What were the top deals of 2003? ALB set itself the difficult task of singling out the 10 most innovative, groundbreaking and significant deals of the year in the Asia-Pacific region. And here's what we came up with ...
Leading Firms
Rank Firm No. of Deals Deals
- Baker & McKenzie
No. of Deals = 5
Deals = Motorola/SMIC; China Life IPO; Chunghwa Telco IPO; Fortune REIT; Huarong NPL sale
- Linklaters
No. of Deals = 4
Deals = Japan Telecom sale; Korea Pusan Newport financing; CNOOC/Shell Nanhai petro project; Fortune REIT
- Allen & Overy
No. of Deals = 3
Deals = China Life IPO; Korea Pusan Newport financing; CNOOC/Shell Nanhai petro project
- Sullivan & Cromwell LLP
No. of Deals = 3
Deals = TCL merger with Thomson; Chunghwa Telco IPO; Huarong NPL sale
- Clifford Chance
No. of Deals = 2
Deals = Japan Telecom sale; Huarong NPL sale
- Freshfields Bruckhaus Deringer
No. of Deals = 2
Deals = CNOOC/Shell Nanhai petro project; Fortune REIT
- Jun He Law Offices
No. of Deals = 2
Deals = Motorola/SMIC; Huarong NPL sale
- King & Wood
No. of Deals = 2
Deals = TCL merger with Thomson; China Life IPO
- Paul Weiss Rifkind Wharton & Garrison LLP
No. of Deals = 2
Deals = TCL merger with Thomson; Motorola/SMIC;
- Shearman & Sterling LLP
No. of Deals = 2
Deals = Motorola/SMIC; Korea Pusan Newport financing
- Simpson Thacher & Bartlett LLP
No. of Deals = 2
Deals = Japan Telecom sale; Chunghwa Telco IPO
Only a few short weeks into the new year and already the Asia-Pacific region is finding itself under assault once more from a viral strain. With eight confirmed human casualties so far, the spread of bird flu has provided the region with a timely reminder of the havoc caused last year by SARS. Non-essential travel was kept to a minimum in the region during the peak of the outbreak in April and May 2003, with many firms adopting self-imposed travel bans. The net result of this was a number of proposed deals being pushed to the back burner.
"Most project finance work, for example, gets done by investment and commercial banks getting out there and marketing regionally," says Hong Kong-based Robert Milliner, international managing partner with Mallesons Stephen Jaques. "And there was a two-to-four-month period when people were just not travelling, let alone meeting. It was very hard to do face-to-face business, which is what this type of business requires."
Compounding the uncertainty at the time was, of course, the conflict in Iraq. The electricity industry in Korea felt the repercussions of this when a proposal to privatise a number of generation plants owned by state-based electricity generator, distributor and retailer Korea Electric Power Corporation (KEPCO) was shelved just as US troops stormed Baghdad.
And while the Korean government's planned divestiture of its 80% interest in Shinhan Financial Group to Chohung Bank - in a deal worth US$2.82bn - ensured the Asian jurisdiction finished the first half of 2003 as the most active target nation in the region, Thomson Financial statistics confirmed that the year had got off to a rough start.
M&A deal volumes fell dramatically from the US$51.96bn recorded in the first half of 2002 to US$37.11bn in 2003: a drop of 28.58%. And lawyer participation made for even worse reading, with 129 transactions worth US$11.97bn recorded up to the end of June 2003 - down from the 207 deals worth US$37.11bn the previous year.
With few classic project financings closing, a lot of the deals to make the headlines in 2003 were restructuring transactions rather than greenfield project financings - and regulatory inaction coupled with excessive liquidity grinding securitisation activity to a halt, practitioners entered first half of the year in sombre mood.
But just as soccer is a game of two halves, so too was 2003, as the Asian economies illustrated their resilience with a heartening upsurge in activity. Announced deals made something of a recovery, with US$98.70bn of transactions finally recorded by the year-end. And while deal sizes were down for a third successive year in 2003, with investors not having access to funds and refraining from raising money in the capital markets, lawyers reported a resilience in deal quantity.
The busiest sector was the telecommunications industry, with 123 deals recorded and a total value of US$15.44bn. Making up the bulk of that was the region's largest announced and completed deal of the year, China Telecom Corp's acquisition of the six fixed-line assets of China Telecommunications Corp for US$9.68bn. This was just shy of the value of 2002's largest announced and completed deal, China Mobile's US$10.34bn acquisition of China Mobile Hong Kong (BVI).
The next most dynamic sector was banking and financial services with 91 transactions valued at US$11.54bn. The investment and commodity firms sector took the bronze medal position with 968 deals generating US$8.58bn in value.
While there was reluctance in 2003 to turn to the capital markets to raise funds, one or two signs towards the end of the year indicated a possible change on the horizon. The clearest indication was the launch of the Chinese insurance company IPOs, much to the surprise of the skeptics. Some of the largest new offerings of the year were from Asia and they were led of course by the year's largest IPO, China Life Insurance Co. The largest insurer in China went public in December and raised more than US$3bn.
The year's next largest IPO was that of Taiwanese phone company Chunghwa Telecom, which raised US$1.3bn. In such a challenging climate, these deals have helped inject some much-needed confidence in the region and as a result both make our top 10 list. Further IPOs are now expected from China including from chipmaker Semiconductor Manufacturing, China Air, China Steel and electronics Web portal Joyo.com.
