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@ visit http://www.ifre.comAVERAGEûOFûûLASTûYEARûFROMû
9.6% in 2016, according to
Moody’s.
“We are getting more questions
about Ebitda adjustments. As an
investor it is not always easy to
make a judgement given the poor
level of detail often available,” a
London-based analyst said.
INTO MIDDLE MARKET
Around 77% of the global
leveraged loan market is
covenant-lite, according to S&P.
More middle-market loans have
covenants, but aggressive Ebitda
DElNITIONSûAREûUNDERMININGû
limited protection for lenders.
“What is the value of
covenants with this level of
Ebitda adjustment? With this
headroom there has to be such a
deterioration in the business
before it bites,” a lawyer said.
The direct lending market is
also not immune to Ebitda
adjustments. Core Equity
Holdings recently acquired a
stake in UK-based PORTMAN
DENTAL CAREûWITHûAROUNDûaMû
INûDEBTûlNANCINGûPROVIDEDûBYû
Alcentra, based on an Ebitda
lGUREûOFûaM ûWHICHûHADûBEENû
ADJUSTEDûUPûFROMûaM
Portman has expanded
rapidly in the last few years,
almost tripling the number of
PRACTICESûSINCEû ûBUTûMANYû
lenders balked at the
adjustment, which more than
doubled Ebitda.
“It’s a whopping multiple,” a
second fund manager said.
Discipline on documentation
is stronger in the private debt
market compared with larger
deals due to the riskier nature of
the companies.
In the US, where the private
debt market is deeper, 35% of
middle-market loans had Ebitda
adjustments, according to
Covenant Review. Adjustments
linked to synergies are capped
at around 10%-15% in the middle
market, based on projections for
the next 12 or even 18 months.
But the list of exceptional
items, including uncapped non-
recurring payments, also leave
lenders exposed to restricted
payments and further debt
issuance by sponsors, which canweaken investors’ position. (^)
The deal implies an equity
value of up to US$70bn for Dell,
though with US$53bn of this
value tied up in Dell’s stakes in
publicly traded companies
(VMware, Pivotal Software and
Secureworks), the core Dell
business is valued at just
US$17bn or less than six times
CASHmOW ûACCORDINGûTOû$ELL
One risk for Dell is that
holders of the tracking stock
vote down the deal, though at
least one large holder, corporate
activist Carl Icahn, has
reportedly indicated he will not
oppose the deal.
The tracking shares were
TRADINGûATûJUSTû53ûONû
Thursday, up 11% from levels prior
to the deal announcement but
well below the US$106 cash offer.
4HISûDISCOUNTûREmECTSûPOSSIBLEû
opposition and uncertainty about
the value of the Dell stock offered,
plus lingering corporate
governance concerns, analysts said.
Still, the path Dell was taking
was “possibly the best and
certainly not the worst of all
alternatives”, Credit Suisse
analysts said in a report.
In a TV interview, Michael
Dell said the IPO option had
been “very much there” but the
company would still have had to
convert the tracking stock into
public common stock and it was
easier to do that now.
Dell bonds initially rallied
after the deal was announced,
though ratings agencies
consider it as largely neutral for
the company’s Ba1/BB+/BB+
ratings.
“There was some concern in
the market that Dell would take
ONûDEBTûTOûlNANCEûAûPOTENTIALû
transaction ... although our
base case has been that Dell
wants to [cut debt],”
CreditSights analysts wrote.
Though highly leveraged,
Dell’s debt is expected to fall
over the next year to four times
net debt/Ebitda (including its
share of VMware’s Ebitda and
debt). (For more on the bond
market’s reaction, see Bonds
section.) (^)
Malaysia insurance
IPOs in doubt
Equities Insurance floats may be delayed or abandoned
BY S ANURADHA
The change of government in
Malaysia has called into question a
spate of expected IPOs from foreign
insurers, leaving the market to
ponder whether the new
administration will stick with a
policy requiring overseas investors
to reduce stakes in their local units.
Bank Negara Malaysia last
year gave foreign insurers until
the end of June 2018 to reduce
their holdings in their local
AFlLIATESûTOûAûMAXIMUMûOFû û
lNALLYûENFORCINGûAûRULEûlRSTû
introduced in 2009.
However, the central bank’s
last governor, Muhammad
Ibrahim, who had issued the
demand, resigned last month as
PARTûOFûAûSWEEPINGûRESHUFmEûOFû
the country’s leadership
following the May 9 election,
raising doubts over the policy.
“The push towards stake
reduction was Muhammad’s pet
project, it is not necessary that
the new team will have the same
priority,” an ECM banker said,
pointing out that the new
government has reversed several
of the previous administration’s
policies and projects.
So far, only Manulife and
Allianz meet the 70%
requirement, thanks to a 30% free
mOATûFORûTHEIRûLOCALLYûLISTEDûUNITS
Two IPOs are in the pipeline,
but their timing is unclear.
Last week TOKIO MARINE HOLDINGS
lLEDûTHEûPRELIMINARYûPROSPECTUSûFORû
Aû-Mû53M û)0/ûOFûITSû
local insurance unit. In May,
0RUDENTIALûALSOûlLEDûAûDRAFTû
prospectus for a US$500m–$1bn
IPO of PRUDENTIAL ASSURANCE MALAYSIA.
On the other hand, AIA, Great
Eastern Holdings and Zurich
Insurance have yet to announce
plans to reduce their stakes in local
AFlLIATESûVIAû)0/SûORûSTRATEGICûSALES
With Muhammad gone, it is
not clear if Bank Negara will
extend the deadline or defer the
requirement.
Reuters reported last month
that the directive would be
reviewed as foreign insurers were
lNDINGûITûHARDûTOûlNDûLOCALûBUYERS
However, some analysts think
the central bank is unlikely to
make major concessions.
“Raising the local
shareholding in foreign
companies suits the nationalistic
narrative of the current
government and it may not
want to be seen favouring
foreigners,” an analyst said.
3INCEûTAKINGûOFlCE û0RIMEû
Minister Mahathir Mohamad has
announced that Malaysia will pull
out of a high-speed railway
project with Singapore and
ordered the main Chinese
contractor to halt work on the
53BNû%ASTû#OASTû2AILWAYû,INK
LOW ECM VOLUME
Until the insurance situation
becomes clearer, other
prospective deals are giving
equity capital market bankers
hope of turning the page on a
SLOWûlRSTûHALF
Oil-and-gas services provider
SAPURA ENERGY has hired Bank of
America Merrill Lynch and Maybank
to manage the US$750m–$900m
IPO of its oil exploration and
production subsidiary with a
targeted launch in the fourth
quarter or early next year.
Companies likely to launch
IPOs later this year or early next
year include tower company
EDOTCO (US$1bn), poultry
producer LEONG HUP INTERNATIONAL
(US$600m) and fast-food chain
QSR BRANDS (US$500m).
The growing pipeline is good
news as ECM activity has been
QUIETûINûTHEûlRSTûHALFûOFûû
with deals totalling US$1.15bn
completed, down from
US$1.37bn a year earlier,
according to Thomson Reuters
data. The biggest IPO of the year
so far was Mi Equipment’s
M$191m offering.
BNP Paribas and Kenanga are
working on the Tokio Marine IPO.
Bank of America Merrill Lynch
and CIMB are working on the
Prudential transaction. (^)