How Lehman lost its way

The venerable Wall Street firm once looked like it would escape the worst of the credit crisis. Now there's talk of a Bear Stearns-like collapse - or a sale.

By Allan Sloan and Roddy Boyd

Last Updated: July 2, 2008: 8:45 PM EDT
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NEW YORK (Fortune) -- To understand what went wrong at Lehman Brothers, leave the canyons of Wall Street and head to the flatlands of Bakersfield, 120 miles northeast of Los Angeles.

That's where you'll find McAllister Ranch, envisioned as a 6,000-home, multibillion-dollar recreational community built around a Greg Norman-designed golf course, boating and fishing waters and a beach club. Now McAllister is three-square miles of fenced-off, almost lunar landscape punctuated by a half-finished clubhouse and a golf course gone to weeds.

So far Lehman's bets on McAllister and other real estate plays in Southern California's Inland Empire have cost Lehman at least $350 million.

None of Lehman's investment bank peers have this kind of exposure to the burst real estate bubble. Then there's the exposure all of them have: problems with collateralized loan obligations, leveraged buyouts, and mortgage-related securities. But Lehman insisted it was only minimally exposed to this kind of stuff.

Turns out, it wasn't. As a result, the bank and its shareholders have endured big losses; messy public demotions of the chief operating officer and chief financial officer; battles with short-sellers, who are betting that Lehman's share price, down about 70% on the year, will decline further; rumblings that the firm will be sold; and rumors (which we consider unfounded) that it will pull a financial El Foldo the way the late Bear Stearns did.

How has Lehman (LEH, Fortune 500) come to this? Read on, and we'll tell you Lehman's true history - and how management miscues, combined with historical forces outside Lehman's control, have put the firm in a world of hurt. We'll also tell you how we think the drama will play out.

Deals gone bad

McAllister Ranch is an apt symbol for Lehman's problems on several counts.

First, Lehman's commercial paper unit is on the hook for a $235 million loan it made to the development. Good luck trying to collect that debt. Worse, in 2006 - the height of the housing bubble - Lehman invested a total of $2 billion in deals with McAllister's developer, SunCal Cos., a Southern California firm severely spattered by the bursting of the real estate bubble. The $350 million McAllister loss looks increasingly like only a down payment.

Because it prided itself on real estate expertise - it helped popularize real estate-backed securities in the early 1970s - and investment prowess, Lehman risked far bigger proportions of its own capital doing deals than its major competitors did. Brad Hintz, a former Lehman chief financial officer who now follows the firm as an analyst at Alliance Bernstein, wrote recently that Lehman has more than 2.5 times its entire net worth tied up in complex, hard-to-value securitized products.

Only Merrill Lynch (MER, Fortune 500), among Lehman's peers, has a higher ratio, Hintz said - and Merrill is vastly larger than Lehman. What's more, Merrill has multibillion-dollar assets, such as stakes in Bloomberg LP and BlackRock, that it can sell quickly without interfering with its core businesses. Lehman has nothing similar.

Lehman's high-risk, high-reward strategy produced cash gushers during the good days - the firm reported almost $16 billion of profits from 2003 through 2007 - but those days are gone. Lehman recently reported a $2.8 billion second-quarter loss, which probably won't be its last unprofitable quarter. Two years ago Fortune lauded Lehman and its chief executive, Dick Fuld, because the firm was the best-performing investment-banking stock in the country. That was then.

Now Lehman finds itself stuck with all sorts of hard-to-sell assets and securities worth far less than what it has invested in them. For example, last October - with the credit crunch and real estate meltdown well underway - Lehman (in partnership with the Tishman Speyer real estate firm) paid $22.2 billion to do a leveraged buyout of Archstone, a big apartment developer. Lehman decided to go through with the deal rather than walk and risk paying a $1 billion breakup fee (which could presumably have been negotiated down, as happened in subsequent busted LBOs).

Lehman's Archstone losses could ultimately exceed what a breakup fee would have cost. The firm disclosed a $350 million Archstone charge to earnings last month, and that could be only the start.

"Archstone is the preeminent apartment developer, but the timing was off," says Craig Leupold, president of Green Street Advisors, a real estate consulting firm. "I'm looking at a decline of 10% to 15% in value for apartment complex values, which amounts to $2 billion to $3 billion off the purchase price."

That would be a staggering hit for Lehman, whose total capital is only $19 billion ($36.9 billion if you count its recent preferred-stock issues and subordinated debt). Founded in 1850 as a cotton trading firm in Montgomery, Ala., Lehman Bros. had a storied reputation for prudence and sound management.

So how did it end up in this pickle?

In part because, irony of ironies, CEO Fuld, who prevailed in a decades-long battle for Lehman's soul, adopted the policies of the people that he and his trading floor allies fought so bitterly in Wall Street's most famous civil war of the 1980s.

The trading faction, which included Fuld and was led by his then-boss, Lew Glucksman, wanted the firm to stick to its traditional knitting of trading and underwriting securities. The banking faction, led by Steve Schwarzman and Pete Peterson, wanted to use the firm's capital aggressively to do risky deals.

The traders prevailed then - but Fuld ultimately adopted large elements of the bankers' proposed strategy. It's as if Jack Welch had decided during his GE days that the touchy-feely school of management was right after all and began walking the halls to ensure that people were happy. Lehman eventually sold itself to American Express in 1984. Schwarzman and Peterson left to start Blackstone Group and become multibillionaires. Fuld stayed at Lehman.

After ten mediocre-to-awful years as part of American Express's failed financial supermarket strategy, an undercapitalized, independent company called Lehman Brothers emerged in 1994 with Fuld as CEO.

Neither Fuld, a passionate Lehman lifer, Schwarzman or Peterson would speak with Fortune. A Lehman spokesman said the firm wouldn't cooperate either, because our questions were "unfair and biased."

It's tempting to blame Fuld for everything that's gone wrong at Lehman. After all, the man took credit for the firm's successes (while throwing the occasional victim under the bus when there were problems) and got a corporate rock star compensation package.

By Fortune's math, Fuld has realized almost half-a-billion dollars in cash - $489.7 million, to be precise - by cashing in stock options and restricted stock that he was granted. (That's a pretax number.) He's also knocked down wads and wads of regular old money.

Done in by a financial arms race

But a significant part of Lehman's problem doesn't stem from Fuld's management - it's because the firm suffered collateral damage from Washington's decision a decade ago to repeal the Glass-Steagall Act, adopted during the Great Depression to separate investment banking from commercial banking.