Bolstered by its newfound confidence and economic might, the PRC is looking outward and major Chinese corporations are becoming active in the international cross-border M&A market. In recognition of this, we have included in this year's top 10 deals the first transaction in which a PRC company has acquired majority control of a global business from a non-PRC company: TCL's merger with Thomson has created the world's first 'Chinese multinational'.
This is one of five deals in ALB's Top 10 Deals of the Year, 2003 that has a China element to them - repeating the PRC's success of last year. While some other jurisdictions experienced their problems in 2003, China's growth continued unabated, even eclipsing the US as the world's top destination for foreign direct investment, taking US$52.7bn.
But key to the upturn in fortunes generally, say lawyers, is the renewed engagement of the private equity houses. And the big deal of the year - US private equity fund Ripplewood Group's US$2.2bn purchase of Japan Telecom from the UK's Vodafone Group (another ALB top 10 deal) seems to indicate they have now overcome their inability to exit their investments via the stock market. If Chinese travel portal Ctrip.com International's recent IPO is anything to go by, spectacular exits may become the norm in what many practitioners hope will be a much more lucrative 2004.
ALB would like to thank all those firms that assisted with the research for this article. Deals applicable for consideration included debt and equity-linked deals, equity transactions, M&As, project financings, restructurings, securitizations and structured financings. Confidential transactions were excluded.
The criteria used to select the 'Top 10 deals of the year 2003' is subjective. Rather than a quantitative survey of transactions in the region, this list provides recognition to those deals that made the headlines in 2003. Particular emphasis was given to the number and profile of parties involved, the size and complexity of the deal, and its significance to the region.
Special mention goes to Baker & McKenzie, which acted on five of the 10 transactions reviewed. Taking the silver medal this year is Linklaters, which acted on four of the deals. Allen & Overy and Sullivan & Cromwell LLP jointly claim the bronze, with three deals each to their credit.
Deals
Industrial Bank of Taiwan securitisation
What makes it a 2003 top 10 deal? It was Taiwan's first ABS deal and the first to test-drive new legislation - the Financial Asset Security Regulations.
When did it close? The CLO closed in mid-February 2003.
Value of the transaction Taiwan's first asset backed securitisation took the shape of a NT$3.59bn (US$104m) collaterised loan obligation and was backed by 41 corporate quality loans extended to 23 obligors belonging to IBT.
Principal legal advisers
Law Firm (lawyers) Role
Russin & Vecchi (Thomas McGowan) Acted for arranger Societe Generale
Lotus International Law Firm Acted for arranger Societe Generale
The Industrial Bank of Taiwan announced the launch of two successful securitisations in 2003 - the first transactions to take advantage of Taiwan's Financial Asset Security Regulations, enacted in June 2002.
The first transaction - Taiwan's first asset backed securitisation - took the shape of a NT$3.59bn (US$104m) collaterised loan obligation and was backed by 41 corporate quality loans extended to 23 obligors belonging to IBT. IBT originated the transaction, which was arranged by Societe Generale.
IBT mandated Lotus International Law Firm as its local counsel to make the regulatory filings, which were an essential component in securing government approval for the CLO. Lotus acted alongside Russin & Vecchi. The deal was structured to ensure it complied with the new regulatory environment.
As the first transaction to test-drive new legislation, the deal created a template for ABS deals from Taiwan and it was hoped that successful completion would trigger a rush of securitisations. At the time, head of SG Taipei Pascal Sefrin said: "This an important milestone in the development of Taiwan's capital markets and paves the way for the establishment of securitisation as a vital financial tool for Taiwan's businesses."
Four or five more securitisations were planned, including a residential mortgage-backed securities (RMBS) transaction for Chinatrust; an RMBS for First Commercial Bank; a consumer loan securitisation for Cosmos; and an RMBS for Taishin Bank.
And a second transaction did quickly follow, with IBT and SG announcing the launch of an asset securitisation backed by account receivables of World Peace Industrial Corp. The transaction, which was the first AR securitisation in Taiwan, completed in the third quarter of 2003.
Although lawyers, bankers and analysts expected the development of Taiwan's securitisation market, it was always likely to be at a slow pace. The development of an ABS market in Taiwan has traditionally been hindered by the lack of a legal framework and already Taiwan's legislation needs improving and redrafting.
Added to this, companies seem to be taking the view that securitisation represents an interesting funding alternative, with the jury still out as to whether it will prove in the long run to be a core part of companies' funding strategy. Although it remains to be seen whether the appetite is there on the part of the originators, the IBT deal of 2003 has at least shown the way.
Huarong NPL sale
What makes it a 2003 top 10 deal? This was the largest sale of non-performing loan assets in China's history and an important step in the reform of China's banking system. It was the first onshore international and domestic joint venture vehicle for acquiring Chinese NPLs and the first transaction to go through the complete PRC approval process.
When did it close? The sale was signed on 13 March 2003.
Value of the transaction: The International Finance Corporation provided equity and debt financing to support the purchase of a portfolio of NPLs in China - worth RmB10.8bn (US$1.3bn) - owned by China Huarong Asset Management Company by a joint venture established by a Morgan Stanley-led consortium and Huarong.
