International Container Terminal Services, Inc. (ICTSI), well known for its port operations in the Philippines and around the globe, has also become well regarded in the international capital markets arena for a bond transaction it undertook last year and most recently re-opened early this year to raise a total of US$350 million.
ICTSI made a bold move when it turned to a perpetual corporate hybrid bond, which is a relatively new capital markets product in Asia, to meet its fundraising objectives in 2011.
Corporate hybrids are essentially bonds that have equity accounting treatment, including features such as no maturity and optional dividend payments. Through corporate hybrids, companies are able to raise non-dilutive equity, which can be replaced with equity at a later stage as required. While highly beneficial to issuers, allowing companies to raise funds to improve their capital positions without diluting their holdings, ICTSI won recognition for incorporating investor friendly features that made its perpetual securities one of the few bonds to perform in the secondary market in 2011.
The Company’s US$200 million hybrid in April 2011 drew a strong response from international investors with an order book totaling over US$800 million. It was also able to return to the market in January 2012 to increase the size by another US$150 million.
Attracting recognition in the financial industry, ICTSI’s transaction won the Philippine Capital Markets Deal of the Year from IFR Asia in 2011 and Best Deal of the Year from The Asset. These are two of the most widely recognized annual award processes in the region. IFR Asia noted that “the popularity of ICTSI’s offering underlined the appeal of a product that a Philippine issuer had never used previously and a structure that was entirely new to Asia.” The Asset added that the deal featured “structures that were not seen in other perpetual deals launched in the market.” Meanwhile, Alpha Southeast Asia, an institutional investment magazine for institutional investors, asset and fund management companies, hailed the transaction as the Philippine Deal of the Year.
Rafael Consing, ICTSI Vice President and Treasurer, was in Hong Kong last February to receive the awards. Mr. Consing said: “Our perpetual hybrid transaction constitutes a key component of our capital management strategy. The strong investor response to both our first and second transactions is indicative of the positive reaction to both our Company’s credit quality as well as the attractive structure we put before investors. We are also delighted that we have received three independent acknowledgments for our transaction from two of Asia’s top banking and finance publications.”
The ICTSI transaction in April 2011 was the first international (US dollar) hybrid from a Philippine corporate and Asia’s first perpetual hybrid bond from an unrated issuer. HSBC was the Sole Structuring Advisor and Joint Bookrunner along with Citi for both the initial US$200 million deal in April 2011 and the subsequent US$150 million increase in January 2012.
The original ICTSI transaction was priced at 8.375% on 28 April 2011. Of the 90 accounts in the order book, 73% were Asian investors and the remainder was from Europe. Private banks accounted for over half (54%) of the investors, with fund managers (34%) and banks (12%) making up the remainder.
Sean McNelis, HSBC Asia Pacific Head of Financing Solutions Group, Global Banking and Markets, said: “The success of the ICTSI hybrid demonstrates the importance of achieving a balance between issuer and investor objectives in designing the structure of these perpetual instruments. We are delighted to have been instrumental in advising ICTSI on this landmark deal.”