It's amazing what resurgent equity prices, record-low interest rates and global economic growth can do for deal mak ing -- and deal makers. Capital markets activity quickened in 2003, particularly toward year-end, concluding a devastating three-year downturn. It didn't much matter that the uptick fell well short of levels seen during the technology boom; any increase was welcome.
Global equity capital markets volume jumped 24 percent last year, to $390 billion, according to research firm Dealogic. And although the market for IPOs declined 17 percent last year, fourth-quarter volume surged. Convertible issuance soared 71 percent, to a record $169.6 billion.
Global mergers and acquisitions volume jumped 31 percent in the fourth quarter from year-ago levels, to $412 billion, the highest total in ten quarters. Although full-year figures were flat at $1.35 trillion globally, the late 2003 upswing reflected an easing of uncertainties about the Iraq War, stronger worldwide growth and rising shares -- factors that may well remain in play at least through early 2004. The debt markets saw volume rise 21 percent, to a record $4.94 trillion.
A more accommodating environment brought back investors' appetite for risk. Brazil returned to the international capital market in style, taking advantage of growing confidence in the government of President Luiz Inácio Lula da Silva to raise $4.5 billion as spreads on the country's debt tumbled. The corporate debt market also attracted thrill-seek ers, as high-yield issuance more than doubled, to a record $171.7 billion. Possibly the riskiest deal of all got under way at year-end: A banking consortium set up the new Trade Bank of Iraq.
A few trends stand out. One is the rise of China. State-owned China Life Insurance Co. staged the year's biggest IPO and saw investors oversubscribe its $3.47 billion offering a whopping 23 times. Beijing returned to the market, doing its first international debt issue in two and a half years and achieving its lowest-ever spread: 53 basis points over U.S. Treasuries.
Private equity accounted for 13 percent of all global M&A deals, more than triple its share three years ago. Private equity funds led the year's two biggest buyouts in Europe: the E 3.74 billion ( $4.36 billion) purchase of 61.5 percent of Italian yellow pages company Seat Pagine Gialle and the proposed £5.23 billion ($9.2 billion) offer for London's Canary Wharf financial center.
Many of 2003's biggest deals grew out of the excesses of the boom years. France Télécom and Hutchison Whampoa launch- ed big bond issues to refinance some of the billions they spent on wireless licenses at the peak of the tech boom. But even vibrant markets couldn't help Parmalat Finanziaria , the Italian food giant that confessed that it didn't really have E 3.95 billion in an offshore bank account after all. Parmalat filed for bankruptcy in December in what's likely to be one of Europe's largest failures ever -- and a candidate for a financial restructuring deal of the year in 2004.
MERGERS & ACQUISITIONS
RUPERT GETS THE DISH
Big things come to those who wait -- and lobby. In October 2001 Rupert Murdoch lost the big prize he had sought for years when EchoStar Communications Corp., led by Charlie Ergen, outdueled him for Hughes Electronics Corp., whose DirecTV unit, boasting more than 11 million subscribers, is the biggest satellite TV operator in the U.S. After two years of battling, Ergen won control of Hughes in a last-minute deal only to see the Department of Justice reject the merger a year later on antitrust grounds.
News Corp. chairman and CEO Murdoch swooped in last April, paying $6.7 billion in stock and cash for the company, a whopping $19 billion less than Ergen's offer. The lower price was painful for Hughes and its controlling shareholder, General Motors Corp. But the savings were icing on the cake for Murdoch, whose chief goal was to put in place the last link in News Corp.'s constellation of satellite TV systems that would span four continents and reach 23 million subscribers.
Negotiations were anticlimactic. There was no serious competition for Hughes, which was advised by Credit Suisse First Boston and Goldman, Sachs & Co. And GM, advised by Merrill Lynch & Co. and Bear, Stearns & Co., had fewer cash needs than before, according to Dan Richards, managing director of Citigroup's media banking group. "The first time was a very complicated M&A deal, a big financing and lots of work," he says. "This time the bulk of the details were settled in the month of March." -- Steven Brull
WHERE BUSINESS AND POLITICS DON'T MIX
E veryone wanted to do a deal in Russian oil last year, but only one man, BP CEO John Browne, succeeded. The reason provides a lesson in how business and politics get along -- or don't, as the case may be -- in Russia.
BP paid $6.75 billion to Russia's Alfa Group and Access/Renova Group for a 50 percent stake in TNK-Sidanco, the country's third-largest oil producer. Browne struck in February, just as foreign interest in Russia's booming oil industry was beginning to heat up. That early action helped keep the purchase price down. "I do think you get some advantage of being a first-mover here,'' he says. He also made sure the deal would pass muster at the Kremlin. Browne sounded out President Vladimir Putin before making the purchase, and he chose a partner, Alfa's Mikhail Fridman, who was in the good graces of the Kremlin. The payoff: Putin attended the June signing of the deal in London.
That smooth closing stood in stark contrast to Yukos's proposed $35 billion merger with Sibneft in April. The combination of Russia's two fastest-growing oil companies looked like a masterstroke at first; it would have created the country's first petroleum supermajor under the stewardship of Russia's most acclaimed businessman, Yukos CEO Mikhail Khodorkovsky. Prime Minister Mikhail Kasyanov dubbed the newborn titan "the flagship of the Russian economy," while investors bid shares of both partners up to new records.
Unfortunately, Khodorkovsky attempted to mix business with politics. His open support for two liberal parties and his lobbying against oil tax increases sought by the Kremlin violated an unwritten rule in Putin's Russia that oligarchs should stick to business. The billionaire was jailed in October; prosecutors froze the 44 percent of Yukos shares held by Khodorkovsky and his partners, and Russian tax officials said the company might owe as much as $5 billion in unpaid taxes.
But the unkindest cut of all came from Sibneft's controlling shareholder, Roman Abramovich, who balked at finalizing the merger on November 28, just minutes before Yukos and Sibneft directors were set to ink the papers. Abramovich apparently wanted to take control of the merged company from a weakened Yukos, but Yukos shareholders refused. The collapse left lawyers wondering how an all-but-completed transaction might be unwound, considering Abramovich and colleagues had already received $3 billion in cash from Yukos for 20 percent of Sibneft. It also sparked renewed interest from foreign oil companies, including ExxonMobil Corp., Chevron- Texaco Corp. and Total, in taking a stake in Yukos or Sibneft.
Yukos's legal problems sent jitters through the financial markets, causing BP's shares to tumble nearly 10 percent in October before rebounding to reach yearly highs in December. Browne is not fainthearted, though. He insists that Yukos's difficulties wouldn't affect BP and appeared with his Russian partners before investors in London just days after Khodorkovsky's arrest.
With production at the newly renamed TNK-BP up 10 percent in the first half of 2003, Browne has reason to be optimistic. BP will now derive 15 percent of its worldwide oil and gas production from the venture. Says Browne, "We've chosen to align our interest with Russia's." He'd better hope Russia feels the same way about BP.
-- Tom Buerkle and Craig Mellow
L ondon-based buyout firms CVC Capital Partners and BC Partners and Italy's Investitori Associati pulled off Europe's second-biggest LBO of 2003 when they bought 61.5 percent of Italian phone directory business Seat Pagine Gialle from Telecom Italia in June for E 3.74 billion ($4.68 billion, including $826 million in debt). Sound familiar? Just six years earlier the same group participated in a E 2 billion buyout of Seat from the Italian government. When they sold their 40 percent equity stake to Telecom Italia for E 7 billion in 2001, they reaped a more than 20-fold gain on their roughly E 350 million initial equity investment.