Principal legal advisers
Law firm (lawyers) Role
Clifford Chance (Stephen Harder, Gao Peiji, Carmen Kan) Acted for IFC as financier
O'Melveny & Myers (Howard Chao, Yi Zhang) Acted as international counsel to consortium
Jones Day Acted as international counsel to consortium (limited matters)
Charles Adams Ritchie & Duckworth Acted as Cayman Islands counsel to special purpose vehicle established by the consortium to invest in the joint venture
Jun He Law Offices Acted as PRC counsel to consortium
Baker & McKenzie Acted as counsel to KTH Capital Management
Sullivan & Cromwell Acted as counsel to UBS AG, one of the winning bidders
International economists monitored this transaction with great interest right up to its signing in March 2003, deciding it was indicative of how serious China was about resolving the sorry financial condition of its banking system.
Some international investors had doubted whether such transactions could be done in China without express authorising legislation, given the difficult legal, regulatory and political issues presented. And when Chinese government approvals for the Huarong transactions took longer than expected, some began to doubt that the transaction would ever be completed.
Such doubts have of course now been allayed, with the Morgan Stanley deal executed in a manner similar to international transactions of this type in other jurisdictions. The purchases of US$1.3bn and US$230m in book value, by a Morgan Stanley consortium and Goldman Sachs respectively, of non-performing loans (NPLs) from China Huarong Asset Management Corporation signaled the first successful international auction of an NPL portfolio in China.
As well as being an important step in the reform of China's banking system, the transactions marked the opening gun for foreign investment in China's distressed asset sector. With China approaching WTO entry in 2001, and thus China's banks becoming subject to international competition, Chinese policy-makers knew they had to do something about the jurisdiction's staggering NPL problem - estimated by some economists to have reached US$500bn.
The Chinese government formed four asset management companies (AMCs), one for each major state-owned commercial bank, to take large pools of NPLs from its respective bank. In 1999, US$150bn in NPLs were transferred to the AMCs at book value, in exchange for 10-year bonds issued by the AMCs, backed by China's Ministry of Finance. The AMCs were now charged with disposing of this huge inventory of NPLs on the best terms possible. But with no domestic institutional investors with sufficiently large pools of capital or with the necessary management knowhow, China targeted foreigners.
China Huarong Asset Management Corporation was the designated AMC for the Industrial and Commercial Bank of China, China's largest commercial bank. With extensive loan documentation files prepared, transparent bidding procedures established, and information distributed to bidders through the internet, the Morgan Stanley consortium and Goldman Sachs bids prevailed in November 2001.
China has a long way to go in resolving its NPL problems, with the jurisdiction's four state-owned banks still possessing more than US$300bn of NPLs. And much needs to be done - such as significantly reducing transaction costs - before financial transactions of this type are the norm. But the Huarong deal seems to indicate that the Chinese government has realised the importance of tackling the issue. Other recent measures include the establishment of a 'financial security' group and a new regulatory agency, the China Banking Regulatory Commission. It is hoped that the Huarong transaction will open the floodgates for many similar deals in the next few years.
Korea Pusan Newport limited recourse financing
What makes it a 2003 top 10 deal? The Korea Pusan Newport limited recourse financing is the first limited recourse financing in Korean private-participation in infrastructure projects. It marks the first time foreign banks and a foreign sponsor have been involved in financing a Korean infrastructure project and it is the first large-scale container terminal project and one of the largest projects to date under Korea's Private Participation in Infrastructure Act.
When did it close? The loan facility agreement for the financing of Korea's Pusan Northern Container Port project was signed and became public on 29 May 2003.
Value of the transaction: The value of the transaction was US$1bn.
Principal legal advisers
Law Firm (lawyers) Role
Linklaters (James Douglass) Acted as international counsel to lead arrangers
Lee & Ko Acted as Korean counsel to lead arrangers
Shearman & Sterling (David Platt) Acted as English counsel to CSX World Terminals
Kim & Chang Acted as Korean counsel to sponsors
Allen & Overy (Simon Black, David Sedgley) Acted as UK counsel to Pusan Newport
The US$1bn financing for the construction of a new terminal at the world's busiest container port in Pusan, Korea set a number of firsts in the Korean project finance market.
It was the first of three large-scale container terminal project and one of the largest projects to date under the Private Participation in Infrastructure Act.
It was also the first limited recourse project financing with the sponsors and lenders assuming the construction and market risk. The financing did not involve a completion guarantee from the sponsors. The initial financing structure of the project included a minimum revenue guarantee from the Korean government. However, after considering the strength of the economics of the project the minimum revenue guarantee was removed, thereby exposing the sponsors and the lenders to full market risk in exchange for a greater potential return.
The Pusan deal was also the first majority non-won debt project finance transaction in Korea. Offshore banks played a significant role in the financing, providing a US$276m facility, which was arranged by Bayerische Hypo-und Vereinsbank AG, Crédit Lyonnais (Hong Kong branch), DZ BANK AG Deutsche Ireland, Banca Intesa (Hong Kong branch) and The Bank of Tokyo-Mitsubishi. Onshore lead arrangers, Kookmin Bank and Samsung Life Insurance, arranged a KRW245bn facility.
Finally, the staggered completion of the project involved unique considerations both from a commercial and a legal perspective. The project is to be completed in two phases of three berths each, involving quite complex construction and crane delivery arrangements between the EPC contractor and the crane supplier as well as financing arrangements to ensure sufficient liquidity at the completion of each phase.