Until Glass-Steagall disappeared, one of the attractions of owning a piece of an investment bank was that it was asset-lite. The major asset - the firm's people - went home at night. The financial assets were generally liquid (which means easily sellable at the market price). And because they weren't burdened with multibillion-dollar investments in real estate or corporations, investment banks had staying power and could wait for bad markets to recover.

The repeal of Glass-Steagall would change that. Ask Chris Andersen, chief executive of investment boutique Andersen Partners and, at 70, one of Wall Street's grand old men. When Glass-Steagall was adopted in 1999 to let Citi and Travelers (which have since split apart) combine, Andersen notes, commercial banks promised not to use their balance sheet to compete with investment banks, which traditionally had far smaller capitalizations.

"Of course, the minute Glass-Steagall was repealed, the commercial banks began using their balance sheets to compete, offering loans if they also got to do equity offerings as well as arranging public debt financials for transactions," says Andersen.

So investment banks like Lehman bulked up to compete with the Citis and J.P. Morgan Chases (JPM, Fortune 500) of the world, setting off a financial arms race to compete on size and scope.

The arms race - and the associated risk for Lehman - has grown exponentially more intense since 2004, when the world began to find itself awash in cheap short-term money, and globalization and dealmaking increased the call on Lehman's capital for things such as leveraged buyouts-and real estate.

At the end of 2003, Lehman had $11.9 billion of tangible capital and $308.5 billion of assets on its balance sheet. The ratio: just under 26 to 1. As of the first quarter of this year, it showed $786 billion of assets and less than $18 billion of capital. Ratio: around 44 to 1, leaving relatively little cushion to absorb losses.

Lehman also has self-inflicted wounds.

When firms like Citi (C, Fortune 500) and Merrill and Morgan Stanley (MS, Fortune 500) began fessing up to big problems related to the real estate bubble popping and the ensuing worldwide credit squeeze, Lehman insisted all was well. It even managed to show a $489 million profit for its first quarter, but only with accounting so aggressive and bizarre (albeit legal) that it undercut faith in Lehman's numbers.

Lehman took a $722 million paper profit in the value of its so-called Level 3 equity holdings - stocks that don't trade publicly and for which there aren't liquid markets. This means that Lehman claimed a 9% profit on its private-market stocks during the same period the Standard & Poor's 500 index of publicly traded stocks fell by 10%. Hmmmm.

David Einhorn, a short-seller whose questions about Lehman's balance sheet have confounded its management, says the firm's since-deposed chief financial officer, Erin Callan, told him $400 million to $600 million came from writing up the value of electric generating plants in India - Einhorn feels that only about $65 million was justified. (Lehman, as we've said, declined comment.)

Lehman also showed a $600 million profit because of the decline in the market value of its own debt obligations, whose price was falling because of perceptions that the company was in trouble. That's permissible accounting - but these are ugly, low-grade earnings, not unlike the "profit" you make when your house is foreclosed at a value lower than your mortgage.

And finally, we found that Lehman created another $176 million by almost doubling (to $365 million) the value it ascribed to certain mortgage servicing rights. Servicers get paid by mortgage holders for collecting payments and handling paperwork, and valuing servicing rights is notoriously tricky.

Until recently Lehman managed to raise capital without getting its stock price killed. The neatest move came on April 1, when Lehman sold $4 billion of preferred stock convertible into common stock. For arcane reasons we won't bore you with, when a company sells a big convert issue, convertible arbitragers - who make money exploiting differences between the prices of convertible issues and their underlying common stock - short the common like mad, driving down its price.

But Lehman kept the arbs at bay by placing the vast majority of the issue with large, long-term holders of its common. This helped precipitate a short squeeze, and Lehman's stock rose 18% (to $44.17 from $37.50) the day of the issue, rather than declining as the market expected.

But in a second sale last month Lehman seemed to have lost its touch - or gotten desperate. It sold $4 billion of common stock and $2 billion of convertible preferred, but seems to have placed much of the preferred with hedge funds and arbs that shorted the common, which promptly plummeted. That bummed out investors who bought the common, and the declining price increased the talk about Lehman's problems.

While we won't get bogged down in the minutiae of collateralized debt obligation exposures - which Lehman has done a better job of avoiding than Merrill, Citi or UBS (UBS) - the exposure it does have poses serious potential problems.

Lehman's filings indicate it has about $6 billion of CDO exposure. About a quarter of them are rated BB+ or below. These low-rated arcane, illiquid bonds-made-from-other-bonds are worth maybe 10 cents on the dollar. That indicates a loss of at least $1 billion. There are likely additional losses looming in the other three quarters of the portfolio.

What's next for Lehman

We're not predicting that Lehman will fail - it won't because of the Federal Reserve Board, which has let it be known that it will lend Lehman (and any other investment bank it deems worthy) enough money to avoid collapsing, the way Bear Stearns did.

Lehman has been in trouble before - the collapse of the Long Term Capital Management hedge fund in 1998 started rumors it was insolvent, the 9/11 terrorist attacks traumatized employees and made its headquarters near Ground Zero unusable - and it somehow managed to escape and prosper and stay independent.

But this time we suspect that because of pressures we foresee both from the capital markets and regulators, Lehman will ultimately end up owned, once again, by a much larger institution.

So let's close by going back to where we started: McAllister Ranch. An official with SunCal, the project's developer, says the company "remains committed to seeing that this community becomes a reality." When we tried to get a tour of the property, a man in a Hawaiian shirt and shorts, who clearly isn't an investment banker, emerged from deep inside the development's darkened sales office.

His final words as he shooed us off: "This is not a public business." Which may be said of Lehman soon.

High oil prices should be passed on to consumers

The best argument for using market driven rates is the utter disrespect that Indian consumers have in splurging on oil in the past few years in spite of raising oil prices around the world. Car and bike sales have increased tremendously for the consumers are not feeling the pinch of the oil price. We hear news of US consumers switching to compact cars, dumping SUVs and hitching to public transport. If the rise in oil prices were passed onto the consumers in India, I'm sure there would have been more care taken in spending less. It could also have had some lessening effect on the auto pollution in our metros. So continuing with the current oil policy is not just a matter of fiscal issue but also physical!

