The postponed Philippines' yankee was finally launched last month in a way that appeared to save face for both the country and lead-manager Salomon Brothers but which, in reality, retained the quirkiness of the entire saga.
Although the deal was cut down from a jumbo $1.25 billion to a more modest $500 million, the Philippines central bank, Bangko Sentral, got the maturities it wanted - 30-year and 100-year - at tighter pricing than it could have achieved in April when the original deal was pulled.
For Salomon, too, the deal appeared to salvage its reputation in Asia as a strong yankee bond house, although there are doubts about how quickly it was placed and whether the bank made any money.
Salomon's yankee franchise is far and away its most successful business in Asia and damaging that franchise would have been nothing short of a disaster. Under these circumstances it had to step up to the plate, or risk jibes about the Philippine bond issue which it won, couldn't get done (in April) and which then might have been placed by one of its fiercest rivals.
Behind the scenes, however, the unorthodox story of the Philippines' yankee continued to unfold. The originally planned $1.25 billion debut was supposed to be a case-study in how to bring a highly regarded debutante to market, but it turned into a lesson in how to step on every banana skin in the book (see Euromoney's May cover story, The Killer from Manila).
The bond issue was finally postponed after a week-long US roadshow at which the blame for the failure was put on dodgy market conditions. But equally important was a falling out between the deal's bookrunner, Salomon, and the other five investment banks - which called themselves lead-managers but which Salomon called co-managers.
The saga continued when Gabriel Singson decided to relaunch the deal in June - but this time on his own terms. All six investment banks received a letter telling them to turn up at the central bank in a couple of days' time.
All six were then invited to rebid on both the 30-year and 100-year tranches with the winner owning the deal, and being duty bound to deliver the proceeds to the central bank within 10 days.
In what is considered to be a bond market first, Singson gave a new twist to the phrase "hard underwriting" when he said all bidders must turn up at the auction with a $10 million cheque in their pocket.
The winner would deliver the cheque into the safekeeping of the central bank as a show of good faith. No interest would be paid.
Prior to the auction Salomon Brothers approached its former syndicate bedfellows to see if they wanted to resuscitate the group, this time in an amicable fashion. The idea was for all to bid the same spread and then share the deal. However, with mistrust and animosity running high, and at least one member dubbing it "the syndicate from hell", this idea was given short shrift.
In the event only five turned up at the auction: Salomon, Merrill Lynch, Morgan Stanley, JP Morgan and ING Barings. Citibank stayed away. It is not known why, but one theory goes that Citi had no intention of buying the deal outright and rather than simply put in a bid designed to lose, decided a straighter course was just to stay away and tell the Philippines it would do so.
This was probably a wise course because the auction was a no-win situation for all the banks. Each knew that marketing the bond would be tough given investors' disinclination to touch deals that have already been associated with disaster - unless they are very cheap, and the auction process looked certain to ensure this would not be the case.
There was one saving grace - the deal's downsizing. The significance of this was not lost on those close to the deal - it was a notable compromise given the central bank's original goal of launching a bigger deal than that of its rival, the department of finance which last year issued a hugely successful $690 million Brady bond exchangable.
In keeping with the Filipino liking for high drama, the auction was held in the presence of the whole central bank yankee bond committee and the Commission of Audit. To ensure total fairness the banks had to write their bids on pieces of paper and put them in a transparent plastic box one after the other. The five pieces of papers were then taken to the audit committee. The winner was Salomon Brothers. The rest of the banks walked out immediately.
What had Salomon won? It only became clear when the deal was issued a few days later into a market dominated by the launch of sovereign issues for Russia and South Africa - both dollar deals with consensus pricing. The $400 million, 30-year tranche was launched at an ultra-tight 184.9 basis points over US treasuries and the $100 million, 100-year at 197.5bp over.
The bid of 184.9bp over was unusual. It suggests that Salomon thought that another bidder would come in very tight too, at 185bp over. However, the next tightest bid was thought to be 195bp over, more than 10bp wider than Salomon. No syndicate was formed so it is impossible to get accurate feedback on how many of the bonds remain on Salomon's books save from Salomon itself.
Trevor Rowe, chairman of Salomon Brothers Asia, says the bonds are all sold, and were distributed over a couple of days. "We're very pleased that the transaction was so well received," he says. "It was an aggressive pricing but we we knew where the market was and we read it well. We didn't lose money [on the deal]."
The Bangko Sentral says it is satisfied with the deal. It said in a statement: "We were delighted with Salomon Brothers' performance and commitment to both the bank and this offering since their selection as lead-manager in February. They handled all aspects of the offering process with the highest degree of professionalism."