The cast of characters this time around isn't exactly the same. London-based private equity firm Permira has joined the buyout group, which invests through a special purpose vehicle known as Silver.
In other respects, however, the deal is beginning to resemble its predecessor. As obligated by law, the group in September made an offer to Seat shareholders for the 38.5 percent it didn't own at E 0.59 per share, the price it paid Telecom Italia. But a market rally and Seat's stated intention to pay a special dividend had already pushed the shares to about E 0.80. As a result, no shareholders wanted to sell, thus saving the buyers about E 1.9 billion they would have had to spend on the offer.
The same thing happened in 1997 when telecommunications-related shares took off shortly after the group's purchase and other equity investors eschewed their man-datory bid.
"We seem to have had good luck with timing yet again," notes Hardy McLain, a CVC partner who helped put together both deals. Telecom Italia's timing has been less fortunate: In 2002 it had to write down E 1.5 billion of its Seat stake to reflect the sharp devaluation of telecom shares.
Even McLain doubts the group can match its phenomenal first-time returns. "I'm not sure we will ever see directory company prices return to the levels we saw during the bubble, but so far we are doing very well with Seat." Indeed, 2003 operating profits are expected to rise nearly 8 percent. -- David Lanchner
BANTAM SIZE WORKS FOR MORRISON
Smaller really was better.
In December, William Mor-rison Supermarkets agreed to buy Safeway for £3 billion ($5.3 billion) in cash and stock, creating the U.K.'s fourth-largest chain.
The deal, the country's second-biggest acquisition of 2003, ended a yearlong bidding brawl that followed Morrison's initial £2.9 billion offer for the struggling Safeway group last January. Other bidders, including the U.K.'s top three players -- Tesco, Wal-Mart Stores' Asda subsidiary and J Sainsbury -- either made or indicated their intention to make offers. "We weren't at all surprised that we got a counterbid," says Nigel Turner, global head of corporate finance at Morrison adviser ABN Amro. "What did surprise us was everybody coming out of the woodwork."
The free-for-all caught the eye of Britain's Competition Commission, which was concerned that some of the possible combinations would create excessive concentration in the supermarket industry. After a five-month investigation, the government announced in September that it would block bids by the big three. When another potential bidder, clothing retailer Philip Green, declined to make an offer, the way was cleared for executive chairman Sir Ken Morrison to win Safeway for his family's business.
The merger gives Morrison, which previously ranked a distant fifth in local share, 16 percent of the market, putting it neck and neck with Asda and Sainsbury and trailing only Tesco with its leading 27 percent share. -- T.B.
Mediobanca traditionally has pulled the strings of Italian capitalism, deftly working its many minority shareholdings and alliances to arrange mergers or defend favored clients. But the bank's powerful chief executive, Vincenzo Maranghi, met his match in Alessandro Profumo, the resourceful head of UniCredito Italiano, who bought a piece of giant insurer Assicurazioni Generali, which he used to engineer Maran-ghi's downfall in April.
Maranghi reportedly piqued Profumo by buying 34 percent of Ferrari for $875 million in 2002, frustrating UniCredito's plan to arrange an IPO for the famed sports-car maker. But Maranghi's next move, unseating Gianfranco Gutty, the chairman of Generali, proved his undoing. Mediobanca owns 14 percent of the insurer, whose stakes in many of the country's most important businesses supplied much of Maran-ghi's influence.
The removal of Generali's chairman -- the third management change in three years -- threatened to destabilize the insurer and gave Profumo his opening to move against Maranghi. Profumo spent E 960 million ($1.2 billion) to build a 3.5 percent position in Generali and enlisted other stakeholding allies, including Banca Intesa, Capitalia and even Banca d'Italia, the central bank, to effectively seize control of the insurer from Maranghi. Outmaneuvered, Maranghi resigned from Mediobanca.
Profumo insists he acted to free Italian businesses -- and UniCredito -- from Mediobanca's excessive influence. He didn't waste much time extricating himself from Generali. In November, UniCredito issued E 1.26 billion of bonds exchangeable into Generali shares, which, if exercised, will unload the bank's stake at a profit of nearly E 400 million.
In Italy's close-knit financial system, Profumo also holds a 10 percent stake in Mediobanca, which he isn't planning to sell anytime soon. "We don't want to do that with a price that is not interesting to us," he says. "The sum of the parts is not reflected in the existing share value." --T.B.
LAND OF THE RISING LBO
L ast August, U.S. private equity specialist Ripplewood Holdings bought Japan Telecom Holdings Co.'s wireline phone unit, Japan Telecom Co., in a ¥261 billion ($2.2 billion) leveraged buyout. Skeptics might dismiss the significance of Japan's largest-ever LBO because both buyer and seller are gaijin, or foreigners (the U.K.'s Vodafone Group owned most of JT Holdings). What they'd miss, however, is that three of the country's largest banks, Bank of Tokyo Mitsubishi, Mizuho Corporate Bank and Sumitomo Mitsui Banking Corp., provided most of the financing, a sign that Japanese lenders are willing to commit to LBOs.
Joe Stevens, managing director in the investment banking division at Ripplewood's adviser, Goldman Sachs (Japan), says the deal was "driven in large part by the Japanese financial community," which traditionally favors loans backed by real estate. By offering LBOs as an alternative, says Stevens, the banks can give local customers a "legitimate way to sell off noncore assets." And possibly on better terms. Vodaphone bought JT in 2001 to get its J-Phone mobile subsidiary, which it will keep. When it tried to sell the wireline group in 2002, the best conventional offer it got, from Tokyo Electric Power Co., came to less than half what Ripplewood paid.
Japan's profit-starved banks have another reason to like LBOs: fat margins. Steven Thomas, co-head of M&A at UBS Securities Japan, sole adviser to Vodafone and JT, says the syndicated loans backing these transactions offer up-front fees not available on traditional loans.
That said, the deal also demonstrated that LBOs are an import. U.S. banks Citigroup and J.P. Morgan Chase Bank filled out the banking syndicate, and when Ripplewood wanted to off-load some of its JT equity postdeal, it sold to three private equity firms -- all gaijin. -- Charles Smith
The consolidation of Europe's securities trading infrastructure may be inevitable, but it is taking longer than many industry leaders had hoped it would. Count David Hardy among them.
After a long, drawn-out struggle, Hardy's London Clearing House agreed last year to merge with Euronext's clearing subsidiary, Clearnet, to form LCH.Clearnet Group -- Europe's biggest clearer. The combined firms provide trade matching and reconciliation services for equities, bonds, derivatives and commodities.
By streamlining these back- office functions and cutting costs, the deal should step up pressure for mergers among Europe's stock exchanges. Says Hardy, "Hopefully, we can act as a catalyst for greater change, greater efficiency."
He began merger talks with Clearnet at the start of 2002. The two clearers didn't reach an agreement until last June. Then LCH and Clearnet needed five more months of lobbying to win the support of users and shareholders. "This hasn't been done before, particularly not cross-border, so there wasn't really a benchmark," says Hardy, who becomes CEO of LCH.Clearnet.