--Vj

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3 May, 2008, 0301 hrs IST,Cuckoo Paul, TNN

For a government which is preoccupied with tackling inflation, OPEC president Chakib Khelil’s observation couldn’t have come at a worse time. The OPEC president, in a recent statement, warned that crude oil could hit $200/bbl with the dollar losing its lustre. That too when oil prices have already climbed 100% to top the $120 a barrel mark over the last one year. With alternative sources of energy becoming a rage, land is being sacrificed for bio-fuels, pushing food prices to new highs.

For a country which is critically dependant on overseas sources for its energy needs and whose appetite for oil is insatiable, these developments are clearly worrisome — especially for emerging economies like India, China, Russia and Brazil.

“If we look at the BRIC countries, India looks like a sore thumb. We are the only country out there which is not in the pink of health when it comes to oil as all the other countries have their own resources or finances to manage the situation,” says Ajit Ranade, group chief economist with the Aditya Birla Group.

There are several others like him worried about the management of the oil economy. With polls round the corner, pump prices are unlikely to be hiked significantly to pass on the burden of the crude price rise. India is still among a handful of countries where kerosene is still being sold at $20/bbl levels, when international prices are ruling close to $125/bbl.

Over the years, when it comes to raising the prices of petrol, diesel and LPG, governments, irrespective of political hues, have uniformly chosen not to take any hard decision. This is because a decision on this issue can hurt them politically, never mind the fact that retail prices do not reflect international realities and that it can drill a hole into government finances.

The NDA government and its finance minister Yashwant Sinha started issuing oil bonds to skirt the issue. Since then these bonds which are IOUs guaranteed by the government of India and given to oil marketing companies (OMCs) to compensate them for their losses have proved to be a convenient tool to postpone solutions to the problem.

The OMC problem

Earlier these bonds compensated one third of the losses of the marketing companies. Over the years these bonds now offer up to 42% of the losses. When the bonds were originally issued, the plan envisaged was to gradually decontrol oil prices and make them market-related by the end of 10 years.

But as prices went up, the political cost became too high. Now with oil touching new highs every week, doubts are beginning to surface again whether the current mechanism of price-redress can be stretched beyond a point. Economists have already warned that postponing the problem would have long-term implications for the economy.

India’s fiscal deficit works out to 3.2% of the GDP and if the outstanding oil bonds are added to this number, the same fiscal deficit to GDP ratio escalates to 4.4%.

In general, under-recoveries are moving up faster than the jump in crude oil prices and this is again a cause of worry as it impacts all segments of the economy. In FY07, marketing companies had under-recoveries to the tune of Rs 50,000 crore which are expected to vault to Rs 1,00,000 crore in FY09, a rise of 100% in two years. During the same period average crude oil is expected to go up by 60%. For every $1 increase in price of crude, the under recoveries go up by Rs 3,000 crore.

Like American shoppers, the Indian government has followed a ‘consume now and pay later’ philosophy that is obviously unsustainable, feels an economist with a brokerage firm. The questions now being raised are: Does the government have any option? And how do other countries handle the same issue?

Options for the future

S Narasimhan, the finance director of India’s largest oil retailer Indian Oil, is one man who battles the fallout of high-oil prices on a daily basis. With the oil-major’s borrowings going up to Rs 36,000 crore, it is not surprising that his energy is focussed on finding ways to improve cash flow.

When oil prices increase, management of working capital also becomes a tricky issue as everything from inventory to cost of transportation needs to be reworked. One solution he can offer is to sell off the government issued oil bonds as soon as possible. Indian Oil holds bonds worth Rs 14,000 crore and is very keen to sell them, albeit at a loss. Narasimhan says, “Cash flows are severely constrained by the low retail prices of petroleum products.”

The marketing companies have no option but to sell these bonds at a loss as these bonds are not liquid. Again, since these bonds do not have statutory liquidity ratio (SLR) status, banks are lukewarm to the idea of picking up these bonds. To compensate for the lack of SLR status and liquidity these bonds offer a 25 basis extra coupon over the gilt rates.

One of the solutions to make these bonds attractive is to grant them SLR status. This way the marketing companies can obtain the right price for these bonds as banks would line up to buy them given the higher yields. If these bonds do get SLR status, then the extra 25 basis coupon will have to go and thus may not have the same attraction for banks. Since the government has a borrowing programme every year and banks are captive buyers of government paper, there is a scare that if oil bonds are given SLR status, the borrowing programme of the government will get impacted.

Banks will always find the oil bonds more attractive in terms of maturity as well as liquidity compared to other instruments floated by the government. Today the oil companies use the CBL route where the OMCs do the borrowings by using these bonds as collateral. This is turning out to be more efficient for the OMCs in many ways.

Gilt funds are allowed to invest in oil bonds, as these funds are mandated to invest in any security issued by the government of India. However, oil bonds are not included in the basket of securities, which banks invest in to meet the statutory requirements. According to IDBI Gilts’ head of fixed income S S Raghavan, “The main issue with gilt funds is that these securities lack trading interest and hence, are illiquid. First of all, banks do not prefer to invest in oil bonds because they do not carry an SLR status.

Secondly, provident funds and pension funds, which comprise the large set of investors in these securities, hold these bonds till maturity. Hence, there is no trading interest from these superannuation funds. Due to these reasons, most gilt funds which are professionally managed, do maintain an internal cap on investments in oil bonds.”

Typically, on the shorter end, these bonds carry a 25-30 basis point spread over the government bond of a similar tenor. On the longer end, the spread extends to over 50-100 basis points over the government bond. Currently, oil bonds of a 15-year tenor carry a coupon of 9%, almost 100 bps over the corresponding g-sec.

Much of the trading is now concentrated on the shorter end, where yields have witnessed a sudden spike on account of monetary measures such as the recent hike in the cash reserve ratio. On the longer end, trading interest is restricted given the illiquid conditions.

Apart from the financial management part, there are other issues which needs to be addressed. One of the best options would be for state governments to lower the sales taxes on fuel,the Rs 50 or so that a consumer pays for a litre of petrol, about 60% is the tax component, for diesel it is roughly 40%.

Oil revenues form a major chunk of earnings for the governments, both at the centre and in the states, so the measure has not found favour yet. The centre has cut taxes to an extent on some petroleum products, but the states have not yielded ground at all. There is a lot of scope on sales tax reductions, the taxes are currently linked to retail prices and hence increase each time prices go up.

Oil analysts say China has tackled the high oil problem by capping levies to a single tax rate. Duties on transportation fuel are a uniform 13% all over China, much lower than the Indian rates. Of course, the additional advantage that countries like China, Brazil and Malaysia have is that they produce more oil domestically.