Linklaters acted as international counsel to the arrangers. Hong Kong based project finance group head James Douglass led the firm's team on the deal. Lee & Ko provided Korean counsel. The main sponsors were lead local sponsor Samsung Group and CSX World Terminals of the US, with a group of local companies - including Hyundai, Hanjin and Daewoo - providing the remaining equity. David Platt of Shearman & Sterling in Hong Kong led the team advising CSX as English counsel with Kim & Chang providing Korean counsel to the sponsors.
Meanwhile, Hong Kong-based partner Simon Black, together with Bangkok-based partner David Sedgley, led the Allen & Overy team advising Pusan Newport Co, a joint venture company established by the largest industrial conglomerates in Korea.
A&O's involvement included advising the project company on the terms of the concession agreement, O&M agreement and construction arrangements and limited recourse financing for the project. Black said: "With this financing structure, not only have the risks of the project been fairly allocated, the parties involved will also receive significant returns if the market projections are met."
Fortune REIT
What makes it a 2003 top 10 deal? This deal marks Asia's first cross-border real estate investment trust. It is also the first listed REIT involving a Hong Kong developer and Hong Kong properties and the first Singapore-listed REIT with non-Singapore properties.
When did it close? The transaction closed in July 2003.
Value of the transaction: The value of the transaction was HK$3.2bn.
Principal legal advisers
Law firm (lawyers) Role
Linklaters (Dean Lockhart) Acted for Fortune REIT
Allen & Gledhill Acted as transaction counsel in Singapore
Baker & McKenzie (Milton Cheng, Angela Lee) Acted for sponsor and vendor
Freshfields Bruckhaus Deringer (Clive Rough, David Simpson) Acted for underwriters
Shook Lin & Bok Acted for trustee
In July 2003, Singapore's (and Southeast Asia's) largest banking group, DBS Bank, scored a coup by snatching Fortune REIT, the maiden property trust vehicle of Hong Kong billionaire Li Ka-shing, for listing on its exchange.
Launched by Hong Kong's Cheung Kong (Holdings), Fortune REIT was the first Singapore-listed property trust investing in Hong Kong properties and the first cross-border trust in Asia. The aggregate acquisition value of the properties sold by Cheung Kong was approximately HK$3.2bn. Fortune REIT raised in excess of HK$2bn through its IPO in Singapore and an international placement to institutional and other investors. Cheung Kong was the sponsor of Fortune REIT and subscribed for approximately 27.4% of the units of Fortune REIT.
The offer proceeds - an approximate total of HK$1.04bn (US$133m) - together with other monies raised were primarily used to fund the purchase of the five Hong Kong shopping malls from Cheung Kong.
Linklaters took the lead role in structuring and executing the Fortune REIT transaction. Lawyers in Hong Kong (led by partner Dean Lockhart) and Singapore - through the firm's JLV partner Allen & Gledhill - acted as counsel to the REIT, drafting the IPO prospectus, establishing the REIT and obtaining all the relevant regulatory approvals.
Using lawyers out of both its Hong Kong (led by Clive Rough, head of Asian structure finance) and Singapore offices (managing partner David Simpson), Freshfields Bruckhaus Deringer advised DBS Bank as global coordinator, lead underwriter and sole bookrunner on the deal. Other advisers included Baker & McKenzie acting on behalf of Cheung Kong and Allen & Overy's JLV firm in Singapore Shook Lin & Bok, which acted for Bermuda Trust - the trustee of Fortune REIT.
As the deal was the first REIT to involve Hong Kong real estate, it triggered a lot of public discussion on the implementation of a REIT code in Hong Kong to enable Hong Kong investors to take advantage of this emerging asset class. The REIT Code issued by the Hong Kong Securities and Futures Commission was publicised shortly after the launch of this transaction. To date, the Fortune REIT is the only REIT to involve Hong Kong property and will be used as the model for future REITs in the region.
Chunghwa Telecom IPO
Equity
What makes it a 2003 top 10 deal? Chunghwa Telecom's initial public offering was the first SEC-registered IPO in Asia since enactment of the Sarbanes-Oxley Act and one of the largest SEC-registered equity offerings by an Asian issuer in 2003. It required close coordination of corporate governance and disclosure matters to meet the new regulatory requirements and was also the first Japanese POWL from Taiwan, and the first Taiwan state-run company to list on the NYSE.
When did it close? The deal closed on 23 July 2003.
Value of the transaction: Chunghwa Telecom's IPO raised approximately US$1.6bn.
Principal legal advisers
Law firm (lawyers) Role
Simpson Thacher & Bartlett (John Riley, Chris Lin) Acted as US counsel to Chunghwa Telecom
Baker & McKenzie Acted as PRC counsel to Chunghwa Telecom
Sullivan & Cromwell (William Chua) Acted as US counsel to the underwriters
Lee and Li Acted as PRC counsel to the underwriters
Chunghwa Telecom's offering is to-date the largest US IPO by a Taiwan issuer and was part of ongoing privatisation and deregulation of the Taiwanese telecommunications sector. The offering was first commenced in late 2000 but postponed largely due to political reasons. Re-instigated in early 2003, the legal team had to basically re-draft the documentation.
Simpson Thacher & Bartlett LLP represented Chunghwa Telecom, the issuer, and the selling shareholder, the Ministry of Transportation and Communications of the Republic of China, in this transaction as the US counsel. The firm was the primary draftsman of the registration statement and took a leading role in aiding the issuer in addressing the SEC's comments regarding the telecommunications industry in the ROC. It was also the issuer's link to the ROC government.