To assuage investment bankers' concerns about high clearing fees, Euronext sold a 7.6 percent stake in LCH.Clearnet to investment bank shareholders of LCH for E 91 mil- lion ($114 million), giving them some direct sway over LCH.Clearnet's operation, and Hardy also limited Euronext's own voting rights in the clearer to 24.9 percent.
For Jean-François Théodore, Euronext's crafty chief executive, this concession was a price well worth paying. He sees the merger as a step toward capturing a bigger prize: a Euronext takeover of the London Stock Exchange ( Institutional Investor , November 2003).
So far that bet seems well placed. Getting the LSE, a big customer of LCH, to approve the merger was critical to completing it. Initially, LSE chief executive Clara Furse opposed the deal and threatened to take her clearing business to Deutsche Börse's Eurex. But after LCH.Clearnet agreed to cut its fees by 25 percent, she backed down.
With Euronext now earning profits from the clearing of LSE trades through its stake in LCH.Clearnet, it is sitting in the catbird seat. -- T.B.
ALCAN ON A ROLL
Travis Engen knows a good deal when he sees one. In September the CEO of Toronto-based aluminum producer Alcan agreed to buy French rival Pechiney for E 5.73 billion ($7.16 billion), creating the world's biggest aluminum company, with nearly $24 billion in annual revenues, eclipsing Alcoa's $20.2 billion. The transaction valued Pechiney at a healthy 8.7 times earnings before interest, taxes, depreciation and amortization, or E 48.50 a share, but well below its two-year high of E 75 a share in early 2001, when aluminum prices were peaking.
"We struck when we did because we had the strongest balance sheet in the industry and because the aluminum price was beginning to rise," says Engen. "If you have the financial strength to make a purchase as a market is turning, you often get a good deal." Aluminum prices have climbed 16 percent since April, following a 24 percent drop over the previous two years.
It wasn't an easy deal to pull off. Before the terms were sweetened, Pechiney CEO Jean-Pierre Rodier and his board considered the offer hostile because the price, at about E 5.1 billion, or 7.7 times ebitda, was too low. And there was an unhappy history behind the acquisition. Four years ago Engen's pre- decessor, Jacques Bougie, crafted a three-way deal whereby Alcan would have bought both Pechiney and Zurich-based Alusuisse Group. Bougie bought Alusuisse but walked away from the Pechiney portion when the European Union's Competition Commission insisted that he divest a big part of the combined group's rolled aluminum business.
"What was not evident four years ago was that being smaller in rolled product was really a modest price to pay compared to the possible opportunities we have coming out of this acquisition," says Engen, who became CEO in February 2001. Even after divesting certain aluminum assets, Engen says he can save $250 million a year in costs through this combination. -- D.L.
WHO WILL SWALLOW CANARY?
It was a sign of the renewed vigor of financial markets in 2003 that the year's biggest European takeover bid -- and one of the most hotly contested -- involved London's second financial center, Canary Wharf, once regarded as a white elephant. But in this case, the economic recovery may frustrate efforts to complete the deal.
Bidders began circling Canary Wharf Group in the spring after an uptick in vacancies caused the company's shares to tank to as low as 128 pence ($2.25). The contestants included Silvestor U.K. Properties, a bidding vehicle for Morgan Stanley and Goldman Sachs real estate funds and New York investor Simon Glick, who owns 14.5 percent of Canary; Canary Wharf founder and former chairman Paul Reichmann, who holds 8.9 percent of the company; and Brascan Corp., the Canadian group that has a 9 percent stake. Institutional funds hold the rest.
Silvestor won the board's backing by raising its original offer of 255 pence per share to 265 pence and including an equity option that would give current investors some share of any upside. Silvestor also received a boost when Canary holders approved the sale of two buildings at the London Docklands complex for £1.56 billion, which was a condition for its offer to proceed.
Silvestor still needs 75 percent approval for its bid, though, and it faces determined opposition from Reichmann and Brascan. Reichmann, who saw his property empire collapse when Canary Wharf went bankrupt in the U.K.'s 1992 recession only to return, at the invitation of bankers, to run it in the mid-'90s, was seeking financing for a counterbid of at least 275 pence per share. Brascan was mulling a 267 pence offer. Both have agreed to try to block Silvestor.
Can anyone break the stalemate? With London's property market turning up, it might not matter to Canary's shareholders. "We still may not see an offer accepted," says one property analyst. "We could be looking at an ongoing company." -- T.B.
TWO FLAGS, ONE CARRIER
So much for nationalism.
For years European airline executives talked about consolidation, but each country maintained its own flag carrier. Even aviation isn't immune to the laws of economics, however.
Mindful of the demise of Swiss-air and Sabena and of the horrid state of airline balance sheets worldwide, Air France and Dutch carrier KLM Royal Dutch Airlines put aside national pride and came to terms on a E 784 million ($980 million) merger in September.
The deal will leapfrog second-place Air France past British Airways, making it Europe's largest carrier and the world's No. 3, after American Airlines and Delta Air Lines. The enlarged carrier is expected to have annual revenues of about E 19 billion, operate a fleet of 540 aircraft and carry 63 million passengers a year.
Size doesn't guarantee profits, of course, but Air France CEO Jean-Cyril Spinetta and his KLM counterpart, Leo van Wijk, expect the merger to generate savings of about E 440 million a year.
KLM had been in on-again, off-again talks with British Air for years. So why did Air France succeed? Complementary route structures, for one. The combined group will focus northern European and Asian traffic, under the KLM brand, at Amsterdam's Schiphol Airport, and southern European, North American and African traffic, under Air France's wing, at Paris's Charles de Gaulle Airport.
Perhaps more important, national regulators are becoming more pragmatic. European Union governments have overcome jealousies about controlling their own air traffic rights and granted the EU's executive commission authority to negotiate the region's aviation rights with the U.S. The switch eased worries at KLM that its most vital routes would be sacrificed in a cross-border takeover.
"There's a dynamic of changing rules that helps consolidation," says Jean-Yves Helmer, the Lazard Frères et Cie. banker who advised Air France. -- T.B.
SALE DAZE AT SUEZ
Gérard Mestrallet transformed a financial services firm, Suez, into a global water, waste and power company during an acquisition spree in the latter half of the 1990s. But just as the revamped enterprise was reaching what he termed "critical mass," the world economy slumped. Paris-based Suez's profits all but dried up, and its share price fell 51 percent in 2002. Investors feared that Suez, weighed down by E 27 billion ($33.8 billion) of loans from its takeover binge, would fall into the same debt trap as France Télécom and Vivendi Universal.
Mestrallet concluded that the only way to avoid that predicament was to consolidate the core utility businesses and slash Suez's debt by at least one third. So he kicked off what was arguably 2003's most impressive balance-sheet cleanup, reducing its debt by E 16 billion.
* In April, Suez sold its 9.3 percent stake in Dutch-Belgian bank and insurer Fortis for E 1.94 billion. The deal involved a simultaneous block trade and mandatory exchangeable bond offer by Suez. UBS Warburg handled the E 745 million block trade, reportedly paying Suez E 739.4 million for 50 million shares, which the bank then sold to investors for a profit of roughly 0.75 percent of the shares' ultimate sale price. UBS also underwrote the E 1.19 billion, three-year bond issue, earning about 1 percent for its troubles. The complicated exchange formula basically allows Suez to benefit from any increase in Fortis's share price over the next three years.