India now imports close to 70% of its oil needs and domestic production has been stagnant for over a decade. Narasimhan says the second option to deal with the situation is an oil cess. Oil companies have proposed that the government levy a 3% cess on income tax on the lines of the education cess. This could raise close to Rs 15,000 crore every year, which could be used to stabilise oil prices.

Targeted subsidies

The third option is to have targeted subsidies; which means passing on the subsidy only to economically weaker sections instead of all the consumers. The huge under-recoveries by the oil companies are on the sale of four petroleum products — petrol, diesel, LPG and kerosene. “Of these, LPG and petrol are products that are consumed by a vast swathe of urban population that can afford to pay much more,” says an oil company official.

Subsidised LPG and kerosene can be sold to families below the poverty line, but why should everyone enjoy this benefit? he asks. This can be done through the issue of pre-loaded oil-cards, on the lines of the Kisan cards. This would ensure that the under-recoveries come down by almost half, according to estimates. This is something some economists have also endorsed.

The new president of CII KV Kamath says, “While the situation on inflation does not make it possible at present to consider a greater pass through of oil prices, this is a measure which would have to be taken sometime in the near future, based on the situation on inflation.

The situation on oil prices also mandates that the country set a target for itself in terms of conservation. Demand management of energy consumption including greater efficiency in utilisation is a must for the country.”

The impact

The impact of the high prices is being felt by oil companies more than anyone else. Consumers of aviation fuel, naptha and furnace oil too are bearing the brunt. For the rest it is of little consequence. However, the slowdown in oil company spends may soon start impacting growth.

For 2007-8, the government expects to issue oil bonds worth about Rs 32,000 crore. The figure is not fixed yet and bonds for the fourth quarter of the year are yet to be issued. In 2008-9, the figure is likely to be higher, depending on actual prices through the year.

The under-recoveries of the oil marketing companies, are currently shared between the companies themselves, oil producers (ONGC) and the government (through the issue of bonds). As oil prices went up, the central government has taken a larger share of the losses which meant greater recourse to oil bonds.

Weighed against the backdrop of these developments, it is amply clear that the government may have to soon bite the bullet. The options are limited. Either the political managers would have to take some hard measures or the other option would be to settle for lower economic growth rate. Issuance of oil bonds was fine as long as the economic growth was robust.

However, exercising such a relatively easier option may be far more difficult when the economy slows down. That is the time when these bonds can be a heavy burden. There is no escaping the fact that oil prices will have to be passed on to consumers. Many countries have done it. India may not have much of a choice. The longer the government delays it the greater will be the collateral damage.

(With inputs from Pravin Palande and Preeti Iyer)


http://economictimes.indiatimes.com/Features/Special_Pages/The_Big_Story/High_oil_prices_should_be_passed_on_to_consumers/rssarticleshow/msid-3006066,curpg-1.cms

Let it flow

A slightly old article that I had read in CFO Asia on innovations in raising money in Asia.

How global liquidity is driving financial innovation in Asia


By Abe De Ramos, Cesar Bacani

By any measure, US$500 bn is a huge sum. It’s about two-and-a-half times the amount of trade surplus that Asia has with the rest of the world; 40% the size of the global hedge-fund industry; half the amount of foreign-exchange reserves China holds. It is also a powerful sum. George Soros shorted just the equivalent of US$10 bn to bring the Bank of England to its knees in 1992. Yet half a trillion dollars is the amount that turned up for just one initial public offering in Asia last October. ICBC, the largest of four state-owned banks in China, needed to raise US$20 bn to pursue its transformation strategy – already a substantial figure, making it the largest IPO ever – and received a flood of orders from institutional and retail investors. What’s more impressive? Two-thirds of that demand came from investors based in Asia. Think about it: at any given time, there’s at least US$330 bn in capital in the region just waiting to be invested.

This is good news for CFOs. As global financial-market liquidity remains above historical averages, investors are finding their way into almost every asset class available. In the same year, stock markets from Hong Kong to Mumbai to New York approached record highs, and spreads for emerging-market bonds have tightened from 400 basis points last year to around 200 bp this year. Global M&A should also see continued growth, not only as the number of deals multiply, but also as deal sizes bloat. And let’s not forget the amount of oil money sloshing around; Middle Eastern investors have been buying equity stakes while snapping up assets across the globe.

Asian companies have benefited from this surfeit of cash. In Singapore, Avago Technologies issued the largest high-yield and lowest-rated corporate bond from Asia. Lippo Karawaci raised the first property bond out of Indonesia. Agile Property came up with the largest bond transaction from a private Chinese company. Food-and-beverage maker San Miguel executed the first true leveraged-buyout deal in the Philippines. But all this hardly means that funds are available on tap. As uncertainties over global economic imbalances grow, so do the financial risks that can affect investor appetite. To be sure, the money is there; investors just need to be convinced that the risks they take are packaged properly, and that the upside potential is evident.

So far, CFOs, financial advisors, and regulators in Asia have responded with gusto, and 2006 might just be remembered as a year of landmark transactions for the Asian capital markets – at least based on the deals that vied for CFO Asia’s seventh annual Deals of the Year awards. This time, we picked transactions that were outstanding, not mainly for their impressive size or flawless execution, but for their innovation, creating new funding avenues, and even changing the dynamics of their sectors altogether. Given the abundant liquidity in the market, CFO Asia predicts that the flow of meaningful deals will continue in 2007. Our boldest view: CFOs should brace themselves for hostile takeovers, as private-equity managers become more aggressive in finding opportunities to grow their funds.

Jason Rynbeck, head of Asia M&A at ABN Amro, shares our view. Previously, private-equity funds tended to strike cozy relationships with business families and made an investment as part of the generational change in the business or to provide extra funding for expansion or working capital. Now, Asian companies have become so disciplined with their financial management that they have more money than they know what to do with. In the meantime, private-equity funds are continuing with their hunt, and if their ability to inject capital were to become less in demand, they will likely use their resources to go for the best assets in the market – whether welcomed or not. Rynbeck puts the size of private-equity funds in the region at US$15 bn to US$20 bn; add the debt load that accompany these deals and the amount could easily reach four or five times that value.

