October 2015

Debt Capital Markets

The Basics for Issuers (Asia Edition)

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Important Notice
This document is confidential and accordingly its contents are not to be disseminated or copied to anyone without our
consent. It is to be used solely for the purpose of making a determination on the provision of legal services and for no other
purpose. If we are not selected to represent the recipient of this document all information (whether in physical or electronic
form) which we have supplied to you or which you have compiled or derived from information we have given to you should be
destroyed or (in relation to electronic materials) deleted save to the extent the material is contained in electronic back up
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of this document does not create a client relationship with the recipient of this document or any organisation affiliated with
the recipient and if we are not selected to represent the recipient of the document we are therefore not precluded from acting
for another party in any matter in which the recipient or any affiliated organisation is involved (whether or not such matter is
the same as or related to one contemplated by this document) by virtue of any confidential information we receive during the
course of this selection process.

CONTENTS

Page

INTRODUCTION 1
STAGE ONE BEFORE MANDATE 2
STAGE TWO MANDATE

STAGE THREE BEFORE LAUNCH

STAGE FOUR LAUNCH

11

STAGE FIVE PRICING

12

STAGE SIX CLOSING

14

GLOSSARY 18

INTRODUCTION

The global financial crisis was without doubt a watershed, impacting companies and investors alike and bringing
with it sweeping changes to the regulation of banks. Among the many subtle changes in market dynamics brought
about by the crisis are those seen in the debt capital markets in Asia.
Companies that had traditionally relied on bank financing experienced directly the liquidity constraints brought
about by the credit crunch in 2008. As a result, many such companies became more willing to look at other
sources of financing available in the markets. This development has benefited the regions debt capital markets,
which experienced a boost from a new breed of issuers and once these issuers have entered the debt capital
markets and established a set of issuing documents, they seldom look back.
The global financial crisis has also impacted investors perception of risk. Many investors have scaled back their
aspirations for the return on their investments and opted to decrease their exposure to the equity capital markets
and increase the proportion of their investment portfolio allocated to the debt capital markets. These additional
investors in the debt capital markets create demand and enable issuers to price their issues at favourable rates
and tenors relative to bank financing.
From a regulatory perspective, banks have been subject to sweeping regulatory developments, including changes
in the amount of capital required to be set aside for loans made and the measurement of the risk associated with
those loans. Consequently, many banks have scaled back their lending, increased the pricing or the amount of
security they require, or become more selective in terms of companies or industries.
It is against this backdrop that we feel it is useful to distribute this publication, to provide companies that have not
yet had a flavour of the workings of the debt capital markets with a very brief introduction. For more seasoned
market participants, we hope this publication serves as a convenient reference.
If you have comments or questions, please feel free to get in touch with us.

Jeckle Chiu

Jason Elder

Thomas Kollar

Phill Smith

Partner

Registered Foreign
Consultant (New York)

Partner

Partner

Partner, Mayer Brown LLP

Debt Capital Markets | The Basics for Issuers (Asia Edition)

STAGE ONE

STAGE ONE BEFORE MANDATE

This section reflects our discussions with numerous potential issuers, and the considerations they have faced
when deciding how to structure their inaugural bond offering (or move into a new product class). We will discuss:
Bond structures and common features;
Offering structures Rule 144A and Regulation S;
Listings, ratings and ancillary decisions; and
Credit support within the issuer group or from a parent or governmental entity.
The goal of this section is to simplify the various structural options and to explain the terminology and preexecution structuring.

WHAT ARE THE DIFFERENT BOND STRUCTURES?

There are many different options when it comes to structuring debt instruments. Your investment bank advisers
can provide considerable information regarding the merits of the various options, but this overview has been
provided to familiarise you with the basic terminology.
The most basic differences among bonds relate to the way in which interest will be calculated, and how principal
will be repaid. After the basic commercial terms have been determined, creating the right instrument for your
company becomes a matter of selecting among the various specific features discussed below. When structuring a
bond, it is important to work closely with your investment banks to ensure the result will be familiar and
acceptable to the target investor base.
In Asia, common divisions can be made between secured and unsecured bonds, fixed or floating rate interest
mechanisms and the tenor of repayment. Investors expect to see other standard terms in the bond structure,
and we can work with you to explain what such terms mean and how they impact the commercial bargain.