* The very next month Mestrallet sold Northumbrian Water for nearly E 3.1 billion in one of the year's biggest and most innovative leveraged buyouts. Suez pocketed roughly E 2.92 billion, or 94 percent, of the purchase price paid by a buyout consortium of roughly 40 investors led by Deutsche Bank. Suez re-invested the remaining 6 percent, or E 185 million, in the deal's highly leveraged buyout vehicle, Aquavit. "It was a great way to strengthen our balance sheet," says Mestrallet. Suez extracted "almost all of the equity value" of the subsidiary, the CEO explains, yet "remains the largest shareholder" and retains effective control of the British operation.
* In September, Mestrallet orchestrated one of the biggest-ever U.S. LBOs, spinning off water-treatment company Ondeo Nalco for $4.35 billion to a consortium consisting of Apollo Management, Blackstone Group and Goldman Sachs Capital Partners.
Mestrallet has one last big sale item: the company's media holdings, which include a 37.4 percent (roughly E 2 billion) stake in French broadcaster M6. -- D.L.
YELL GETS THE NUMBER RIGHT
In July, London's Apax Partners and Dallas's Hicks, Muse, Tate & Furst pulled off Europe's biggest initial public offering since 2001.
But what made the London Stock Exchange's listing of 65 percent of British telephone directory business Yell for £1.23 billion ($2 billion) even more noteworthy was that just one year before, the two private equity firms had been forced to pull a similarly priced initial public offering for Yell when the market went sour. U.K. media stocks plunged 40 percent in the month following the announcement of the yanked sale.
"After the pessimism we hit last year concerning the economy and the prospects for media companies, we were able to come back to investors and demonstrate that Yell had done considerably better than anybody expected," says Stephen Grabiner, a partner at Apax. Instead of the flat or declining revenues that many analysts had forecast for Yell, sales and earnings have risen by double digits.
Apax and Hicks Muse acquired Yell in June 2001 from U.K. phone company BT Group in a £2.14 billion leveraged buyout -- the biggest LBO in Europe up to that point.
They put up only £610 million of equity, however, so even though the IPO valued Yell at E 1.9 billion ($2.3 billion), or less than the LBO, the two firms were able to recoup £793.6 million from the sale, for a £183.6 million profit before paying fees to investment banks Merrill Lynch International and Goldman Sachs International. Apax and Hicks Muse each retain a 15 percent stake in Yell. -- D.L.
THE CHINA LIFE PREMIUM
Saving the biggest for last, China Life Insurance Co. got in under the wire, selling 2003's largest IPO -- $3.47 billion in all -- in New York and Hong Kong on December 17 and 18, respectively. And it could have been a lot bigger: Investors sent in $80 billion in subscriptions.
Spurring the stampede is the rapid growth of China's life insurance market, where state-owned China Life has a commanding 45 percent share. The company's premium income and policy fees surged at a compound annual average rate of 49.3 percent in 2001 and 2002, to 47.077 billion yuan ($5.69 billion). This despite the fact that China's per capita spending on life insurance was just $21.38 in 2002. In Japan it's $2,800. "The company's a proxy for China growth, it's No. 1 in its market, and that market is underpenetrated," says Kirsty Mactaggart, managing director of Citigroup's equity capital markets in Asia.
A recent eight-month restructuring pretty much eliminated China Life's badly overdue policies. This persuaded investors to ignore the typical risk premium assigned to mainland IPOs. China Life shares were issued at 1.6 times book value, a steeper multiple than for international behemoths like Axa Group, which trades at 1.29 times book. -- Kevin Hamlin
INDONESIA REOPENS FOR BUSINESS
After Asia's financial crisis in 1997, big global equity deals virtually disappeared from Indonesia's capital markets. Over the next five years, the dozen or so equity sales done annually catered to local retail interest and averaged just $29 million, according to research firm Dealogic. Another setback to overseas institutional sales: the October 2002 terrorist attack that killed more than 200 people on the resort island of Bali.
But on July 14 the country's biggest bank, Bank Mandiri, successfully launched a $327 million IPO, Indonesia's largest since 1996, into a rallying marketplace (up 53 percent year-to-date through early December). It didn't hurt that the government, which was unloading 20 percent of its stake, priced the shares attractively: 1.08 times book value for an institution that controls 24 percent of the country's banking assets.
"If at the beginning of last year you had told anybody that you would be able to get a large privatization and IPO done out of Indonesia, they would have looked at you like you were half mad," says Matthew Kirkby, the Hong Kongbased head of equity capital markets for Asia-Pacific at joint lead underwriter ABN Amro Rothschild. "Mandiri reopened the Indonesian capital markets."
Indeed, three state-owned entities -- Bank Rakyat Indonesia, cement maker Indocement Tunggal Prakarsa and gas distributor Persusahaan Gas Negara -- followed Mandiri to market in the next five months, raising some $722 million via IPOs and a share placement.
Mandiri's $296 million international institutional tranche generated more than $2 billion in bids. With a 26 percent return on equity and a 2 percent nonperforming loan rate (down from 71 percent three years ago), "we have a good story to tell," says CFO Keat Lee. By early December, Mandiri shares had jumped 52 percent. -- K.H.
Gazprom is growing up. Russia's largest resource company, with $16 billion in annual revenue and one fifth of the world's known natural gas reserves, was once known for diverting receivables to murky, management-linked subsidiaries. No more. Alexei Miller, Gazprom's 41-year-old Putin-era CEO, took world markets by storm this past February with a $1.75 billion, ten-year bond issue, the largest-ever corporate bond offering from an emerging market.
Lead managers Dresdner Kleinwort Wasserstein and Morgan Stanley were originally looking to raise $750 million, but they opened the register when road shows elicited $6 billion worth of orders at 9.63 percent, 575 basis points over U.S. Treasuries. That closed to 395 points by mid-December. The monster issue set the table for a total of $8 billion in Russian corporate bond issuance in 2003, including an additional E 1 billion ($1.25 billion) offering from Gazprom itself in September. In October, Russian sovereign debt earned an investment-grade rating from Moody's Investors Service.
Gazprom's timing was exquisite. The bond launched a week after U.K. oil company BP announced it would pay $6.75 billion for half of Russian oil company TNK-Sidanco (see related story page 55), instantly causing many investors to rerate Russia. Underwriters evidently did enough eye-glazing due diligence on Gazprom's hundreds of subsidiaries to pass disclosure standards for selling in the U.S. And finance director Boris Yurlov, brought in by Miller in July 2002, convinced buyers they could trust the new Gazprom with their money.
Yurlov is looking to raise a further $5 billion this year and trying to finagle longer terms and lower interest rates for Gazprom's hodgepodge of bank loans and promissory notes. Will the late-October arrest of Russia's top oilman, Yukos CEO Mikhail Khodorkovsky, crimp Yurlov's ambitions? Olivia Smith, who ran the Gazprom syndicate from DKW's London office, says no. "The noise surrounding Yukos saw some market weakness" in Russian bonds, she says. "But the upgrade in the sovereign credit brought in a number of new investors." -- C.M.
OFF THE ROAD IN SINGAPORE
Singapore Telecommunications' 684 million Singapore dollar ($391 million) spin-off of its Singapore Post subsidiary was a pretty ho-hum IPO except for one detail. It was launched May 6, near the height of Asia's deadly outbreak of severe acute respiratory syndrome. As a result, bankers and SingTel and SingPost executives sold the global offering without ever leaving the city-state.