“The nature of transactions will change,” says Rynbeck. “Private equity will start thinking a bit more creatively on how they can participate in transactions by companies. Things will move toward a more aggressive, Carl Icahn-type stance. You will see more hostile bids.” Next month, CFO Asia will publish a list of what we think are potential M&A targets in the region. For now, we present the ten most outstanding deals of 2006 – all inspired by innovation, and made successful by global liquidity. – ADR

ICBC’S US$21.9 BN IPO
Financial advisors: Merrill Lynch, Credit Suisse, Deutsche Bank

This deal had the word ‘success’ written all over it. In October, the Industrial and Commercial Bank of China (ICBC) raised US$21.9 bn in equity, easily becoming the world’s largest initial public offering. The deal cemented China’s stature in the global capital markets, thanks to the unprecedented demand for the IPO.

With an order book of US$500 bn, ICBC was an eye opener on how much liquidity exists in the market and how much money can pour into a single transaction. The international tranche was oversubscribed 40 times, and the retail tranche 78 times – one in seven Hong Kong residents subscribed to the deal. And in a classic measure of IPO pricing accuracy, ICBC’s Hong Kong-listed shares rose 14% on the first day of trading.

The long-term significance of the deal, however, lay in its other landmark achievement: being the first IPO to have concurrent listing in Hong Kong and Shanghai. Prior to ICBC, the best of the mainland companies typically listed first in Hong Kong, and then in Shanghai two or three years later. That put mainland investors at a disadvantage; not only were they not able to capture the upside potential of the first listing, but the pricing of the subsequent domestic listing had been subject to so much volatility. The Chinese government had been meaning to lay the groundwork for concurrent listing with identical pricing in recent mainland-company IPOs, but the market conditions and the determination of the regulators finally aligned for the ICBC issue. “There is a symbolic value in the concurrent listing: to demonstrate that China cares about domestic investors,” says Bing Wang, director at Merrill Lynch in Hong Kong.

To achieve such listing, the IPO broke new regulatory ground. For example, the different disclosure standards for Shanghai’s A-share and Hong Kong’s H-share prospectus regimes meant that lead managers had to obtain waivers and follow just one standard. To achieve identical pricing, lead managers had to carefully balance demand and supply on the international and domestic markets. Overcoming these issues cleared the way for a higher, albeit farther, goal – achieving the fungibility of shares in the two distinct markets. “If you look at it with a long-term view, a concurrent A- and H-share offering is a clear first step towards a unification of both markets,” says Carlos Oyarbide, head of financial institutions group at Credit Suisse.

The deal was attractive on its own merits. ICBC is China’s largest bank with a leading position in corporate and retail segments. It also pre-dates its peers China Construction Bank and Bank of China in terms of internal reforms, having doubtful loans of only 12% compared with 13% and 17% for the others, respectively. It has a lower cost-to-income ratio, and a higher fee income to operating income ratio. “Getting this deal done successfully was no longer just a matter of being a China play; investors recognized the superiority of the bank, in terms of its franchise and fundamentally, its management,” says Oyarbide. – ADR

CATHAY PACIFIC’S HK$8.2 BN
ACQUISITION OF DRAGONAIR
Financial advisors: ABN Amro, Merrill Lynch

The headlines make it sound like a simple transaction: Hong Kong flag carrier Cathay Pacific acquires shares in Chinese-owned Dragonair that it did not already own. Beneath this HK$8.2 bn acquisition, however, is a unique web of cross-shareholdings involving five different parties, the untangling of which was made complicated by forces both commercial and political. But with dogged determination and a keen eye on value creation, Cathay and Air China, parent company of Dragonair, effected one of the most meaningful M&A transactions the Asian aviation sector has ever seen; it would create two of the most competitive carriers in the world, and potentially change the playing field for all airlines with interest in air traffic in the region.

The complicated shareholding structure among the airlines and their shareholders meant the execution of the M&A was not going to be simple. Cathay Pacific wanted to gain control of the strategic China network that Dragonair had at a reasonable price. Air China and CNAC wanted to dispose of their Dragonair shares at a premium to its standalone value while obtaining equity interest in Cathay. Swire Pacific wanted to maintain its dominant shareholding in Cathay, while CITIC Pacific would only reduce, not let go of, its shares in Dragonair. Through a series of share sales and purchases (see chart, left), the working out of these interests met with the stock market’s approval; share prices of all the parties went up following the deal’s completion.

Analysts have long held that full ownership of Dragonair made perfect sense for Cathay Pacific. Why it couldn’t do so sooner, apart from the web of ownership, rested on political considerations. Cathay is majority owned by Swire Pacific, a Hong Kong conglomerate with a largely British identity. The Chinese government was wary of giving the quasi-foreign carrier access to its domestic route, maintaining that mainland carriers should benefit first and foremost. On the other hand, Cathay had an excellent network that Air China could tap into, and one that it could not build on its own. In the end, the most obvious solution won, resulting in an operational agreement that gives each party unhampered access to each other’s networks.

Under the agreement, Air China and Cathay Pacific will have reciprocal sales representation; code share arrangements for all passenger services between Hong Kong and mainland China; business cooperation in marketing, engineering, and ground handling among others; and a possible air cargo joint venture. The arrangement fills gaps in each others’ operations, giving each a competitive advantage over other Chinese airlines and foreign carriers that fly into China and wish to expand there.

The result? Competitors are now trying to catch up – the mainland, after all, is the world’s fastest growing aviation market – and some are now exploring possible deals. “This deal was transformational not just in Asia but also globally,” says Kalpana Desai, head of M&A at Merrill Lynch, which advised Air China. “It not only transformed the Chinese aviation sector, but it also made the entire airline sector around the world ask what are the implications of the transaction.” – ADR

MOBILINK’S US$250M BOND ISSUE
Financial advisors: ABN Amro, Deutsche Bank

While the growth story of Pakistan remained overshadowed by its larger neighbor, investors in its stock market have been richly rewarded over the last five years as the local stock index grew more than five-fold since 2001. Few domestic companies, however, had been known to bond investors overseas as none had dared to tap the international debt market. That changed in November when Pakistan Mobile Communications, or Mobilink, raised US$250m of seven-year debt from enthusiastic investors across Europe, Asia and the US. As the first-ever corporate bond issue out of Pakistan, Mobilink paved a new funding avenue for CFOs in the country.