Interest options:
Fixed rate: Interest rate fixed at issue and remains the same throughout the life of the bonds.
Floating rate: Interest rate typically expressed as a margin plus a floating benchmark rate, such as LIBOR,
HIBOR.
Zero coupon: Also referred to as zeros, zero coupon bonds are issued at less than 100 percent of their
principal (or face) amount. At maturity, 100 percent of the principal amount will become due and payable,
thereby compensating investors for a return on investment during the life of the bonds.
PIK: Payment-in-kind notes mean that interest accruing on the notes is added to the principal amount
outstanding, thereby increasing the bullet payment due at maturity. These instruments are used most
commonly in leveraged situations.

Specific features:
CoCos: Contingent convertible bonds with a maturity date and mandatory interest payment obligations
that automatically become shares in the issued share capital of the issuer, usually a bank, if the issuer s core
capital falls below a prescribed level.
Convertible bonds: Bonds convertible into shares of the issuer (or its parent) upon exercise of the
conversion right. For more information on this specific subset of debt capital markets product, please see
our publication entitled Convertible Bonds An Issuers Guide.

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STAGE ONE

Covenant packages: In relation to high yield bonds, limitations on incurring indebtedness, restricted
payments, liens, transactions with affiliates, sale and leaseback transactions, mergers, consolidations and
sales of assets, dividends, issuance and sales of equity interests in wholly-owned subsidiaries, guarantees
of indebtedness, business activities and anti-layering. We discuss the various aspects of the covenant
package below in greater detail.
Credit enhancement: Credit support designed to lower the issuer s cost of funding and to attract a
wider class of investors. Credit enhancement can take many forms, including guarantees, security and
keepwell or L/C support.
Dim sum bonds: Bonds denominated in offshore renminbi, whether settled in renminbi or another
currency marketed outside China.
Exchangeable bonds: Bonds that are exchangeable for existing shares in the issued share capital of
another entity (normally a subsidiary or company in which the issuer of the exchangeable bond owns a
stake).
Guaranteed bonds: If the issuer is a special purpose vehicle or finance subsidiary, the obligations of the
issuer will typically be guaranteed by its parent. In the case of a high-yield bond, the obligations of the issuer
may also be guaranteed by subsidiary guarantors who provide upstream guarantees supporting the
payment obligations of the issuer.
High-yield bonds: High-yield bonds are bonds issued by issuers with a credit rating below investment
grade. Typically, high-yield investors expect a higher return on investment and issuer compliance with
an incurrence-based covenant package that is more extensive as compared to investment grade issuers.
Please see also our publication entitled High-Yield Bonds An Issuers Guide for more information.
L/C backed bonds: A letter of credit issued by a bank is drawn if the issuer is unable to make payments
on a timely basis. An L/C makes economic sense if the issuer s cost of funding in the debt capital markets is
reduced by more than the cost of the L/C. Some convertible bonds are also L/C backed bonds.
Perpetual bonds: Subordinated bonds with a call option for the issuer but no maturity date which may be
issued to qualify as equity capital or regulatory capital thereby justifying the higher cost of funding.
Secured bonds: A bond with collateral that secures the underlying payment obligation of the issuer.
For example, for PRC-based operating companies with offshore finance structures, the issuer (or its
subsidiaries) typically pledges its shareholdings in offshore companies or other assets to holders.
Providing a security package may increase investor appetite for the bonds, and may lower the issuers
borrowing costs or it may make it possible to simply get a deal done at any cost.
Subordinated bonds: A class of bond that, in the event of a liquidation, typically ranks after senior bonds
and secured bonds with an explicit subordination feature in the issuers capital structure.

WHAT IS THE DIFFERENCE BETWEEN A REGULATION S-ONLY OFFERING AND AN OFFERING WITH A
TRANCHE FOR RULE 144A INVESTORS?
Regulation S: Regulation S-only indicates an offering to institutional investors outside the United
States. For this type of offering structure, the issuer will not be able to offer or sell to US accounts directly,
for example through a roadshow in the United States.
Rule 144 A: Rule 14 4 A bonds can be offered to qualified institutional buyers in the United States.
Consistent with customary market practice, the offering document will contain information substantially
similar to that required for a registered offering in the United States. Rule 144A offerings will typically have
a Regulation S tranche for offshore sales.