SingPost was the only Asian company listed during April and May, when lengthy quarantines, travel restrictions and widespread fear halted most deal making in the region. So the corporate managers and their bankers stayed home and relied on videoconferencing and telephones to woo investors. In all, they conducted 80 hours of meetings in 11 days with 125 investors in France, Hong Kong, Japan, the U.K. and the U.S. To ease the stress, a massage chair and a karaoke machine were installed for the bankers and financial officers.
"We couldn't have reached so many investors by physical road show in the same time frame," says Yew Ker Ling, SingTel's director of corporate development. Adds Tan Jeh Wuan, who runs equity capital markets at co-underwriter DBS Group Holdings, "A complete virtual road show like this had never been tested before."
It wasn't just hardheadedness that prompted the companies to push ahead. In light of the uncertainty SARS created, DBS and co-underwriter UBS Capital Asia Pacific reckoned that investors would be interested in defensive plays like the shares of Singapore's dominant mail delivery service. They were right. The IPO was nine times oversubscribed and priced at the top end of projections.
Investors were "actually very grateful that we were sensitive enough not to put them on the spot with a physical road show," says Tan. There were other benefits: more meetings in less time than usual, no travel or hotel costs, no jet lag and no lost luggage. -- K.H.
REDIALING PAYS OFF FOR HUTCHISON
If at first you don't succeed . . .
Hong Kong conglomerate Hutchison Whampoa had to cancel a E 1 billion ($1.2 billion) debt offering in October 2002 because investors refused to finance another freewheeling mobile network operator at less-than-sky-high interest rates. Hutchison had plunked down $12 billion to win 3-G licenses in ten countries as part of a plan to invest $21 billion in a technology that promises to deliver high-speed Internet access, videoconferencing and state-of-the art games but is untried.
Group finance director Frank Sixt kept plugging away at raising money, nonetheless. The company sold a $1 billion ten-year global bond in February 2003, then reopened the issue in April and May to raise a further $2 billion.
Last June, Standard & Poor's downgraded Hutchison from A to A because of its grand 3-G plans. The very next month Hutchison went ahead and paid relatively high rates to issue a E 1 billion ten-year bond.
The real coup came in November. Aided by a rally in wireless stocks and a stronger global economy, Hutchison sold $5 billion of bonds in the largest-ever debt deal in Asia outside of Japan. Demand was so strong that Hutchison boosted the size from $3 billion, and one $1.5 billion tranche came with a 30-year maturity.
"What Hutchison's management demonstrated to investors is that this financing would, by lengthening its debt-maturity profile, reduce cash flow stresses and thus put it in much better financial shape," says Harvey Lee, head of debt syndication in Asia for joint book runner Goldman Sachs (Asia). The financings, says Lee, "reestablished Hutchison as one of the most sophisticated issuers in Asia." -- K.H.
PARMALAT'S MILK DUD
The expiration date for Parmalat Finanziaria was December 27. That's when a court in Parma, Italy, declared the food giant, best known for producing milk with a long shelf life, insolvent and cleared the way for Europe's biggest and most shocking 2003 bankruptcy to proceed.
The magistrate's ruling came just days after Parmalat's auditors said a E 3.95 billion ($4.94 billion) bank account the company had claimed on its balance sheet simply didn't exist. Prosecutors raised the possibility that as much as E 9 billion might be missing and promptly arrested former chairman and chief executive officer Calisto Tanzi, whose father founded the local delicatessen and milk cooperative that grew into Italy's biggest food company,
Under a special decree aimed at speeding Parmalat's restructuring, the government appointed turnaround expert Enrico Bondi to run the company, which has 36,000 employees in 30 countries.
Bondi's task was growing as 2003 ended. Estimates of Parma-lat's debt now run as high as E 10 billion, way beyond the E 6 billion analysts initially predicted Bondi might retrieve by selling Parmalat's milk, juice and bakery operations in Brazil, Italy and North America.
Parmalat's quick demise and a raft of regulatory investigations had its bankers and auditors scrambling for cover. The Securities and Exchange Commission filed a lawsuit charging that Parmalat had committed fraud when it sold about $1.5 billion in bonds in the U.S. Bank of America Corp., meanwhile, said Parmalat presented a false document in 2002 to prove that the disputed E 3.95 billion was held by a Cayman Islands subsidiary. Citigroup defended a complex special-purpose vehicle it created for Parmalat, appro- priately named buco nero -- Italian for black hole. Officials at Grant Thornton and Deloitte & Touche, Parmalat's former and current auditors, respectively, were scheduled to be questioned by Italian authorities.
"Depending on the outcome of the ongoing investigations, there could well be a deluge of legal claims from investors and creditors," says Commerzbank Securities credit analyst Philip Crate. -- Rob Cox
THAT'S RIGHTS, NOT RITES
In happier times the most pressing question for the world's largest property and casualty insurer, Germany's Allianz Group, was what to do with excess capital. No more. Allianz's E 26 billion ($32.5 billion) purchase of faltering Dresdner Bank in July 2001, combined with collapsing equity markets and falling interest rates, forced company executives to go to shareholders last spring to raise E 4.4 billion to replenish capital through Europe's second-largest-ever rights offering.
On March 14 Allianz co-CFO Paul Achleitner called bankers from Citigroup; Deutsche Bank; Dresdner Kleinwort Wasserstein; Goldman, Sachs & Co.; and UBS to Munich the next day. His offer: a global coordinator role if they did a hard underwriting, meaning that if they couldn't sell the rights, the bankers would own the shares. Time was short. "Allianz wanted to announce the rights issue at their annual general meeting on March 20," recalls Mark Pohlmman, managing director for Germany on UBS's equity capital markets team. The bankers agreed.
Circumstances couldn't have been much worse. The rating agencies had put Allianz on credit watch, and its stock was down 50 percent in 2003, following a 75 percent drop in 2002. The war in Iraq was getting under way, and Allianz had just reported a E 1.2 billion loss for 2002, its first shortfall since World War II. Further, it had to write down E 5.5 billion in equity investments.
Investors were understandably skeptical. "We felt we were paying for management's mistakes," says Helmut Hipper, a senior portfolio manager at Union Investment in Frankfurt. Ultimately, Allianz and its bankers convinced big shareholders like Hipper that the insurer's fundamentals were sound. The company was even able to raise the share price from E 30 to E 38.
So far no one's complaining. Allianz got its money, and its stock has jumped 130 percent since. "A rights issue is not an admission of failure," Achleitner insists. "If you talk to our shareholders, they will say it was a smart move at the right time." -- Andrew Capon
CALLING UP 'MISTER CASH'
Thierry Breton's code name says it all: "Mister Cash." That was the alias the French finance ministry assigned him in secret talks leading up to his appointment as chairman and chief executive of France Télécom 15 months ago. The 49-year-old Breton's brief: Bring the state-controlled telephone company, which had amassed E 68 billion ($85 billion) in debt during former chief Michael Bon's three-year acquisition spree, back from the brink of insolvency.
Breton, former head of French electronics group Thomson, lived up to his billing. He raised more than E 20 billion last year, giving France Télécom room to maneuver. "Although the French state gave a considerable boost, Breton played the part of deal maker magnificently, which means we can finally focus on France Télécom's considerable profit potential rather than its debt," says Paul Norris, a telecom analyst at Lehman Brothers in London.
In January came a three-part, E 5.65 billion bond issue, Europe's biggest in 2003, that permitted France Télécom to refinance debt falling due last year. The offering was more than four times oversubscribed, allowing underwriters to nearly double the size of the original E 3 billion total.
