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Monday, 17 December 2018

Structured Equity Issue

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Singapore’s CapitaLand has always had a reputation as a savvy issuer, but the property developer had a standout year with two new convertible bonds and tender offers, both of which had a strong claim to be the Structured Equity Issue of the Year.

In the end, it was the second deal, launched on September 19, which took the honours.

While there was an element of luck to its earlier financing, coming just days before the US Federal Reserve sent bond yields soaring with plans to slow its government bond purchases, CapitaLand’s return to market showed smart timing and execution, resulting in an even bigger deal.

Many market watchers had expected the Fed to announce the first details of the tapering programme at its September policy meeting, but CapitaLand was ready to go if the tapering amount was lower than expected. In the end, the tapering announcement did not come, and the issuer pounced on the bounce in the market to launch a S$600m (US$480) 10-put-five bond, increased in size the same day to S$750m. The bond priced with a coupon and yield-to-put/maturity of 1.95% and a healthy conversion premium of 30%.

The bond traded up to a respectable 101 the following day, showing that the issuer had not pushed too hard on pricing.

With a public holiday in Hong Kong the following day, only a limited number of Asian issuers could have taken advantage of the boost in sentiment. CapitaLand moved quickly to put its stock on hold, launching the deal at midday to reach Hong Kong investors before they left for the long weekend. Credit Suisse, as sole bookrunner and tender agent, caught the market by surprise.

Alongside the new issue, CapitaLand launched a tender for three series of its outstanding bonds due or put-able in 2015 and 2016. The idea was to create competition between bondholders and achieve more price tension, since there was a possibility the clean-up call could be exercised, if enough bonds were tendered. It worked as S$603.75m of tenders and commitments were received within five days and the timeline was accelerated by a week. The new issue was subsequently increased a second time, to S$800m, allowing the tender offer amount to be increased, too.

The prices paid for each series of outstanding bonds were either flat or at discounts to the market price, a rare achievement in Asia.

For cutting its interest costs with flawless timing, smart execution and strategy, CapitaLand’s S$800m new issue and tender offer is IFR Asia’s Structured Equity Issue of the Year.

To see the digital version of this report, please click here.

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