Jointly led by ABN Amro and Deutsche Bank, Mobilink didn’t take a page out of the structures done previously for similar credits such as Excelcomindo of Indonesia. For one, the company had a credit rating three notches lower than its peers, thanks to a capital structure that had a debt-to-equity ratio approaching four times. Likewise, it refused to restrict dividend payments to its parent, Egypt’s Orascom, which owned telecom assets from Italy to Nigeria. “There was a lot of cash expected from this company, which was a concern for investors,” says a banker who worked on the transaction. What Mobilink had going for it was a 55% market position that generated not only consistent revenue growth, but also exceptional cash flow and profits.

Mobilink’s strong underlying credit and the deal’s rarity value allowed the lead managers to try a novel way of hitting the right cost of funds for Mobilink – blindsiding investors by keeping the order books firmly closed. “We let investors tell us what they thought the credit was worth, without talking up the deal in any way,” says the banker. As such, initial pricing interest ranged from 8.5% to 12%, and succeeding investor meetings established that many investors were comfortable with 9%. An overwhelming demand ultimately set the price at 8.625%, well below what Mobilink was prepared to pay for.

The biggest challenge Mobilink and its lead managers faced was putting the deal together. As a trailblazer, the deal practically wrote the regulations that took the State Bank of Pakistan a year to finalize and approve. “It was a case of educating the regulator as to how a corporate bond deal works, such as what constitutes a covenant package or what kind of collateral can be pledged,” says the banker. On several occasions, the central bank would come back with letters approving certain aspects of the transaction, but would get wrong their intent, leading advisors to return to the drawing board. The regulators, for their part, responded with an eagerness that could eventually bring more Pakistani companies to the international capital markets. – ADR

PRIVATIZATION OF MUMBAI AND DELHI AIRPORTS
Financial advisor: ABN Amro

The privatization of the Delhi and Mumbai airports represents the triumph of economic sense over retrograde populism in a country that needs it most. Transferring control of state assets to private, especially foreign, hands has never appealed to popular sentiment, but the deal’s success gave India a model for future public-private partnerships. India is one of the world’s fastest-growing aviation markets, but carriers are constrained by a chronic lack of runways and parking spaces in the two major hubs, which already account for over 50% of traffic.

It took two years to sell the airports in a bidding that attracted 11 consortia. For a 30-year concession, a South African-Indian consortium will develop and manage the Delhi airport, while a German-Malaysian-Indian group will take care of Mumbai. The cost of developing each was placed at US$2 bn over 20 years. Each consortium will have a 74% stake in its joint venture with the Airport Authority of India (AAI), which takes up the balance.

One of the challenges of the deal was to get the government to agree on what it wanted to accomplish and how much it was willing to share in terms of capital expenditure and revenues. “Getting a common understanding of what the objectives are and presenting this in a package to get buyers interested is challenging,” says Jason Rynbeck, head of M&A for Asia at ABN Amro. In the end, the bidding required that financial consideration include a modest initial payment, plus an annual fee to AAI, set as an annual share of total revenues, which aligns the economic interests of the joint-venture partners. This eventually amounted to 37.7% for Mumbai, and 45.99% for Delhi.

To build competitive tension, participants were required to bid for both assets. They also had to submit a technical bid disclosing their track record and development plans, out of which they were scored up to 100 points. Passing the minimum score then gave them the key to submit financial bids.

The deal didn’t go without a glitch. The high qualifying standards meant only one consortium met the minimum score of 80 points, forcing the government to bring it down to 50. A local company that lost its bid challenged the legality of the sale. The case ended in failure in less than three months. The airports also ground to a halt for days due to union strikes, but the government prevailed upon them after a meeting. Now, the government is ever more determined to privatize 40 smaller airports, while India’s railway monopoly is considering doing the same for a number of terminals. “The success of the deal triggered a thought process in the government,” says Manikkan Sangameswaran of ABN Amro in Mumbai. “Imagine what it could do for healthcare and education.” – ADR

BRAC’S US$180M SECURITIZATION
Financial advisors: Citigroup, RSA Capital

In a year when the Nobel Foundation recognized the role of micro-finance in promoting peace in impoverished nations, the securitization of US$180m in BRAC (Bangladesh Rural Advancement Committee) loans in Bangladesh becomes a more meaningful endeavor for the non-profit organization. Completed in September, the deal brought innovation to funding for the poor, introducing a commercial transaction that may be replicated in countries where micro-credit exists.

BRAC focuses on poverty alleviation and empowerment of women, who make up 99% of its borrowers. Funding is given to village organizations that undertake a project, with the aim of helping members become self-sustaining. About 65% of its loans are for the extremely poor who borrow from US$50 to US$100, while the rest go up to US$500. Loans are usually given a one-year tenor and have an average life of six months. Last year, BRAC extended loans worth US$500m, up from US$440m in 2004. The securitization program allows it to raise US$180m over six years – equivalent to about 7% of its annual funding needs – enough to extend credit to 1.2m members.

The deal is customized to the loan profile of BRAC. Each year, it only raises US$30m, divided into two tranches of US$15m every six months. Each tranche is split into four sub-tranches, and for the first year of the securitization program, each sub-tranche has been allotted to specific investors: US$5m to the Dutch lender FMO; US$5m to Citibank (Dhaka) guaranteed by FMO and KfW of Germany; US$3m to Citibank without guarantee, and US$2m to local banks. These are renegotiable in succeeding years, which may further diversify the investor base. “Their objective is to reduce dependence on donor grants,” says a Citigroup banker in Mumbai, “Now they can get capital-market financing for their initiatives.”

BRAC commissioned a software program developed in Boston to go through the volume of its loan portfolio – at US$100 per loan, borrowers are in the millions – and identify a pool of non-delinquent loans to back the securitization. As BRAC’s collection efficiency reached 99% for the last three years, the Credit Rating Agency of Bangladesh gave AAA ratings to all tranches, which are priced with a spread against the 182-day Bangladesh Treasury-bond rate. On average, funding costs for BRAC amounted to 12% – 200 basis points lower than its average cost of funds from traditional sources such as bank loans.

