The award for the best high-grade borrower was fiercely contested, with the market split between Hutchison Whampoa in Hong Kong and Petronas of Malaysia. Many compliments were paid to both. Hutchison, it was said, was able and willing to tap whatever market was necessary to raise its funds. However, this said, some bankers seem to have forgotten that while Hutchison did successfully get away a number of deals this year, some were not that well received. In September a deal blew up that meant the corporate had to tactically retreat. In February Hutchison overpaid with Merrill Lynch and then the following month it made its book runner Goldman Sachs grovel for business and got away with not paying any fees.
Oil company Petronas, which admittedly can ride on the coat-tails of the sovereign, cannot be accused of any of these faults in the past 12 months. A banker says: “Petronas is not greedy and doesn’t squeeze the investor community down to the last basis point. It’s important sometimes for a borrower to leave a little bit on the table for the investor. And Petronas does just that.”
Nobody says the same about Hutchison.
Petronas’s main financial strategy is to keep $6 billion on its balance sheet. Its major deals over the past year in the international market were extremely successful. In May 2002 it hit the headlines after a lengthy absence from the markets with a $2.73 billion three-tranche multi-currency transaction. The corporate was reportedly able to drag in around $8 billion of demand. The third tranche of the deal, a 20-year dollar offering, is often mentioned as a late but very intelligent inclusion. By catching many investors unawares, as was intended, it meant that those buying into the deal were unable to force the pricing of the 20-year tranche much wider than the 10-year. In addition, it was also able to give the US investor the longer-dated paper that it craves. A banker close to the deal says: “Petronas manages to fund itself in a quiet and efficient manner. It understands that markets move when people talk and others hear about the deal.”
The $2.73 billion deal was followed up in November with a further two-tranche transaction that added $700 million to the previous $1.3 billion 10-year tranche and $250 million to the 20-year $750 million. It was a deal that again successfully appealed to the international community rather than solely banks based in Asia. By cleverly marketing its cash-rich balance sheet and its closeness to the Malaysian sovereign, Petronas persuaded investors in the US and Europe to look at the credit as a safe haven during times of market volatility. And there are few names in Asia that can make such a claim. Also many investors and bankers agree that because of Petronas’ professionalism it will get a good reception whenever it goes to the market. And as it starts to spread its wings abroad and look at international acquisitions it can be confident that banks and funds are lining up to lend to it.
The final area where Petronas pips Hutchison to the title of best investment-grade corporate borrower is its understanding of the concept of the underwritten deal. According to those who have dealt with the sprawling oil company: “If you ask Petronas if it wants an underwritten or back-stop deal, it will look at you and laugh. It believes that if you have the right strategy and confidence in the deal then you don’t need an underwritten deal.” The same definitely cannot be said of Hutchison.