Sullivan & Cromwell represented the underwriters for the offering, led by Goldman Sachs, Merrill Lynch and UBS. The firm was heavily involved in reviewing and commenting on the registration statement and was deeply involved in assisting the working group in responding to the SEC's comments - taking a lead role with respect to various aspects of the transaction.
Chunghwa Telecom is the largest telecommunications service provider in Taiwan for fixed line, mobile service and broadband.
CNOOC and Shell Nanhai petrochemicals project
Project finance
What makes it a 2003 top 10 deal? The Nanhai petrochemicals project is the largest Sino-foreign joint venture project financing and the largest private sector project financing in Asia.
It involved an innovative guarantee provided by the project sponsors China National Offshore Oil Corporation and Shell Petroleum NV, which steps-down in percentage terms and eventually falls away as the project is completed and meets certain financial and other tests. Standby sales and feedstock supply arrangements were also required to mitigate the feedstock supply and sales risks.
The project financing also involved the largest export credit agency (ECA) financing to date in the PRC, with the ECAs and banks accepting market risk in the cyclical petrochemicals sector.
When did it close? The project reached financial close and the deal signed on 1 August 2003.
Value of the transaction: The petrochemicals complex alone will cost approximately US$4.3bn, with Guangdong Investment and Development Company also holding a 5% stake in the venture. A separate refinery project is also planned for some point in the future.
Principal legal advisers
Law firm (lawyers) Role
Freshfields Bruckhaus Deringer (Andrew Hart, Peter Cleary, Lucille Barale) Acted for ECAs
Latham & Watkins (Mitchell Stocks, Sabrina Maguire, Jake Redway) Acted as counsel to onshore and offshore commercial lenders
Commerce & Finance Law Office Acted as PRC counsel to onshore and offshore commercial lenders
Allen & Overy (Simon Black, Jaspal Gillar, Chris Rushton) Acted as international counsel to the project company, CNOOC
Jingtian & Gongcheng Acted as PRC counsel to sponsors
Linklaters Acted for CNOOC as shareholder
Accounting for more than 80% of total FDI, China was by far the most active jurisdiction for projects in 2003, with a number of limited recourse project financings coming to the market. The largest of these was the financing of the greenfield Nanhai Petrochemicals Complex in Guangdong Province, China.
Andrew Hart and Peter Cleary led the Freshfields Bruckhaus Deringer team advising the five ECAs - US Eximbank, JBIC, Hermes, Gerling NCM and NEXI. Partner Lucille Barale advised on PRC related matters. Hart said: "This is the largest limited recourse financing in Asia to date and with the various types of lenders involved (onshore lenders, offshore lenders and five ECAs), arguably the most complex. The ECAs played a significant role in developing the structure of the deal and this is the first project financed deal in China where US Exim, JBIC, Gerling NCM and NEXI have taken both commercial and political risk, so it is a pioneering deal in many respects." He added: "A great deal of thought went into the terms of the deal to ensure that both CNOOC and Shell would be released from these obligations, so as to protect their interests as well as the lenders."
Hong Kong managing partner Mitchell Stocks led the Latham & Watkins team, which included Sabrina Maguire and Jake Redway, advising commercial lenders China Development Bank, The Bank of China, and Industrial Commercial Bank of China providing renminbi, US dollar and dual currency loans; and ANZ banking Group, Bank of Tokyo-Mitsubishi, Crédit Agricole Indosuez, Mizuho Corporate Bank, HSBC, IntesaBci, Sumitomo Mitsui Banking Corporation and WestLB providing covered and uncovered US dollar loans. Commerce & Finance Law Office was PRC counsel to the lenders and the ECAs.
Stocks said: "The Nanhai project involved an unprecedented level of cooperation among large groups of diverse lenders. The result was the implementation of a flexible financing structure that serves the needs of all parties involved in the transaction."
Allen & Overy advised the project company CNOOC and Shell Petrochemicals Company, with partners Chris Rushton, Simon Black and Jaspal Gillar leading the firm's team. The UK firm was involved in the overall structuring of the project and its financing including the finance structure, PRC regulatory matters, foreign exchange and security matters, the product marketing aspects and construction aspects. Jingtian & Goncheng was local counsel to the sponsors. Linklaters acted for CNOOC as a shareholder.
The financing for the 800,000 ton-per-year ethylene cracker will part fund the project which on completion is expected to produce 2.3 million tons of products, generating around US$1.7bn in annual sales. Over 90% of the complex' sales will be inside the PRC, focused mainly in Guangdong Province and the eastern seaboard.
Forty per cent of the total project cost will be funded by shareholders' equity and 60% from limited recourse debt. The debt financing comprises US$1.98bn (equivalent) sourced from PRC banks by way of senior secured RMB and US$ base and standby debt facilities; and US$700m in offshore financing provided by eight international commercial banks, of which US$400m is sourced from five ECAs from Germany, Japan, the Netherlands and the US.
A&O's Black said: "The financing was ambitious and challenging in terms of the scale of the investment, financing structure and number of parties involved. Closing a complex project financing in the PRC requires equal measures of patience, innovation, commitment and humour."
Japan Telecom sale to Ripplewood
M&A
What makes it a 2003 top 10 deal? US private equity fund Ripplewood Group's purchase of Japan Telecom from the UK's Vodafone Group is the largest ever leveraged buyout (LBO) in Japan by a considerable margin. The purchase of Vodafone's fixed-line business in Japan is also the jurisdiction's largest-ever acquisition financing.
