Issuer: Hutchison Whampoa
Amount: €500 million
Launched: March 3
Bookrunners: Deutsche Bank, HSBC Markets
It’s not a vista that every finance director can claim to have. But from Frank Sixt’s offices you can see the People’s Liberation Army practicing basketball. The Chinese army, one hopes, is better at shooting enemies than hoops.
Sixt’s shot has never looked surer, however. The finance director for Hong Kong conglomerate Hutchison Whampoa has scored many successes in recent months despite difficult economic times. A highly successful HK$1.5 billion ($193 million) deal in January, led by HSBC Markets, and a £325 million ($520 million) bond, also led by HSBC, whetted the appetite. But the highlight was its first euro deal launched in early March – a €500 million ($529 million) blowout.
Ironically it might never have happened. Hutch was planning to do a yankee issue instead and had mandated Goldman Sachs to test investor sentiment for an Asian corporate. It put its 144a documentation in place and was ready to follow China’s successful 10-year deal.
Then throughout January it became clear that US sentiment was decidedly lukewarm. The conglomerate – rated A/A3 – was failing to shake off its Asian premium in the US and Sixt was reluctant to pay up. “Needless to say, our credit quality hasn’t deteriorated and yet US investors wanted upwards of 300 basis points for our 10-year paper.”
With the euro’s launch in January, a flood of European corporate paper was issued and for the first time the dollar was outpaced in issuance by another currency. Sixt was in Europe at the time, visiting Hutchison UK Ports. Deutsche Bank persuaded him to go to Frankfurt for the weekend. It’s not an invitation normally greeted with gusto, but in Sixt’s case it proved worthwhile and the borrower visited three major institutions. “Deutsche said that the European market might be receptive to an Asian credit and that we were it,” recalls Sixt.
No ordinary Asian credit however. Around 35% of Hutch’s earnings come from outside Hong Kong and China and among its European assets are Rotterdam port and Orange, the UK mobile phone operator.
Sixt was naturally going to be receptive to Deutsche’s overtures. The German institution has had a long-standing relationship with the Li Ka-shing-controlled company. In fact, Deutsche’s former Asian head, Simon Murray, used to be Li Ka-shing’s right hand man.
The other house to get in on the act is also something of a house bank for Hutch: HSBC Markets. It heard via its Dusseldorf sales desk that Sixt was in Germany and got wind of why. Its Hong Kong-based head of capital markets, Mark Bucknall, put together a euro proposal over the weekend and had a letter delivered to Hutchison House on Monday. Sixt arrived back in Hong Kong on the Tuesday afternoon and by Tuesday evening Asian time, Sixt had instructed HSBC to talk to Deutsche in Frankfurt. At 4pm the next day, the two were confirmed as joint leads, and they left that evening on the 11pm flight from Hong Kong to roadshow.
Sixt had been impressed with the way HSBC had executed the HK$1.5 billion deal in January, and as he puts it: “Investors know that HongkongBank know our finances inside out, and that gives them a level of comfort. It also made it less incumbent on us to tell the Hong Kong story.”
The roadshow hit London on the Thursday, Amsterdam on the Friday and Paris on the Monday. On Tuesday Sixt breakfasted in Cologne, lunched in Dusseldorf, and dined in Frankfurt. Over dinner, Deutsche and HSBC decided the deal should be seven years and proposed pricing at 170 basis points over bunds.
The deal was launched the next morning in Frankfurt and by the end of the day had tightened to 167 bp over. In the next couple of months it would tighten to 115 bp over, which equates to roughly 95 bp over Libor on a swapped basis. Hutch’s outstanding yankee also tightened from around 300 bp at the beginning of the year to 160 bp more recently.
Says Deutsche’s head of European syndicate, Eamonn McConnell: “Pricing of the Hutchison transaction forced investors in the dollar paper to reconsider their pricing level. This was a very interesting situation. The US became a price follower for perhaps the first time. The depth of the euro investor base led to a re-evaluation of Hutch’s pricing independent of the United States.”
Bucknall of HSBC Markets echoes these sentiments: “The success of this euro deal proves that Asian issuers like Hutch will never be held hostage by US investors again. This new marketplace creates a dynamic which will benefit Asian credits.”
It is a relief to Sixt, who has been frustrated at the way Hutch’s story has been conveyed in the US and has watched his company blackened with an “Asia premium” of at times as much as 200 basis points. “Our cashflow was actually slightly higher in 1998 than 1997,” says Sixt. “And only 10% of our debt was due last year.” In fact the company is thought by some analysts to be sitting on $6.3 billion of cash.
“Hutchison never deserved to have that sort of premium attached,” he laments. “But on the other hand the market is never wrong. It means you have a job to do to explain that there is mispricing.”
This was hammered home during the European roadshow. “We did a modified roadshow,” says Sixt. “We only did one-on-ones with the big institutional clients. I liked this. It was much better than the conventional roadshow format.” Sixt adds that HSBC’s Bucknall compared Hutch’s story with that of BAT. They are closely related by credit rating. And just as Hutch has Asia hanging over it, so BAT has tobacco legislation to contend with. In both cases it makes their investment story more complex.
Sixt says Hutch will look to do a yankee at the “right time, at the right price” but for the moment he is very content with his experience in the new eurozone. “We felt the euro deal would have more momentum than the yankee. It wasn’t a question of euro instead of yankee. It was more like two trains on parallel tracks and one gets to the station quicker.”
It’s a nice metaphor for those in euroland. For, unquestionably, Europe has faster trains than the United States.