As the first issuer of securitization in Bangladesh, BRAC and its advisors spent close to a year working with regulators on deal structure, allowing for stamp duty exemptions and accommodating future adjustments in loan tenors. As such, the deal not only paves the way for similar ones in Bangladesh, but in other developing nations as well. “We are in active discussion with other microfinance groups around the world, and we’re trying to replicate this in Eastern Europe and Latin America,” says John Dahl, head of securitization at Citigroup in Hong Kong. – ADR

STANDARD CHARTERED’S US$1.2 BN ACQUISITION OF HSINCHU
Financial advisors: Credit Suisse, Morgan Stanley

In March this year, Craig Liu, vice president for Taiwan at Credit Suisse, happened to sit beside Wu Chih-Wei, president of Taipei-listed Hsinchu International Bank, on a train ride from Hong Kong’s airport to town. Liu had been in regular contact with Wu regarding strategic issues for the mid-sized bank, but all of Credit Suisse’s M&A proposals were turned down. On the train, Liu tried again. He mentioned Britain’s Standard Chartered as a good fit for Hsinchu. This time, Wu signaled interest. Seven months later, Standard Chartered paid US$1.2 bn for nearly all of Hsinchu’s shares.

It was the first-ever acquisition by a foreign financial institution of a bank in Taiwan. Advised by Morgan Stanley, Standard Chartered paid a record price-to-book multiple of 2.3 times, higher than the average of the seven prior domestic acquisitions, and 34% more than Hsinchu’s closing price on the day prior to the announcement. Morgan Stanley declines to comment on the steep price, but some analysts note that seen as a p/e multiple of 2005 earnings, the purchase price is reasonable at 12.7 times.

For Standard Chartered, US$1.2 bn bought 83 branches (it had exactly three before the acquisition) and a commanding market share in Hsinchu, which is home to many of Taiwan’s technology companies. The British bank aims to leverage on this platform to introduce and cross-sell wealth management and other products, and to offer Taiwan corporates financing in China. As a Taiwan bank, Hsinchu could not follow its clients on their mainland forays, a constraint that does not apply to international banks.

For Hsinchu, selling out to Standard Chartered was better than being absorbed by a local bank that could have fired many of its 3,391 employees and its management team. Wu and other senior managers will continue to run Hsinchu, as Standard Chartered had indicated that it sees Hsinchu’s staff as a valuable resource that can be tapped for its own expansion in China.

Taiwan is potentially a winner too. Regulators in Asia’s fifth-largest economy and fourth-biggest banking revenue pool have been signaling their readiness to allow foreigners into the banking sector as a way of consolidating a fragmented industry and strengthening it for global competition. Now that Standard Chartered has blazed the trail, there is renewed interest in cross-border M&A in Taiwan. “There are 43 banks here, and we’re talking to a significant number of them,” says Credit Suisse’s Liu. – CB

AYALA’S PESO CORPORATE HYBRID
Financial advisor: HSBC

In the Philippines, Ayala’s treasury department prides itself on being a pioneer of financial instruments as the diversified conglomerate seeks to help develop the local capital markets. In 2004, it issued a first-ever 7-bn-peso, five-year corporate bond priced at only 20 to 25 basis points above the benchmark. In 2005, its two transactions totaling 7.2 bn pesos were priced 9% inside the benchmark – again a first, since local corporate issues have always been priced at a premium to the benchmark.

“This year, we asked ourselves what we can introduce to the market that was novel and a win-win solution for issuers and investors,” recounts Ramon Opulencia, Ayala’s treasurer. The answer: a peso-denominated corporate hybrid bond (known as a perpetual preferred share) that would be the first-ever local-currency hybrid in Asia, and one that neatly deals with a new wrinkle caused by the adoption of International Financial Reporting Standards (IFRS) in the Philippines. Previously, under local GAAP, preferred shares with a mandatory redemption were treated as equity, and the dividends accounted for after the net income line. Now, under IFRS, these preferred shares must be treated as debt and their dividends accounted for as interest, affecting not only net income but also the ratio of equity to debt and, potentially, a company’s credit rating.

Technically, says Opulencia, Ayala does not need to issue perpetual preferred shares because its balance sheet is strong enough to accommodate the IFRS rule. As well, any change in financial ratios makes no difference since the company has no creditor covenants. After piling up US$1 bn in dollar-denominated debt in the early 1990s, Ayala has deleveraged down to US$550m, in part as a response to the Asian financial crisis that saw a blow-out in the peso-dollar exchange rate. Opulencia’s strategy now is to source pesos from the local market, despite Ayala’s ablity to raise US$100m offshore “in two to three weeks”.

Ayala asked advisor HSBC to structure the hybrid such that it would be treated as equity even as it retained debt characteristics. That meant making the instrument permanent – no mandatory redemption, deeply subordinated, and with the option of deferring payment of dividends without the issuer being declared in default. Ayala also demanded tight pricing. Accordingly, the hybrid was priced flat against the benchmark, which didn’t deter investors whose demand encouraged Ayala to nearly double its issue to 5.8 bn pesos.

The keen investor interest may be due in part to Ayala’s sterling reputation, along with the instrument’s tax efficiency. As equity, the perpetual preferred share’s income is not taxed if the investor is a resident corporate, and taxed only 10% if a resident individual. In the Philippines, a 20% withholding tax is imposed on public corporate debt issues and on Treasury bills issued by the government. HSBC believes that the success of the Ayala hybrid will open up new funding alternatives, not only for Philippine borrowers, but also for other Asian corporates.

“The transaction underscores the value of an issuer’s home market as a viable source of non-dilutive equity,” says the bank, adding that “the improved capital efficiencies and strengthened credit ratios achieved through this domestic transaction could well prove to be of strategic value when volatility strikes the global bond market.” Maybe so, although issuers that are less well regarded than Ayala and those in markets that have little or no room for tax arbitrage may have to be priced much less tightly. – CB

GZI’S REAL ESTATE INVESTMENT TRUST
Financial advisors: Citigroup, HSBC, DBS

In the long list of investment firsts involving China, the first real estate investment trust (REIT) offered abroad is among the most notable. It wasn’t too long ago that all land and property in China were owned and controlled by the communist government. So when four commercial buildings in booming Guangzhou province were placed in the hands of private-sector – and foreign – investors, the transaction was bound to make people sit up and take notice. And buy. GZI REIT’s initial public offering last December was 177 times oversubscribed, with the Hong Kong tranche covered 496 times.

This is all the more remarkable because other IPOs were also jockeying for investors’ attention at that time. Link REIT, the controversial vehicle set up by the Hong Kong government to manage 180 commercial properties and car parks, was listed a month before GZI. Prosperity REIT, which owns seven office and industrial buildings in Hong Kong, went public a week before GZI. A mainland real estate developer, Agile Property, launched its IPO a day after Prosperity. All were multiple times oversubscribed.