The deal's true significance however may lie in the fact that the established Japanese banks backed such a transaction. This was the first time the four biggest Japanese banks, together with seven international banks, had funded the acquisition of a high profile company like Japan Telecom by a foreign investor, even more noteworthy as Ripplewood is a financial rather than a trade investor.
When did it close? The deal was announced on 21 August 2003 and completed on 14 November 2003.
Value of the transaction: As announced in August 2003, as a result of the transaction, Japan Telecom Holdings, a 66.7% indirectly owned subsidiary of Vodafone, received ¥261.3bn. This consisted of ¥228.8bn of cash and ¥32.5bn of redeemable preferred equity, equivalent in total to approximately US$2.4bn. Japan Telecom Holdings has stated that it intends to retain the redeemable preferred equity, which is transferable, at least until July 2004.
Principal legal advisers
Law Firm (lawyers) Role
Linklaters (Casper Lawson, Hideo Norikoshi) Advised the seller, Japan Telecom Holdings, on English and US law matters
Anderson Mori (Osamu Hirakawa) Advised the seller, Japan Telecom Holdings, on Japanese law matters
Simpson Thacher & Bartlett (Daniel Clivner, David Sneider) Advised the purchaser, Ripplewood, on US law matters
Nagashima Ohno & Tsunematsu (Soichiro Uno) Advised the purchaser, Ripplewood, on Japanese law matters
Cleary Gottlieb Steen & Hamilton (Michael Gerstenzang, Mitchell Raab, Tsunemasa Terai, Bob Raymond) Advised Newbridge Asia, PPM Ventures and Telecom Venture Group in their investment in the acquisition
Clifford Chance (Peter Avery, Peter Kilner) Advised the lending banks on English law matters
Mitsui Yasuda Wani & Maeda (Takuhide Mitsui, Yoshitada Ogiso) Advised the lending banks on Japanese law matters
In 2001, Vodafone took control of a combined mobile and fixed line telecommunications business in Japan. It agreed to sell the fixed line business, Japan Telecom, in order to focus on its Japanese mobile phone operations. The purchaser, Ripplewood, had made several previous acquisitions in Japan although this is easily its largest to date.
The deal was funded mostly by bank borrowing, with JPMorgan Securities Asia, Citibank, Mizuho Corporate Bank, Sumitomo Mitsubishi Banking Corporation and The Bank of Tokyo-Mitsubishi acting as lead arrangers.
The loans were made directly to the target company, leading to some complex completion mechanics, including a pre-sale dividend. In order to facilitate this, prior to the closing, the target company effected a legal transfer from its capital reserve account to a distributable reserve account to leverage the company and to create distributable reserves to service future dividends and the redeemable preferred equity.
In addition, the transaction was subject to conditions precedent so there was a time gap between signing of the conditional agreement on 21 August and completion on 14 November. During this period, the parties wanted to demonstrate their mutual commitment to completing the deal so an entirely novel (at least for Japan) trust structure was developed whereby the purchase price, target shares and all completion documents were held by a Japanese trust bank pending legal completion.
The Japan Telecom purchase shows that, in the right circumstances, the financial services industry in Japan is more than willing to participate in large-scale, complex M&A transactions using sophisticated financing techniques and that the infrastructure exists in Japan, in terms of financial, legal and accounting advice, to execute this type of transaction. Although the transaction involved a Japanese selling company and a Japanese target and was governed by Japanese law, the transaction was carried out, in terms of preparation, due diligence and legal documentation, according to international standards.
The transaction coincides with significantly increased interest and activity in Japan by non-Japanese players, in particular private equity firms. In addition, the market perception in Asia, including in Japan, is that there are large amounts of funds to be invested in the region, as evidenced by rising equity prices and falling bond yields, and that corporate balance sheets are starting to recover. Together, it is hoped that these factors will provide a catalyst for revitalising M&A activity in Japan in the short to medium term.
Linklaters partners Casper Lawson and Hideo Norikoshi led the firm's team acting for Vodafone. Anderson Mori was Japanese counsel to Vodafone led by partner Osamu Hirakawa. Wall Street firm Simpson Thacher & Bartlett LLP acted as international counsel to Ripplewood, with Dan Clivner, Casey Cogut and David Sneider as the main partners. Soichiro Uno and Kazuo Tsuiki, from Nagashima Ohno & Tsunematsu, advised Ripplewood on Japanese law matters.
Partner Michael Gerstenzang and counsel Mitchell Raab led the Cleary Gottlieb Steen & Hamilton team advising Newbridge Asia, PPM Ventures and Telecom Venture Group in their investment in the acquisition. Partners Tsunemasa Terai and Bob Raymond assisted on Japanese law matters and ERISA and employment law issues respectively.
Other equity investors included Goldman Sachs and Pacific Century Group. The purchase and investment agreements were signed in the third quarter of 2003, with the investors receiving their direct holdings on 16 January 2004.
Clifford Chance and Mitsui Yasuda Wani & Maeda advised the banks.
Motorola asset/share swap with SMIC
M&A
What makes it a 2003 top 10 deal? This is the first deal involving a foreign and Chinese party executed under China's first comprehensive M&A law of 12 April 2003 governing acquisitions by foreign investors. The deal utilised the full range of new possibilities presented by the M&A Provisions to structure the transaction in a manner that would previously have been impossible.
