IFR Asia – September 30, 2017

Vincom avoids VietJet lag 09 Indian insurance IPOs 10 Syngenta backs down 11

if they are able to come to
market.
The Chinese government

• which does not need NDRC
  approval – has announced plans
  to sell US$2bn of sovereign
  bonds before the end of the
  year.
  But it would also complicate
  things for companies
  with more urgent funding
  requirements, and bankers are
  expecting an increase in short-
  term notes with maturities
  of less than one year, which
  are currently exempt from
  registration requirements.
  Calls to the NDRC went
  unanswered.

DOOR CLOSED
The pipeline of issuers with
NDRC approvals, including
a few city commercial banks
looking to sell subordinated
capital, has thinned out
following a rush of issuance.
“Given the regulatory
uncertainties, Chinese issuers
have learnt the lesson – print
at the earliest opportunity
once you get the NDRC quota.
You never know whether
regulators would change their
mind at some point,” said a
DCM banker at a foreign bank.

“That means the number of

ready-to-go deals is now very

limited.”

PSBC successfully registered

its giant AT1 offering with

NDRC on September 5 and

launched it on September 20.

Other Chinese AT1 offerings

likely to hit the market

in October include BANK OF

ZHENGZHOU ’s planned Rmb8bn-

equivalent issue and CHINA

MERCHANTS BANK ’s proposed

Rmb7.5bn-equivalent trade.

Both have NDRC approval.

Bank of Zhengzhou got

the go-ahead from the

China Securities Regulatory

Commission on September 25

while China Merchants Bank is

still awaiting the CSRC’s green

light.

The market is likely to see a

growing number of short-term

bonds in the fourth quarter

as some issuers, particularly

smaller privately owned

companies, will be left with

only this option for offshore

funding.

Recent short-term financings

from state-owned borrowers

have underscored the

uncertainty around NDRC

approvals. For example, QINGHAI

PROVINCIAL INVESTMENT GROUP , rated

BB–/BB (S&P/Dagong HK), last

week issued US$300m of 363-

day US dollar bonds, while, in

mid-September, TIANJIN LINGANG

INVESTMENT HOLDING sold US$260m

of 360-day US dollar bonds at

par to yield 4.5%.

Qinghai Investment had

registered two offshore bond

issues with NDRC earlier

this year, but it has already

used that quota, with a debut

US$300m 7.25% three-year

Reg S note in February and a

US$300m four-year at 6.4% in

July.

Still, although offshore

bond quotas are under tighter

scrutiny, exceptions cannot be

ruled out.

“We cannot say that NDRC

will close the door completely

as they’ll be back at work after

the 19th National Congress.

Moreover, there could be some

exceptions for big names,” said

the DCM banker at a foreign

bank. The Communist Party

congress will run for a week

from October 19.

Exceptions may include big

central state-owned enterprises

with urgent funding needs for

offshore M&A. Furthermore,

some “audacious” issuers can

still access the offshore market

without seeking approval from

the agency, the banker said.

He claimed that one major

property developer had

issued offshore bonds without

registering with the NDRC

beforehand. In theory, the

NDRC puts issuers on a national

blacklist for breaching its rules,

but some companies may feel

that raising funds quickly is

worth the consequences. „

Other investors in Sea
are a who’s who of global
money managers, such as
SeaTown Holdings, an affiliate
of Temasek, Malaysian
government fund Khazanah
Nasional, GDP Venture,
Mistletoe, General Atlantic,
Ontario Teachers’ Pension Plan,
Keystone Venture and Skype co-
founder Toivo Annus.
The company’s three main
businesses are online games
(Garena), e-commerce (Shopee)
and digital financial services
(AirPay).
Sea’s prospectus estimates
the IPO size at US$1bn but
does not include the number
of shares to be sold or the price
range. Books are likely to open
in early October.
“Sea is not about revenue

and profit, but ideas,” said a

person with knowledge of the

IPO. “The idea of a (technology)

company with a strong

presence in South-East Asia will

be a novelty for investors.”

For now, Sea’s aggressive

growth translates to weak

earnings. The company earned

revenue of US$195.4m in the

six months to June 30 2017, up

from US$166.6m a year earlier,

but the additional revenue

came at a massive cost as its

net loss rose to US$165m from

US$87m in the same period a

year earlier. The main cause

of the increased first-half loss

was an 86% rise to US$138m in

sales-and-marketing expenses,

mainly from promotions to

drive its e-commerce business,

including subsidised shipping.

Sea has a dual-class share

structure that will give founder

Li and Tencent an outsized

share of voting rights. It is

offering American depositary

shares in the IPO representing

only Class A ordinary shares,

each entitled to one vote. Li and

Tencent’s Class B shares will

carry three votes.

As with other Asian

companies, the dual-class

structure is one of the

attractions of a US listing over

other exchanges closer to home.

Credit Suisse , Goldman Sachs

and Morgan Stanley are the joint

bookrunners. „

For daily news stories

visit http://www.ifrasia.com

“The Sea IPO is a good sign that the government

and other initiatives to make Singapore a fertile

ground for technology companies is having some

success and that interest in the South-East Asian

e-commerce market is growing.”

“Given the regulatory uncertainties, Chinese

issuers have learnt the lesson – print at the

earliest opportunity once you get the NDRC

quota. You never know whether regulators would

change their mind at some point.”