Timing was certainly a factor for the deal’s success, and advisors Citigroup, HSBC, and DBS had gone on an accelerated marketing campaign to catch the wave. The roadshow schedule took GZI REIT executives to Hong Kong, Singapore, Amsterdam, and London in seven days, in addition to conference calls to investors in Australia and the US. In the meetings, the Chinese reps touted the REIT’s strong asset portfolio, implied yield of 6.54%, and potential gains from an appreciating renminbi. GZI REIT also secured a five-year right-of-first refusal agreement to acquire properties from Hong Kong-listed Guangzhou Investment, the investment arm of the Guangzhou municipal government.

Subsequent events have put a crimp on investor appetite for REITs. A year after GZI, no other mainland REIT has come to market. Beijing’s crackdown on real property investments to cool the economy is one reason. Another is a new rule that imposed heavy taxes on the transfer of property ownership offshore.

At one point, GZI REIT’s stock price fell 7% to HK$2.85 on the news, compared with the IPO price of HK$3.075. But the stock has since recovered, and closed at HK$3.21 on December 8. If nothing else, GZI REIT has proven that there is enormous overseas appetite for income-producing properties in China, and more important, the prospect of acquiring more real estate assets. The austerity measures are surely short term, and regulators may yet be persuaded to relax their anti-offshore ownership stance. At least, the first REIT step has been taken. – CB

CNPC AND OVL’S JOINT ACQUISITION OF PETRO-CANADA’S SYRIAN ASSETS
Financial advisor: Citigroup

The rise of China and India has the potential to create one of the most exciting economic rivalries of this century, but in at least one area, the two rising superpowers are finding that cooperation might actually work in their favor. With rising energy needs to support their thriving economies, both countries have mandated their state-run energy firms to be acquisitive, and have often found themselves competing against each other for the same overseas assets. The joint acquisition by China National Petroleum (CNPC) and OVL, the international unit of India’s Oil and Natural Gas (ONGC), of the Syrian assets of Petro-Canada last December, was the first of what could be numerous opportunities for them to work together – and fuel their growth in friendlier terms.

Fresh from a bidding war over assets of PetroKazakhstan in July last year, leaders of both countries acknowledged in a meeting at the Great Friendship Hall in Beijing in December that bidding each other out was not always the best way to go. Behind the scenes, CNPC had been working with Citigroup to acquire a stake in the Syrian assets operated by Shell. Recognizing ONGC as a likely competitor once again, bankers broached the idea of a joint bid to CNPC, a proposal that was quickly, surprisingly, welcomed by both parties. To avoid tension in pricing their bid, Citigroup made presentations of the assets’ production profile, operating and capital expenditure, and discount rates. “Once you’ve agreed on those parameters, it will be difficult to have too much variation in terms of valuation,” says a Citigroup banker in Hong Kong.

The deal was an easy win and a good start for M&A cooperation between the two countries: Their joint venture did not entail an operating agreement, and at €484m, the all-cash transaction was a small enough risk compared to the potential benefits. “It was a perfect asset because they could learn about each other without having to agree on Day One about facilities management, drilling schedules, and the like,” the banker adds. The assets made a significant addition to CNPC’s and ONGC’s reserves, and strengthened their relationship with the government of an oil-rich country.

Equally important, the deal set a precedent for future cooperation between Chinese and Indian companies in the energy sector. And it didn’t take long for a second deal to happen. Last August, Sinopec and ONGC agreed to acquire a 50% stake in Omimex of Colombia for US$800m. The deal brought the cooperation between the two countries to a new level, as they will take on the role as operator of the assets.

To be sure, the two deals are minuscule in value compared with what both are capable of spending, and analysts believe that for big-ticket acquisitions such as PetroKazakhstan, players from both countries would prefer to go it alone, and possibly engage in another bidding war. But opportunities like that don’t come very often; in the meantime, both countries can take comfort in the fact that by working together, at least in smaller deals, they could get better value for their money. – ADR

KHAZANAH’S US$750M ISLAMIC EXCHANGEABLE BOND ISSUE
Financial advisors: HSBC, UBS, CIMB

In a move that takes advantage of the amount of oil money sloshing around the region, Khazanah Nasional, the investment arm of the Malaysian government, issued the world’s first exchangeable Islamic bond in September, providing a benchmark for an innovative form of financing for companies in Islamic states. Khazanah raised US$750m in debt exchangeable for shares in Telekom Malaysia, a deal that also became the largest equity-linked issue out of the country. In doing so, Malaysia put its foot forward in the race among Islamic nations to become the center for Shariah-compliant financing in Asia.

Selling a new instrument, advisors to the deal faced the immediate challenge of investor education. Investors in the Middle East, who would take up one-third of the issue, were generally unfamiliar with the equity aspect of Islamic debt known as sukuk, which takes into consideration the fact that charging of interest is forbidden under Shariah law. On the other hand, traditional convertible-bond investors in the US and Europe, who bought the rest of the issue, had the opposite concern. This presented complications in structuring and pricing the deal.

In a traditional sukuk, the ultimate borrower creates a special-purpose vehicle (SPV) that then becomes the technical borrower. The borrower then transfers physical assets to the SPV and enters into an arrangement similar to a sale-and-lease-back agreement. The lease payments that the borrower makes to the SPV are then used to finance the coupon payments of the sukuk. For Khazanah’s exchangeables, the transaction is backed up not by a lease agreement but by Telekom shares transferred to the SPV. The dividend income on those shares is then used to pay the coupon. But because dividends are not guaranteed, the risk for investors increased. “So we had a number of features in the structure that maximized the likelihood that the coupons will get paid,” says Tom Lanners at HSBC in Hong Kong.

First among the solutions was to fix the coupon at roughly half the forecast level of the dividend; this way, even if Telekom were to halve its dividend, it would still have enough to cover the coupon obligations. Second, the advisors created a sinking-fund concept, where if there were more than enough dividends to cover the coupon payments early on, the surplus would be put into a fund to pay future coupons. Third, advisors made coupon payments cumulative, so that if there weren’t enough funds to pay the coupon early on, they would still be payable at the point in the future when funds became sufficient. This was a time-consuming process because each Islamic investor had its own Shariah board, and each could have its own interpretation.

As investors have become more aware of the structure, Lanners adds that other Islamic-country corporates can now follow suit. “There is a lot of money among Islamic investors,” he says. “And if you come with an Islamic issue, then you will have access to investors that you otherwise wouldn’t have been able to tap.” – ADR