JPMorgan
JPMorgan has been the most innovative in this field over the past year and has topped the league tables in Europe as well as placing highly in the US and in Asia.
In Europe, JPMorgan has grabbed headlines for its role in developing the exchangeable structure as a privatization tool. Exchangeables have been used in privatizations before but it was the e5 billion Kreditanstalt für Wiederaufbau (KfW) exchangeable into Deutsche Telekom in 2003 that really cemented the product?s reputation for this use. As well as being the largest-ever equity-linked deal anywhere, the deal, which JPMorgan executed flawlessly along with Deutsche Bank, paved the way for a number of other privatization transactions.
After KfW, JPMorgan worked with Österreichische Industriedholding AG (OIAG), the Austrian privatization agency, on two privatization exchangeables into Telekom Austria and steel-maker Voestalpine. The Voestalpine exchangeable was another ground-breaking deal because it was the first combined equity and equity-linked deal for a public entity.
JPMorgan worked on five of the six privatization exchangeables of the past year, making it a clear leader in the field.
In November 2003 JPMorgan proved the portability of its Floating Rate Equity-linked Subordinated Hybrid (Fresh) structure by executing a e700 million deal in Italy for Banca Monte dei Paschi Siena.
The undated structure allows financial issuers to raise core tier 1 capital at attractive rates. First used in April 2002 for Fortis, the Fresh structure differs from its imitators because it is undated, as opposed to perpetual, so that it counts as equity but is non-dilutive. The bond cannot be redeemed for cash because it does not mature on a specific date, but automatically converts to equity after seven years if the underlying share price reaches 125% of the conversion price, or if the issuer?s total tier 1 and tier 2 capital ratio falls below 5%.
?There is still ample scope for innovation,? says Viswas Raghavan, head of EMEA ECM at JPMorgan. ?Most of the developments have been on the bond side but there is the possibility of exploring innovations on the options side. There is so much scope for embedding exotic derivatives.?
In the US, JPMorgan worked on a wide variety of equity-linked deals with innovative structures such as contingent interest conversions and call spreads. In September 2003, the bank led Bristol-Meyers? high-premium $1 billion floating-rate convertible senior debentures. The 20-year deal priced at a tight 50 basis points over Libor with a 60% premium.
The bank has exploited its lending relationships to win roles on some of the biggest equity-linked deals.
In May 2003 it was joint bookrunner for Lucent Technologies? $1.6 billion convertible senior debentures dual-tranche offering, at the time the largest US technology offering since mid-2002.
Although absent from Japan last year, JPMorgan?s franchise in Asia is one of the broadest in the region.
Over the past year the bank has led equity-linked deals in Hong Kong, India, Malaysia, and Taiwan. The bank worked on a number of significant transactions including the first combined placement and convertible from Hong Kong, the first negative yield structure from India, and a privatization exchangeable for Singapore.
In Malaysia, JPMorgan executed a combined $100 million rights issue and $180 million convertible for Star Cruises, Asia?s leading cruise operator. Although the issuer is unrated and has sub-investment-grade characteristics, the deal was successfully launched and priced within three hours with the book five times covered.
The strength of JPMorgan?s equity-linked and emerging-market franchise is also evident from the fact that it is the only investment bank to have led equity-linked deals in both Latin America and Africa.
In March 2004, JPMorgan led the first-ever international issue of a South African rand-denominated convertible.
The R1.7 billion ($249 million) five-year deal for Harmony Gold priced successfully and broke new ground for South African issuers.