Debt Capital Markets | The Basics for Issuers (Asia Edition)

STAGE ONE
SUMMARY COMPARISON OF REGULATION S-ONLY AND RULE 144 A OFFERINGS
Regulation S-only

Rule 144 A / Regulation S

Investor base

Institutional investors and high net worth

individuals outside the United States

Qualified institutional buyers in the

United States and Regulation S investors

Disclosure
requirements

Offering memorandum with risk factors,

business description and recent audited
and interim financial statements

Same as Regulation S disclosure, but

typically more detailed disclosure
regarding the issuers business
operations, and inclusion of MD&A
section providing a narrative discussion
of the issuers financial results for the
most recent three years

Governing law

English, Hong Kong or, to a lesser extent,

New York law

New York, English or, to a lesser extent,

Hong Kong law

Clearance and
settlement

Clearstream, Euroclear or, for dim sum

bonds, the CMU Service

The Depository Trust Company and

Euroclear/Clearstream

Regulator y
requirements

No filings if no offer to the public in any

jurisdiction except for stock exchange
listing requirements

Same as Regulation S

Execution timetable
(assuming no existing
disclosure)

4- 6 weeks

4-8 weeks

Legal due diligence

Limited review of board minutes, material

contracts and any legal proceedings

Extensive review of board minutes,

material contracts, any legal proceedings
and other documentation

Legal opinions

Issuer, guarantor and enforceability

opinions

Same as Regulation S + 10b- 5 disclosure

letter, Investment Company Act analysis

WHAT ARE MTN PROGRAMMES?

EMTN (Euro Medium Term Note) or GMTN (Global Medium Term Note) programmes are framework issuance
platforms listed on a stock exchange that are typically updated annually. They are designed to facilitate the rapid
and low-cost issuance of a wide range of debt instruments on a private placement or syndicated basis during a
12-month period by high-volume issuers.

SHOULD WE OBTAIN A RATING AND IF SO, HOW MANY DO WE NEED?

The ratings process can add considerable value to the pricing element of the process by providing investors with
an estimated range of yield during the offering process. For high-yield issuers, two ratings are typically obtained,
particularly following the global financial crisis.
The ratings process and dealing with the ratings agencies will be coordinated by your investment bank
advisors, and will run in parallel with the preparation of the offering document and other materials.

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STAGE ONE

SHOULD WE OBTAIN A LISTING OF THE BONDS ON A STOCK EXCHANGE OR AT ALL?

As some investors can only invest in bonds listed on a stock exchange, a listing on the SEHK or the SGX-ST or the
Irish Stock Exchange will help to widen the potential investor base. SEHK-listed companies benefit from a
streamlined vetting process in Hong Kong. We can provide additional guidance regarding the pros and cons of
different listing venues based on your specific circumstances.

SHOULD WE USE AN SPV TO ISSUE THE BONDS?

Many issuers prefer to issue guaranteed bonds via a special purpose vehicle to keep finance raising as a separate
activity in their corporate structure. If the issuer is a Listco, the further issues condition in the terms and
conditions of the bonds will typically permit the issuer to issue any equity or debt securities (including a Fungible
Issue) without the consent of the existing holders of such bonds. However, If the issuer is a SPV (incorporated
solely to issue one series of bonds), only a Fungible Issue of bonds may be made without the consent of the existing
holders of such bonds. Issuers incorporated as a company under Hong Kong law may be advised to use an SPV
incorporated in an offshore jurisdiction to avoid debating whether the bonds denominated in Hong Kong dollars
are loan capital for the purposes of Hong Kong stamp duty applied to transfers of bonds required to be
registered in Hong Kong under the Companies Ordinance. Also, issuers may be advised to interpose an SPV as the
issuer of convertible bonds for stamp duty, or functional currency accounting reasons. However, bonds which are
subordinated to senior debt and provide the issuer with the option of deferring its obligation to pay interest may
not be able to achieve the desired status of a regulatory capital or classification as equity if an SPV is interposed as
the issuer.