When did it close? The deal was announced on 23 October 2003 and closed on 16 January 2004 - two days after it was originally scheduled to close.
Value of the transaction: The value of the transaction was confidential.
Principal legal advisers
Law Firm (lawyers) Role
Shearman & Sterling (Carmen Chang) Acted as US counsel to SMIC
Fangda Partners (Michael Qi) Acted as PRC counsel to SMIC
Maples and Calder Acted as Cayman counsel to SMIC
Paul Weiss Rifkind Wharton & Garrison (Jeanette Chan) Acted as international counsel to MCEL
Baker & McKenzie (Shane Byrne) Acted as US counsel to MCEL
Jun He Law Offices (Xiao Wei, Kirk Tong) Acted as PRC counsel to MCEL
Winston & Strawn Acted as US regulatory counsel to MCEL
Walkers Acted as Cayman counsel to MCEL
In what was the first deal involving a foreign and Chinese party executed under China's first comprehensive M&A law governing acquisitions by foreign investors, Motorola (MCEL) agreed to sell its wafer fabrication plant in Tianjin, China for a stake in Semiconductor Manufacturing International Corporation (SMIC), China's largest chipmaker.
The world's second largest mobile-phone maker exchanged MOS 17, the US$1bn plant, which had been operating at less than 10% capacity since established in 2000, for a more than 10% interest in SMIC, one of China's largest and most technologically advanced semiconductor foundries.
The deal, announced on 23 October, allows Motorola to recoup part of its investment in the plant while teaming up with a high-growth firm. SMIC is able to broaden its customer base prior to its planned US$750m listing in 2004. With the deal now complete, the MOS-17 plant is expected to be fully utilised by SMIC.
Until the issuance of the M&A Provisions in March 2003, there was no legal basis for an asset for shares swap under Chinese law. Thus, in the past, companies that wanted to swap assets for shares would have to use cash and implement the transaction through two steps: one company would use cash to purchase the assets and the other would use such cash to purchase the shares. Such a two-step procedure would require a significant amount of cash (for a relatively short period of time) and would have obvious tax disadvantages. In addition, pursuant to the M&A Provisions, the assets purchased by the offshore entity (in this case SMIC) can be immediately contributed to a newly established Chinese subsidiary with no gap in the operation of the assets.
Motorola (China) Electronics's in-house team of Michelle Warner, Sherry Liu and Lane Huang briefed the following firms: Paul Weiss Rifkind Wharton & Garrison (led by partner Jeanette Chan); Baker & McKenzie as US counsel (led by partner Shane Byrne); Jun He Law Offices as PRC counsel (led by partners Xiao Wei and Kirk Tong); Winston & Strawn as US regulatory counsel; and Walkers as Cayman Islands counsel.
Shearman & Sterling was SMIC's US counsel (led by partner Carmen Chang), with Fangda Partners its PRC counsel (led by partner Michael Qi) and Maples and Calder its Cayman Islands counsel.
TCL merger with Thomson
What makes it a 2003 top 10 deal? TCL's merger with Thomson is the first deal in which a PRC company had acquired majority control of a global business from a non-PRC company. Creating the world's first 'Chinese multinational', this deal is precedent-setting since the memorandum of understanding is intended to be legally binding.
When did it close? The signing of the memorandum of understanding was on 3 November 2003 with a framework agreement signed between the two companies on 28 January 2004 in the presence of PRC President Hu Jintao during his state visit in France and the French prime minister. The two partners intend to complete the signing of other definitive documents by the end of March with the closing of the deal expected by mid-2004, subject to the receipt of all necessary regulatory and shareholder approvals.
Value of the transaction The total value of the deal was over 450m (US$560m).
Principal legal advisers
Law Firm (lawyers) Role
Paul Weiss Rifkind Wharton & Garrison (John Lange, Michael Reede) Acted as international counsel to TCL International Holdings
Cheung Tong & Rosa (Siu-yin Pang) Acted as Hong Kong counsel to TCL International Holdings
Sullivan & Cromwell (Chun Wei, Michael DeSombre) Acted as international counsel to Thomson SA
King & Wood Acted as PRC counsel to Thomson SA
This transaction was an agreement between the PRC's TCL International Holdings and Thomson SA of France to merge their global television and DVD research and development and manufacturing businesses and assets.
TCL International will contribute its television manufacturing plants and businesses in the PRC, Germany and Southeast Asia and the interests of TCL Corporation in TV manufacturing plants located in Wuxi and Inner Mongolia, while Thomson will contribute its television manufacturing plants and businesses in Mexico, Poland and Thailand and its television research and development centres in France, India and the US.
The two companies have agreed to form a new joint venture company to hold their combined worldwide television businesses and decided to name it TCL-Thomson Electronics. The joint venture will result in creating one of the largest producers of television sets in the world, with TCL International owning 67% of it and Thomson owning 33%.
After 18 months, Thomson will have the right to swap its stake for a similar-size holding in TCL International. If it chooses not to, its stake will then be subject to a three-year lock-up period.
The TCL-Thomson deal is widely recognised as the first transaction in which a PRC company has agreed to acquire majority control of a well-established global business from a non-PRC company. It was welcomed by analysts, who have long called for both companies to find a partner.