Then Breton recapitalized the company in March with the world's biggest rights issue ever, E 15.35 billion. The state, which owns 54 percent of France Télécom, picked up E 9.25 billion of the issue, with investors subscribing to the rest. As mammoth as the sale was, the company's stock has held firm at E 21 per share, its preoffering level. That's more than three times its price when Breton arrived.
The floppy-haired CEO isn't done, though. In September he announced that France Télécom was increasing its 86.4 percent stake in European mobile phone operator Orange to 100 percent through a E 5.5 billion share swap. Breton's goal of bringing France Télécom's debt down to E 35 billion by 2005 now looks easily achievable, especially with full ownership of a cash cow like Orange. -- D.L.
SUMITOMO'S DEBT COUP
When Sumitomo Mitsui Banking Corp. closed its books for fiscal year 2002 last March, it had the highest nonperforming-loan ratio of any of Japan's four megabanks: 8.9 percent. But SMBC also had a plan for beating the bad-loan problem that the other banks did not.
Unveiled last October, the plan comes in two parts. First, a joint venture loan-purchase fund led by Goldman, Sachs & Co., with SMBC as the junior partner, is buying
¥1 trillion ($9.2 billion) of troubled SMBC loans, or 26 percent of the total, over the next 15 months to get them off the bank's balance sheet. Second, an entity controlled by SMBC's holding company, Sumitomo Mitsui Financial Group, but also including Goldman and investment bank Daiwa Securities SMBC Co., is going to restructure the more solvent of the bank's arrears borrowers.
"The beauty of the loan disposal scheme is that SMBC will get the NPLs off its books by selling them to a fund it doesn't control but will retain links with borrowers by helping them restructure," says Takeharu Nagata, deputy president of SMBC. Big Japanese banks have for the most part sold off bad loans to foreign loan traders or to the state-owned Resolution and Collection Corp., thus cutting ties with borrowers.
SMBC and Goldman must still agree on prices for the loans to be sold to the loan-purchase fund. That could be tough, but Goldman's Japan chairman, Masanori Mochida, isn't worried. Goldman and Sumitomo have worked closely together ever since the City bank helped out the then-private Wall Street firm by taking a 15 percent stake in it in 1985 (SMBC sold its last Goldman shares in 2002). "The level of trust is there, and we've already proved we can work together," says Mochida. -- C.S.
In March many investors were convinced that giant French engineering company Alstom was headed for bankruptcy. Its shares, battered by concerns about E 5 billion ($6.25 billion) in liabilities stemming from lawsuits filed over the production of faulty gas turbines, had fallen to E 0.74 from E 10 a year before, and it faced a E 1.8 billion debt payment in April 2004.
By August, Alstom finance director Philippe Jaffré had put together a E 3.2 billion financing package that should see the company through. Jaffré even persuaded French Finance Minister Francis Mer to make the first state investment in a private company since president François Mitterrand was in office in 1986.
Begun in November and slated to be completed this month, the overall bailout offering includes a E 900 million five-year convertible bond; a E 300 million 20-year convertible bond, reserved for the French state; a E 200 million 15-year subordinated bond, also being taken up entirely by the state; a E 300 million rights issue; and a E 1.5 billion syndicated bank loan.
Alstom, France's 15th-biggest company, which takes in about E 17 billion annually and makes power-generation systems, high-speed trains and ocean liners, isn't out of the woods yet, however. The European Union's Competition Commission is investigating whether the government backing amounts to an illegal subsidy.
Jaffré, Alstom CEO Patrick Kron and Mer insist the deal doesn't undermine competition. "The state is acting like any other lender or investor would," says Jaffré, who once ran oil company Elf Acquitaine. "We could have put this package together without state funds, although it is true the government's participation helped us wrap it up quickly."
Jaffré maintains Alstom "will get the financing we need." Investors are betting, cautiously, that he's right: Alstom shares recently hit E 1.59, a 115 percent improvement over March levels. -- D.L.
KFW'S DEUTSCHE LINK
As the biggest German borrower after the federal government, the state-owned lending agency KfW knows it has to seize market opportunities when they arise. So with demand for convertible bonds booming and its stake in Deutsche Telekom gaining in value, KfW pounced in July. Its E 5 billion ($6.25 billion) issue of five-year bonds exchangeable into shares of the German phone giant was the largest equity-linked bond ever issued in Europe. "The combination of our triple-A rating and the most-liquid DAX share created an asset class of its own," says Günther Bräunig, general manager at KfW.
The German government has relied on KfW in recent years to reduce its industrial holdings rather than sell them directly into a depressed equity market. KfW holds nearly 17 percent of Telekom, worth about E 10 billion, bought at a discount from the government over several years. The exchangeable bonds, if exercised, would release a stake of nearly 6 percent in the company. The bonds are exchangeable at a 38 percent premium to the Telekom share price at the issue date, and Germany's revenue-hungry Treasury, per its agreement with KfW, would reap most of the benefit of that premium. The 0.75 percent coupon on the bonds was 3.2 percentage points below the five-year swap rate.
With demand from convertible arbitrage funds, which bought about 60 percent of the issue, remaining strong, KfW's record may not last long. "There's room for bigger deals," says Martin Fisch, head of equity-linked origination at colead manager Deutsche Bank. -- T.B.
FRANCE SETTLES ONE U.S. DISPUTE
Even as France noisily undercut U.S. policies toward Iraq, its government pleaded behind the scenes for a little understanding regarding the criminal activities of Crédit Lyonnais, a formerly state-owned bank. In December, after seemingly endless negotiations, Crédit Lyonnais and the French government settled U.S. charges -- spelled out in a 55-count, 195-page indictment -- that the bank had cheated 400,000 policyholders of Executive Life Insurance Co. out of billions of dollars.
In an era in which incidents of corporate fraud and venality appear as common as highway speeding violations, the breadth of the bank's acts and its decadelong cover-up still astound. The U.S. Justice Department has said that the $771.75 million in fines and penalties, much of which is being paid by the French government, was believed to constitute the biggest settlement in a criminal case in U.S. history.
The deal resulted in the conviction of Crédit Lyonnais, which might have had to shut down its significant U.S. operations if it hadn't settled, and a French government entity, Consortium de Realisation Enterprises, on charges of knowingly and fraudulently skirting the Bank Holding Company Act, which prohibited them from owning a nonbank entity such as Executive Life. U.S. prosecutors alleged that French insurer Mutuelle d'Assurance Artisanale de France, which bought Executive Life, was acting as a front for Crédit Lyonnais, which wanted to acquire the California-based insurer's junk bond portfolio. Another participant in the scheme: Artemis, a special-purpose investment vehicle owned by French billionaire François Pinault, who as head of Financière Pinault and Pinault-Printemps-Redoute owns Gucci and Christie's. Artemis bought some of the bonds from the bank to help conceal Crédit Lyonnais's controlling role.
The settlement does not extend to six prominent French businessmen -- two former Crédit Lyonnais chairmen, their two seconds-in-command, a former managing director of CDR and a consultant, who remain under U.S. indictment. -- David McClintick
CHINA EMBRACES THE BONDS OF CAPITALISM
October was a big month for China. It put its first manned spacecraft into orbit and then launched a $1.5 billion global bond that investors snapped up at the tightest spreads ever achieved by any Asian borrower outside Japan. Moody's Investors Service's upgrade of China's sovereign debt to A2 from A3 that same month helped smooth the flight path for the bond sale, China's first since May 2001.