WHAT IS A KEEPWELL DEED/DEED OF EQUITY INTEREST PURCHASE UNDERTAKING?

Keepwell agreements may take various forms and provide different degrees of comfort to bondholders. Some
may be drafted to be a non-legally binding letter of comfort, where the parent company merely acknowledges
that debt is being raised by its subsidiary, to ensure that the subsidiary would be able to service its debts without
an intention to create a legal relationship.
Others may be legally enforceable by a trustee for bondholders, and be in the form of a deed, but unlike a
guarantee, the parent company injects capital into its subsidiary to enable it to service its debt, instead of directly
repaying the creditor as primary obligor.
A deed of equity interest purchase undertaking with the trustee is an undertaking to purchase shares in its
subsidiaries following an event of default as an additional means of liquidity for the issuer.
PRC issuers adopting such credit enhancement structure do not require regulatory approval and the bond
proceeds may be used onshore or offshore whereas a guarantee by a PRC entity of an offshore bond issue must
be registered or the bond proceeds cannot be used onshore.
ParentCos/controlling shareholders may be asked to issue letters of comfort, guarantees, keepwell deeds and
equity purchase undertakings.

Debt Capital Markets | The Basics for Issuers (Asia Edition)

WHO ARE THE USUAL PARTIES?

Auditors: The issuer s (and guarantor s) auditors provide comfort letters to the JLMs at signing and
closing and participate in the due diligence and OC preparation processes.
Calculation agent: The calculation agent (usually a bank) is usually only required where calculations of
interest or other payments are complex, for example, when calculating interest referenced to movement in
a stock market index.
Clearing systems: Electronic systems, called clearing systems, allow bondholders to hold and trade
bonds in book entry form. These systems enable bonds to be traded by debiting and crediting accounts on
behalf of bondholders, into which securities or cash can be transferred electronically without the need for
physical delivery.
Common depositary: A custodian who holds the global certificate for the clearing systems through
which the bonds are held and traded.
Fiscal agent or trustee: Bond issues either have a fiscal agent structure or a trustee. See Why do most
bond issues have a trustee? below.

If a fiscal agent is appointed, it is the principal paying agent, and as such, makes payments of interest and
principal to the bondholders. It also has other administrative functions in relation to the issue of the bonds.
Individual bondholders can trigger repayment upon an event of default.

The trustee acts on behalf of bondholders as an intermediary between them and the issuer, representing
the bondholders interests throughout the life of the bonds. The trustee is usually a professional trust
company and enters into a trust deed (or an indenture) with the issuer. Only the trustee can declare an
event of default.

Lawyers: The issuer (and guarantor) and the JLMs each instruct lawyers to draft the documents
and prepare legal opinions. The JLM s lawyers draft the contractual documents and the issuer s (and
guarantor s) lawyers comment on the drafts and prepare the OC. The trustee will also instruct a lawyer to
review the transaction documents and legal opinions on its behalf.
Lead manager and managers: An issuer often looks to market its bonds to a wide number of unknown
investors, but often does not have direct access to them (especially if it is the first time it has done a bond
issue). Accordingly, the issuer mandates one or more investment banks (JLMs and bookrunners) pursuant
to a mandate letter which contains the indicative terms of the bond issue and various indemnities.

The lead manager contacts other investment banks to form a syndicate, which agree to buy the bonds
and then sell them to investors, or to buy those that are not sold on a joint and several basis (this is called
underwriting the issue). The investment banks get a commission for agreeing to buy the bonds. The
investment banks in the syndicate are called managers or underwriters.

Private placements of bonds to a single subscriber consist of the issuer, an investment bank as the manager
and the investor as the subscriber.

Listing agent (if the bonds are listed): The listing agent (usually the issuer s lawyer) advises the
issuer on the procedure for listing the bonds and submits the documents for listing to the relevant stock
exchange.
Paying agents: Paying agents act as the agents of the issuer in making payments of interest and principal
to the bondholders throughout the life of the bonds.

mayer brown jsm 6

STAGE TWO

STAGE TWO - MANDATE

 Printers: Specialist financial printers revise drafts of the OC and announcements and print the OC.

