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@ visit http://www.ifre.comAsia bond buyers
play hardball
Emerging Markets Investors seek to secure special concessionsBY DANIEL STANTONSome asset managers have
resorted to a new trick to win
concessions in Asia’s ailing US
dollar bond market: holding
new issues to ransom.
In recent months some
investors have sought to take
advantage of a weak market by
waiting until the last stage of
bookbuilding and threatening to
withdraw orders unless they are
given special rebates.
If a new issue is only thinly
covered during bookbuilding,
CANCELLINGûAûBIGûORDERûAFTERûlNALû
guidance has been announced is
likely to force the issuer to pull
the offering or reduce the size,
GIVINGûTHEûBUYSIDEûSIGNIlCANTû
bargaining power.
The practice highlights the
growing inconsistencies
between international bond
issues in Asia and Europe, where
bankers say strict market abuse
regulations hold issuers and
their advisers to higher
standards.
5NOFlCIALûREBATESûBREACHû
global industry guidelines, since
some investors effectively pay a
lower price than others for the
same securities.
A Chinese banking source said
that bookrunners usually did
not complain as long as issuers
were happy. In some cases
issuers have paid the rebates, or
bookrunners have made the
payments and offset them
through their underwriting
fees.
“I learned some global funds
are doing this now,” said a
syndicate banker. “It’s a small
circle. Fund managers are
playing games. The joint
bookrunner gives them a 50/70-
cent rebate to tell them: ‘Don’t
screw me around’.”
A rebate of 50–70 cents
equates to 0.5%–0.7% of the
principal amount.
Some issuers may feel that is
worth paying, as a failed deal
often leads to higher fundingcosts the next time they come to
THEûBONDûMARKETû"OOKRUNNERS û
meanwhile, are redoubling their
efforts to sell down any risk
position they take in the
primary market.
The banker said the practice
was not limited to high-yield
deals, but had also happened in
some investment-grade offerings.
“I’m not surprised, as the
market has been so weak,” said a
fund manager. “Investors can
squeeze more.”
The Hong Kong Securities and
Futures Commission’s code of
conduct states calls for
DISCLOSUREûOFûANYûBENElTSû
received for distributing
investment products, while
bankers have criticised
UNOFlCIALûREBATESûATûMEETINGSûOFû
the International Capital Market
Association, a self-regulatory
industry body.
In some cases a bookrunner
may serve as the initial
purchaser, before immediately
selling bonds to an investor
below reoffer – a practice
that technically breaches no
rules.
“A rebate to some primary
investors but not others would,
however, be inconsistent with
THEûlXED
PRICEûREOFFERû
transactions that are generally
being chosen by issuers these
days,” said a spokesperson for
ICMA. “Issuers are of course free
to instruct their banks to
advertise transactions as being
executed on a different basis.
General laws require disclosure
to be clear, fair and not
misleading in any case.”
Hong Kong’s Securities and
Futures Commission did not
respond to questions on the
matter.
“Some Chinese investors have
been at this for a while, not just
the last few weeks,” said an Asia
syndicate head. “Nothing’s
going to change and the
regulators are not going to do
anything.”Additional reporting by Ina Zhou. (^)
and then commercialise the
drugs.
Ascletis is not expected to
MAKEûAûMEANINGFULûPROlTûUNTILû
2020, according to people close
to the deal. Its IPO price range
represents a 2020 P/E multiples
of 23.8–31.7.
Most of the biotech companies
in the pipeline are targeting a
US$100m–$200m fundraising size
given they are at the early stages
OFûDEVELOPMENTû"UTû.ASDAQ
LISTEDû
Chinese clinical-stage cancer drug
developer BEIGENE is planning to
seek a secondary listing in Hong
Kong as early as this year in a
POTENTIALLYûMUCHûLARGERûmOAT û
according to people familiar with
the situation.
The transaction is expected to
involve the sale of new shares to
raise funds, the people said,
ADDINGûTHATû"EI'ENEûHASûNOTû
made a decision on the
fundraising size yet.
"EI'ENESûSTOCKûCLOSEDûATû
US$165.05 last Wednesday, giving
it a market capitalisation of
US$8.87bn. Selling 15% in Hong
+ONGûnûAûTYPICALûFREEûmOATûFORûAû
company of its size – would put
the deal size at around US$1.3bn.
!û"EI'ENEûSPOKESPERSONû
declined to comment when
contacted by IFR.
"EI'ENEûINCURREDûAûLOSSûOFû
53MûINûTHEûlRSTûQUARTERû
of 2018 on revenue of
US$32.5m. Its stock has soared
580% since it listed in 2016 at an
IPO price of US$24.
Other biotech listing
candidates in Hong Kong
include Hua Medicine, MicuRx
Pharmaceuticals, Innovent
"IOLOGICS û3TEALTHû"IO4HERAPEUTICS û
!/"IOMEû4HERAPEUTICS û#AN3INOû
"IOLOGICS û4ASLYû"IOPHARMACEUTICALû
and Grail.
The Ascletis deal will price on
July 26 and shares will start
trading on August 1.
China Merchants Securities,
Goldman Sachs and Morgan Stanley
are joint sponsors for the IPO. (^)
"-## ûNAMEDûINûTHEûCIRCULARûASû
CERCG’s biggest shareholder with
a 30% stake.
One Hong Kong-based banker
at a foreign investment bank
SAIDûHEûHADûMETû#%2#'ûOFlCIALSû
earlier this year to discuss a
potential US dollar bond.
h4WOû#%2#'ûOFlCIALSûGAVEû
two different answers about
their ownership structure. That
meeting ended fairly quickly
with the decision not to proceed
with a potential bond deal,” said
the banker.
Another banker at a Chinese
SECURITIESûlRMûSAIDûHEûPASSEDûONû
helping the company issue US
dollar bonds after meeting with
THEûCOMPANYûINûTHEûlRSTûQUARTERû
of this year.
"UTûONEûBANKERûWHOûWORKEDû
with CERCG earlier defended his
lRM ûSTATINGûTHATûTHEûDUEûDILIGENCEû
process was straightforward.
“It all checked out. They were
good people who knew what they
were doing, and some had
experience working as China
National Petroleum Corporation’s
senior management.”
PROPERTY AMBITIONS
CERCG made its offshore debut in
April 2015 with a HK$2bn seven-
year private placement, followed
swiftly by a US$200m 5.25% three-
year in early May, increased to
US$350m weeks later. Then, in
January 2016, CERCG sold
US$400m of 6.125% three-year
notes after building an anchor
order book of US$220m, IFR
reported at the time. Including
China Life Franklin, a total of 42
investors participated in that deal.
It returned in November 2016
with a US$265m 6.25% three-
year deal, sold mainly to banks,
and completed a US$131m one-
year private placement in
December 2017.
2EDûmAGSûAPPEAREDûWHENûAû
CERCG subsidiary said it planned
to lead the US$5.2bn purchase of
Hong Kong skyscraper The
Center, only to back out of the
deal earlier this year.
One of the bankers who
worked with CERCG earlier said
that move made it too risky for
internal management to approve.
“After they announced that
they were buying the Center,
the committee felt concerned
that they were buying one of
the priciest real estate
developments ever. The
purchase of real estate is not the
company’s main business.” (^)