One of China's biggest mobile handset makers, TCL had made no secret of its global ambitions and had in the past explored a range of possible partnerships to establish itself abroad. In 2002, it acquired the bankrupt German TV maker Schneider Electronics after failing in 2001 to buy Philips' Magnavox brand.
China Life Insurance IPO
What makes it a 2003 top 10 deal? The year's largest global equity offering had an extremely tight timetable, complicated accounting issues, and an innovative method of restructuring. China Life is the first mainland insurance company to list on both the Hong Kong and New York Stock Exchanges.
When did it close? The deal closed on 11 December 2003, with trading on the HKSE commencing on 18 December 2003.
Value of the transaction China Life's global IPO raised approximately US$3.5bn.
Principal legal advisers
Law firm (lawyers) Role
Allen & Overy (Michael Liu, Jane Ng) Acted as Hong Kong counsel to China Life
Debevoise & Plimpton (Wolcott Dunham, James Scoville) Acted as US counsel to China Life
King & Wood (Li Xiaoming, Tang Lizi) Acted as PRC counsel to China Life
Baker & McKenzie (CY Leung, Jackie Lo) Acted as Hong Kong counsel to the underwriters
Skadden Arps Slate Meagher & Flom (Gregory Miao, Susan Sutherland) Acted as US counsel to the underwriters
Haiwen & Partners (Zhou Weiping) Acted as PRC counsel to the underwriters
China's largest life insurer, China Life Insurance Company, closed the year's largest global equity offering. China Life's IPO saw some of the biggest Hong Kong conglomerates (Cheung Kong, Hutchison Whampoa, Chow Tai Fook, Henderson) invest US$500m worth of shares or 18% of the IPO.
The joint global coordinators and joint global bookrunners for the deal were China International Capital Corporation, Citigroup Global Markets Asia, Credit Suisse First Boston (Hong Kong) and Deutsche Bank AG, Hong Kong Branch.
Following intensive competition and various rounds of interviews, Allen & Overy pipped numerous firms for the role of adviser to China Life. Partner Michael Liu led the firm's team, which included partner Jane Ng. Chief Representative of the firm's Beijing office Yongfu Li also provided on-the-ground support for the project.
China Life's legal team also included King & Wood (Li Xiaoming and Tang Lizi) on PRC law matters and Debevoise & Plimpton LLP on US law matters - Wolcott Dunham in New York and James Scoville in London led the firm's team on the NYSE listing.
Counsel for the joint global coordinators were Haiwen & Partners (Zhou Weiping) on PRC law, Baker & McKenzie (CY Leung and Jackie Lo) on Hong Kong law and Skadden Arps Slate Meagher & Flom on US law. Gregory Miao in Hong Kong and Susan Sutherland in New York led the Skadden team.
Liu said: "The overseas listing of China Life will undoubtedly have a big impact on the restructuring of the insurance sector in the PRC."
China Life had a 45% share of the life insurance market in China in 2002 but has been losing market share to local rivals, including Ping An Insurance and China Pacific Life Insurance, which have both sold more policies in Beijing and Shanghai over the past year.
Before its reorganisation, the parent group had over 110 million policies, 44 million of which were transferred to China Life as part of the reorganisation, together with investment and other assets.
China's life insurance market has grown at an annual rate of 38% over the past four years, with premiums paid last year accounting for 2.2% of the country's GDP. From the end of 2000 the number of life insurers has doubled to 27, with overseas insurers targeting growth following the removal of restrictions in December this year on where they can operate.
Shortlisted deals
M&A
1) China Telecom's acquisition of the six fixed-line assets from parent China Telecommunications
The total consideration was around RmB80bn (US$10bn), making it the region's largest announced and completed deal of the year
2) BNP Paribas' acquisition of the remaining 50% stake in International Bank of Paris and Shanghai
The first wholly foreign-owned bank in China converted from a Sino-foreign joint venture bank
3) Dongfeng / Nissan joint venture
Legal breakthrough for cross-border M&A deals in China as first time equity interest of subsidiaries recognised as in-kind contribution to a JV deal
Debt
4) Hutchison Whampoa's global bond offering
The largest corporate bond offering in Asian history, ex-Japan
Equity
5) Bank Mandiri's US$330m IPO
Indonesia's largest IPO since financial crisis - led to later Bank Rakyat IPO for US$486m
6) Ctrip.com IPO
Complex corporate structure; unusually complex capital structure; multiple law firms; highest first day gain on NYSE for three years
Project financing
7) BASF/SINOPEC
China's largest ECA-supported limited recourse financing
8) Jupiter Telco financing
At the time, Japan's largest ever leveraged financing; involving Japanese and foreign financial institutions; a model for the Japan Telecom LBO deal
9) BLCP Power Project
The largest IPP in Thailand; largest project financing in Thailand since financial crisis; largest project financing using foreign funds in Asia in 2003
10) Tanjung Jati B power project
The first Indonesian power project to reach financial close since financial crisis
Securitisations
11) HSBC synthetic securitisation
The first synthetic securitisation in Asia to feature this asset class
12) Korean Air Lines Japan ABS
The world's largest airline ticket receivable deal
Structured finance
13) Pertamina's Blue Sky Project development
The first major structured finance deal to close in Indonesia in nearly three years
Restructuring
14) Asia Pulp & Paper restructuring
The largest emerging markets restructuring deal in Asia's history
15) SKN debt restructuring
The largest restructuring deal in Asia in 2003