The historic two-part global offering included a ten-year, $1 billion tranche priced at a scant 53 basis points over ten-year U.S. Treasuries, roughly the same rate enjoyed by U.S. mortgage agencies Fannie Mae and Freddie Mac. The five-year, E 400 million ($525 million) tranche sold at a razor-thin 7 basis points over Euribor, the rate at which European banks lend to one another.
Even at record tight spreads, both portions were nearly two times oversubscribed. The successful deal "reflected China's strength, its economic growth, its reform policies and investors' optimism over China," says Dennis Zhu, head of the Greater China operating committee at J.P. Morgan Chase & Co., a co lead manager on the dollar portion of the deal.
China's objective was to introduce international investors to its new leadership under President Hu Jintao and Premier Wen Jiabao, who took control in March. In a road show before the sale, vice minister of finance Li Yong answered questions from 150 institutional investors in Asia, Europe and the U.S. about everything from banking reform to the country's retirement system. Says J.P. Morgan's Zhu, "Investors want to know what's going on in China, and China wanted to tell the world what's going on." Mission accomplished. -- K.H.
BANKING ON IRAQ'S RECOVERY
P resident George W. Bush's plan to turn Iraq into a bastion of free-market democracy may look overly optimistic amid the continuing attacks on coalition forces. But a group of banks led by J.P. Morgan Chase & Co. are betting that Washington will succeed. J.P. Morgan leads a consortium of 13 international banks that in August won a contract to operate the new Trade Bank of Iraq.
This was no Halliburton-style sweetheart deal. Attracted by the commercial prospects of doing business with the world's second-largest holder of oil and gas reserves, no fewer than six banking consortia bid for the contract. And the J.P. Morgan investment banker who won the contract, Daniel Zelikow, served in the Clinton administration, no less, as the Treasury's point man on Mexico.
"We have a strong Middle East franchise, and we regard Iraq's economic recovery and reintegration into the global economy as being strongly in everyone's interest," says Zelikow.
Under an arrangement with the Coalition Provisional Authority, the banks will provide letters of credit for imports to Iraq. That is essential to reestablishing trade for the insolvent country. (In a parallel move, James Baker, President Bush's special envoy on Iraqi debt, won France's and Germany's pledge to work toward reducing Iraq's $120 billion debt.)
The banks started modestly, backing imports of $7.9 million of medical supplies in December, but volumes should grow. The Trade Bank replaces the United Nations' oil-for-food program, which imported $46 billion of goods in seven years. -- T.B.
ARGENTINA'S PROPOSED HAIRCUT
Maybe Argentina figured it had nothing to lose. Two years after it defaulted on $150 billion in foreign debt, Economy Minister Roberto Lavagna launched a much-needed debt rescheduling last September with an offer that left private creditors aghast: The country proposed to pay just 25 cents on each dollar of $90 billion in claims.
Guillermo Nielsen, who as finance secretary is Buenos Aires's chief debt negotiator, defended the ultrashort haircut, arguing that comparisons with the 42 percent write-off on Russia's debt in 1999 or the 27 percent discount on Ecuador's debt in 2000 were unfair.
A more accurate historical example, he contended, was the postWorld War II restructuring of Germany's debt. That accord, reached at a 1952 London conference, resulted in a 77 percent write-off and a flexible repayment schedule. "Creditors are gradually coming out of their state of denial" about the magnitude and the complexity of the Argentinean situation, he said.
A government source who requested anonymity predicts that two thirds of Argentinean bondholders will accept the offer and one third -- divided between deep-pocketed investors, who can hold out in hopes of a better deal, and "vulture" speculators -- will not. The secondary market is pricing the debt as if it will be refinanced at 60 percent below face value.
Miguel Kiguel, head of the Buenos Aires office of the Macroeconomic Advisory Group and
onetime chief adviser and undersecretary of international finance at the Ministry of Economy and Production, says Lavagna and Nielsen "have implicitly recognized that they need a way out of the 75 percent straitjacket." -- Judith Evans
A DEAL IN TURKEY TOO HOT TO TOUCH
Some deals are best left unmade. In September the U.S. granted Turkey an $8.5 billion loan, one of the U.S. Treasury's biggest since the Asian financial crisis. The facility was intended to help offset Turkish economic losses and ease tensions within the country prompted by the U.S. invasion and occupation of neighboring Iraq. Turkey, a U.S. ally and one of the few predominantly Muslim countries in the region with a strongly secular society, is now reluctant to touch the money.
Before the war Turkey's ruling Justice and Development Party leader, Recep Tayyip Erdogan (who is now prime minister), supported allowing the U.S. access to northern Iraq through its territory. But its parliament, reflecting Turks' opposition to the invasion of a Muslim country, quickly voted down that idea. The turnabout strained relations between Turkey and the U.S.
Once the loan was announced, however, the parliament voted to send troops into northern Iraq to aid in reconstruction. Within weeks a suicide bomber hit the Turkish embassy in Baghdad, killing two people. In early November, Turkey and the U.S. agreed that opposition from Kurds in northern Iraq made any troop deployment unworkable.
After just a few days came deadly terrorist bombings of two synagogues in Istanbul, followed five days later by bombings of the British consulate and the local headquarters of London-based HSBC.
To date, Turkey has not drawn down a penny of the giant loan. "The Turks have not requested disbursement," says U.S. Treasury spokesman Tony Fratto. "There's a lot going on. It is really up to them." The Turkish government, under attack from opposition parties, is seeking U.S. assurance that the loan isn't explicitly conditioned on its backing the U.S. occupation of Iraq. "We are continuing to discuss with the U.S. administration the use of this fund," says Tuluy Tanc, a spokesman at the Turkish embassy in Washington. -- Deepak Gopinath
A LULA OF A BOND OFFER
To panicky investors, Luiz Inácio Lula da Silva represented the capitalist Antichrist. The prospect that the leftist might actually be elected Brazil's next president drove the interest rate spread between Brazilian government bonds and U.S. Treasuries to a dizzying 24 percentage points.
Lula was indeed elected, in November 2002, and as soon as he was sworn in the following January, he did something unexpected: He mollified markets with a largely orthodox economic policy that sent exports soaring and strengthened the real. In April credit rating agency Standard & Poor's upgraded the outlook on its B+ rating on Brazil from negative to stable, facilitating the country's reentry into the capital markets.
The $1 billion, five-year so-called Brazil Global 2007 straight bond deal, originally slated for $750 million, was oversubscribed more than sevenfold and priced to yield a spread of 783 basis points, or one third the level at the time of the preelection Lula panic.
The Lula people "picked the time perfectly -- they had been in place long enough for markets to see that this was a constructive, orthodox management," says Dan Vallimarescu, head of Latin America capital markets for Merrill Lynch & Co., which was colead manager with UBS. Adds John Welch, head of Latin American research at WestLB in New York, "Everybody piled in -- retail, institutional and crossover investors." By late December the spread on the '07s had shrunk to 325 basis points.
Thanks to rising confidence in its progress, Brazil came back to the market four more times in 2003, raising $4.5 billion for the year. By mid-October the country was able to sell $1.5 billion of dollar- denominated, seven-year bonds at a 9.45 percent interest rate, up from an initial planned offering of $1 billion. The spread: 561 basis points. (The bonds were trading at 428 basis points in late December.) "It was important that we issued below 600," says Joaquim Levy, the Finance Ministry's secretary of the Treasury. "And it was the first time in several years we were able to issue a one-digit yield."
