of the country’s largest state-owned holding company. This two-stage deal has been underway since 2012. In the second stage, 51 percent of shares in Pertamina subsidiary Pertamina Gas owned by Pertamina were transferred to Perusahaan Gas Negara, with a purchase price of US$1.35 billion.
Foreign breweries have been competing to tap into Vietnam’s market for quite a few years now, and that action has recently spilled over into neighbouring Cambodia. In 2018, Carlsberg bought an additional 25% stake in Cambrew, giving it management control of the Cambodian brewer of the iconic Angkor Premium Beer.
PRIVATE EQUITY/VENTURE CAPITAL
In a year when markets were volatile and sentiment towards China in particular was weak, Ant Financial closed an incredible series-C funding of US$14 billion — the biggest single-funding round ever. The deal attracted top-tier names such as Singapore’s state-owned investment funds GIC and Temasek, plus US private equity firm Warburg Pincus. If a unicorn is an unlisted VC-backed company with a valuation of more than US$1 billion, then what is the term for one valued at more than US$150 billion?
It’s tough to compete with a deal like that, but other notable deals during the year included fundraising for Vision Plus Capital Partners, with two funds totalling US$500 million, consisting of a RMB-denominated fund II and a US dollar-denominated fund II, each at US$250 million or equivalent amount. PAG Asia Capital also formed a new US$6 billion buyout fund.
In terms of acquisitions, we saw a TPG and Carlyle-led investment in Baidu financial services unit Du Xiaoman Financial for US$1.9 billion, SoftBank Vision Fund’s US$2 billion investment in Coupang, KKR’s acquisition of Ramky Enviro Engineers for US$530 million and Standard Chartered Private Equity’s acquisition of Travel Boutique Online from Naspers.
Given the scale of Asia’s projected infrastructure needs, governments and sponsors around the region are under pressure to come up with billions of dollars to pay for new roads, railways, ports and power plants — and that typically means structuring projects in a way that allows banks or investors to take part. There are still too few bankable projects, but we saw some notable deals in 2018.
The Macquarie-backed national highway project in India is the country’s first national road project undertaken on toll, operate and transfer basis. The funding came through three rupee term-loan facilities aggregating to an equivalent of US$853 million, for financing the upfront concession fees payable to the National Highways Authority of India, meeting the costs to be incurred for initial improvement works of the project highways, first major maintenance expenditure and for other transaction-related costs.
Keeping up with the demand for power is a never-ending challenge as Asia’s economies continue to grow. Building more coal-fired plants is the quickest and cheapest solution for many countries, but renewable solutions are gaining ground and can be easier to finance as more international financial institutions withdraw from coal deals. Taiwan’s Formosa 1 offshore windfarm project financing is a US$619 million 16-year project to finance the development, construction, commissioning, testing and operation of Taiwan’s first commercial-scale offshore wind farm — the first step towards Taiwan achieving its objective of delivering 5.5 gigawatts of energy from offshore wind farm projects by 2025. The financing package is being provided through international and local banks, as well as Denmark’s export credit agency, and will be used to refinance the first phase of the wind farm (8MW that started operations in April 2017) and fund the development of the second phase (120MW due to be completed in late 2019).
While both of those deals rely on bank financing, capital markets are also an important avenue if Asia is to meet its infrastructure needs. In Laos, EDL-Generation’s issue of a multi-tranche baht bond raised the equivalent of US$410 million to fund the expansion of its hydropower generating capacity.
Unlike in previous years, we selected our winning deals this year based on submissions to the Weekly Briefing newsletter that we received during the year. To make sure your deals are considered for next year’s Deals of the Year, please make sure to send your completed deal announcements to firstname.lastname@example.org.
From January to December, the Asian-mena Counsel Deals of the Year Winners & Honourable Mentions. Congratulations to all the in-house and external counsel who had a hand in making them happen!