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Deck VII - Chapter 10
Deck VII - Chapter 10
CAPITAL MARKET
OFFERS
(CHAPTER 10)
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GLOBAL CAPITAL MARKETS
Issues EBs
Holding Co. Holding Co.
Ownership of X% EB
Holders
Ownership of
(X-t)% retained
Ownership
Sub. Co. of t%
Sub. Co.
Stock Exchange.
INTERNATIONAL BOND STRUCTURES – INDIAN CASES
This is the biggest bond issue from India so far crossing Bharti
Airtel’s $ 2 billion foreign currency bond in May 2014.
The bonds were raised in 3 equal tranches of 5-year US dollar
bond, 10-year US dollar bond and 7-year euro bond. The issue
had the order book of over $8 billion due to renewed investors'
interest in the India energy story. This was a true benchmark
deal in terms of size, tenors, currency mix and pricing,
evidencing the global investor appetite for quality Indian credits
and strength of OVL and ONGC credit.
The 5-year US dollar bond was priced at 160 basis points (bps)
over benchmark US treasury (coupon 3.25%), while the 10-year
US dollar bond was priced at 207.5 bps above the benchmark
(4.622%). The 7-year euro bond was priced at 180 bps over mid-
swaps (2.5%).
INTERNATIONAL BOND STRUCTURES – INDIAN CASES
Reliance Communications – Global Cloud Exchange Ltd, ED, a
subsidiary of Reliance Communications raised $ 350 million
through debt bond issue from overseas market. The issue was made
in 2014 mainly to refinance debt of parent company.
The notes priced at 100% with a coupon of 7 % were non-callable
senior secured Regulation S/ Rule 144A Fixed Rate Notes maturing
in 2019. $ 250 million of the proceeds will be used to refinance the
Standard Chartered Bank Loan Facility entered into by Reliance
Globalcom B.V., and the remaining proceeds will be used for capital
expenditure and general corporate purposes.
The bonds received overwhelming response from the market, and
were significantly oversubscribed. The issue was allocated 22% to
the US, 29% to Europe, and 49% to Asia. By investor type, 78% of
the issue went to fund managers, 13% to hedge funds. 6% to private
banks and 3% to other investors.
INTERNATIONAL BOND STRUCTURES – INDIAN CASES
RIL Perpetual Bond – RIL raised $800 million (Rs 4300 Cr)
through perpetual bonds from overseas market to fund its Rs. 1 lakh
crore capex plan to expand petrochemicals business and ramp up oil
and gas exploration in the next three to four years.
The bond has a coupon rate of 5.875%, making it the first issuance
of perpetual bond below 6% in the world. There is no coupon step up
or rate reset in the pricing of the bond.
A perpetual bond by definition has no option to repay the principal
amount and it is seen as one of the cheapest ways for raising capital.
However, RIL has a call option at the end of five years. The bond is
listed and bond holders can exit through the secondary market.
The only other domestic company to issue a perpetual bond is Tata
Power through its overseas subsidiary in 2012 in a hybrid structure.
INTERNATIONAL BOND STRUCTURES – INDIAN CASES
Alibaba’s IPO (2014) of $ 25 billion is the largest IPO ever till date in
the world surpassing Agricultural Bank of China ($ 22.1 billion in 2010)
and Visa ($19.1 billion in March 2008). IPO was for 320m ADS with a
green shoe of 48m. With the IPO, it became the 4th largest market cap in
technology space after Apple, Google and Microsoft.
Primarily a Softbank backed company, later on Yahoo owned 40%.
Yahoo sold 17% prior to the IPO through a negotiated deal / OFS.
Softbank held 34% and Jack Ma 18%.
The listed company Alibaba Group Holding Ltd is registered in Cayman
Islands. It operates in China through many subsidiaries and affiliates. It
has several layers of intermediate holding companies due to Chinese
FDI regulations.
Alibaba was started as a partnership with a large team of management
partners who had control. This was why it listed in USA and not in Hong
Kong which did not allow dual class shares.
CASE STUDY – ALIBABA