The robust demand for the 2003 deals is generating enthusiasm for forthcoming Brazilian issues -- $5 billion worth this year alone, says the Lula government. -- Lucy Conger
* Air France
* KLM Royal Dutch Airlines
Size: E 784 million
Adviser to Air France: Lazard
Advisers to KLM: ABN Amro, Citigroup
Size: E 5.73 billion
Advisers to Alcan: Lazard, Morgan Stanley International
Advisers to Pechiney: BNP Paribas, Goldman Sachs International, J.P. Morgan, Rothschild et Cie Banque
* Alfa Group, Access/Renova Group
Size: $6.75 billion for a 50 percent stake in TNK-Sidanco
Advisers to BP: Merrill Lynch International, Morgan Stanley, United Financial Group
* London Clearing House
Size: E 1.2 billion merger of LCH and Clearnet (combined value)
Adviser to LCH: Citigroup Global Markets
Adviser to Euronext: UBS
* William Morrison Supermarkets
Size: £3 billion
Adviser to Morrison: ABN Amro
Advisers to Safeway: Citigroup Global Markets, HSBC Holdings
* News Corp.
* General Motors Corp.
Size: $6.7 billion cash and stock purchase of Hughes Electronics Corp.
Advisers to News Corp.: Citigroup, J.P. Morgan Securities
Advisers to General Motors: Bear, Stearns & Co.; Merrill Lynch & Co.
Advisers to Hughes: Credit Suisse First Boston; Goldman, Sachs & Co.
* Ripplewood Holdings
* Japan Telecom Holdings Co.
Size: ¥261 billion purchase of Japan Telecom Co.
Adviser to Ripplewood: Goldman Sachs (Japan)
Adviser to JT Holdings and Vodafone Group (majority owner of JT Holdings): UBS Securities Japan
* Telecom Italia
Size: E 3.74 billion for 61.5 percent of Seat Pagine Gialle
Advisers to Silver: BNP Paribas, Credit Suisse First Boston
Advisers to Telecom Italia: Citigroup, Lazard
Adviser to Seat: MCC
* Silvestor U.K. Properties
* Canary Wharf Group
Size: £5.23 billion
Advisers to Silvestor: Morgan Stanley, N.M. Rothschild & Sons
Advisers to Canary Wharf: Cazenove & Co., Lazard
* UniCredito Italiano
* Assicurazioni Generali
Size: E 960 million for a 3.5 percent stake in Generali
* Allianz Group
Size: E 4.4 billion rights issue
Lead bankers: Citigroup; Deutsche Bank; Dresdner Kleinwort Wasserstein; Goldman, Sachs & Co.; UBS
Size: E 3.2 billion rescue package
Adviser: Lehman Brothers
Equity underwriters: BNP Paribas, Société Générale, Crédit Industriel et Commercial
Lead banks (bond issues): BNP Paribas, Crédit Agricole IndosuezCrédit Lyonnais, Société Générale
Lead banks (syndicated loan): Bayerische Landesbank, Commerzbank, HSBC, J.P. Morgan
* Bank Mandiri
Size: $327 million IPO
Lead bankers: ABN Amro Rothschild, Credit Suisse First Boston, Danareksa Sekuritas
* China Life Insurance Co.
Size: $3.47 billion IPO listed as American depositary shares in New York (approximately 20 percent) and H-shares in Hong Kong (approximately 80 percent)
Lead bankers: China International Capital Corp., Citigroup, Credit Suisse First Boston, Deutsche Bank
* France Télécom
Size: E 5.5 billion share swap with Orange
Advisers to France Télécom: Goldman Sachs International, Lazard, Société Générale
Advisers to Orange: Deutsche Bank, Merrill Lynch & Co.
Size: E 15.35 billion rights issue
Lead bankers: ABN Amro Rothschild, BNP Paribas, CAI Lazard, Crédit Lyonnais, Deutsche Bank, Goldman Sachs International, Merrill Lynch & Co.
Size: E 5.65 billion bond issue
Lead bankers: BNP Paribas, Citigroup, Deutsche Bank, HSBC, Morgan Stanley
Size: $1.75 billion ten-year bond issue
Lead bankers: Dresdner Kleinwort Wasserstein, Morgan Stanley
* Hutchison Whampoa
Size: $5 billion bond issue in three tranches
Lead bankers: Goldman Sachs (Asia), Citigroup, HSBC, Merrill Lynch
Size: E 5 billion bond exchangeable into Deutsche Telekom shares
Lead bankers: J.P. Morgan Securities, Deutsche Bank
* Parmalat Finanziaria
Size: E 10 billion in debt (estimated)
Restructuring advisers: Lazard, Mediobanca, PricewaterhouseCoopers
* Singapore Post
Size: S$684 million IPO
Lead bankers: DBS Holdings Group, UBS Capital Asia Pacific
Size: E 1.19 billion three-year bond issue and E 1.94 billion sale of 9.3 percent stake in Fortis
Lead banker: UBS
Size: E 3.1 billion sale of Northumbrian Water to Aquavit
Adviser to Aquavit: Deutsche Bank
Adviser to Suez: Morgan Stanley
Size: $4.35 billion sale of Ondeo Nalco to Blackstone Group, Apollo Management and Goldman Sachs Capital Partners
Advisers to investor group: Banc of America Securities; Goldman, Sachs & Co.; J.P. Morgan
Advisers to Suez: UBS, Rohatyn Associates
* Sumitomo Mitsui Banking Corp.
Size: ¥1 trillion loan-repurchase fund
Lead banker: Goldman, Sachs & Co.
* Yell Group
Size: £1.23 billion IPO
Lead bankers: Goldman Sachs International, Merrill Lynch International
Size: 75 percent discount on $90 billion in claims
Size: $1 billion of five-year bonds
Lead bankers: Merrill Lynch & Co., UBS
Size: $1 billion of ten-year bonds; E 400 million of five-year bonds
Lead bankers for dollar tranche: Goldman Sachs (Asia), J.P. Morgan Chase & Co., Merrill Lynch (Asia Pacific)
Lead bankers for euro tranche: BNP Paribas Peregrine Securities Co., Deutsche Bank, UBS Capital Asia Pacific (HK)
* Crédit Lyonnais Settlement
Size: $771.75 million
French principals to the agreement: Crédit Lyonnais; Consortium de Realisation Enterprises; Mutuelle d'Assurance Artisanale de France; Jean-Claude Seys, chairman of MAAF; Artemis; François Pinault; and Patricia Barbizet, managing director of Artemis
U.S. principals to the agreement: Department of Justice; U.S. Attorney, Los Angeles; Board of Governors of the Federal Reserve System
* Trade Bank of Iraq
Lead banker: J.P. Morgan Chase & Co.
Other banks: Akbank TAS, Australia and New Zealand Banking Group, Banco Commercial Portugues, National Bank of Kuwait, Bank Millennium, Bank of TokyoMitsubishi, Crédit Lyonnais, Caja de Ahorros y Pensiones de Barcelona, Royal Bank of Canada, Sanpaolo IMI, Standard Bank Group, Standard Chartered Bank
Size: $8.5 billion loan
Lender: U.S. Treasury Department