STAGE TWO

Process agent: A process agent is appointed in a particular jurisdiction when the parties to the
transaction agree to submit to the courts of that jurisdiction, for example, the courts of England and
Wales. The process agent agrees to accept service of court papers on behalf of the instructing party. One
is not required, for example, where the issuer is incorporated under Hong Kong law and only submits to the
courts of Hong Kong.
Rating agent: The issuer might approach a rating agency (such as Fitch, Moody s or Standard & Poor s) to
assess the financial position and creditworthiness of the issuer and assign a grade (or rating) to the issuer
or its bond issue.
Registrar: For bonds in registered (not bearer) form, a bank or trust company is appointed as an agent
of the issuer to maintain a register of the names and addresses of registered owners and any change
in ownership when bonds are sold. In practice, where the bonds are evidenced by a global certificate
registered in the name of a nominee of the common depositary, the registrar is idle.
Settlement lead manager: The settlement lead manager facilitates completion of the formalities on the
closing date.

WHY DO MOST BOND ISSUES HAVE A TRUSTEE?

A trustee offers several advantages:
Avoiding the need to call meetings: In the absence of a trustee, the issuer may have to convene a
bondholders meeting to agree even minor changes to the issue terms or to waive insignificant breaches
of bondholders covenant. Such a meeting can be difficult to arrange, expensive to hold, and the outcome
may be uncertain if the issuer has been unable to communicate with bondholders in advance. The
convening of a meeting can also have an adverse impact on the issuer s market standing and leave the
issuer vulnerable to the short term whims of aggressive bondholders.
Crisis management: Perhaps the single most important role that a trustee can play is in crisis
management. Credit standing is a matter of market confidence. A trustee can act behind the scenes to
help the issuer overcome a potential event of default. A trustee can provide an accurate gauge of the
bondholders likely reaction to a proposed course of action.
Events of default: A trustee may be able to prevent an event of default from triggering repayment of the
bonds if the effect is not materially prejudicial to bondholders. With a fiscal agent it is possible for bonds
to become repayable if a single opportunistic bondholder detects a minor event of default that cannot be
cured quickly, even if the damage caused to the borrower and the remaining bondholders is potentially
enormous (for example, through triggering cross-default provisions in other financing agreements).
Flexibility: Covenant packages, negative pledges, events of default, provisions to protect conversion and
exchange rights, and the imposition of withholding tax all of these can be inflexible and may restrict the
issuer s business without the exercise of discretion on the bondholders behalf by a trustee. Comparable
powers, if vested in a fiscal agent, will give rise to conflicts of interest.
Oversight: Certain restrictive covenants, for instance, compliance with negative pledges and the
provisions restricting the disposal of the issuer s assets, can only operate effectively with a trustee.
Security: For secured bonds and bonds with a negative pledge, a trustee can hold security on the
bondholders behalf providing each bondholder with an individual security interest would be impractical.

Debt Capital Markets | The Basics for Issuers (Asia Edition)

 Combined management and underwriting commission: Such commission is expressed as a

percentage of the aggregate principal amount of the bonds, and paid to the JLMs, pro rata in accordance
with their respective commitments.
Performance fee: This is an optional fee (also expressed as a percentage of the aggregate principal
amount of the bonds) and is usually split, allocated and paid to the JLMs at the determination of the issuer
and shall be deducted from the subscription moneys for the bonds.
Private banking rebates: This acts as an incentive for the private banking arms of the investment bank to
source buy and hold private banking clients as investors. The rate may be 0.25 percent (plus or minus) of
the principal amount of the bonds purchased by such private banks.

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STAGE TWO

WHAT TYPES OF FEES DO INVESTMENT BANKS EARN?

STAGE THREE - BEFORE LAUNCH

WHAT IS THE USUAL BOND DOCUMENTATION?
The principal documents include:
Agency agreement: An agency agreement where the issuer appoints agents to carry out particular
agency functions on its behalf in respect of the bonds.
Arrangement letter: An arrangement letter from the auditors addressed to the JLMs setting out the
terms of their engagement and the limit of their responsibilities.

STAGE THREE

Deed of covenant: A deed of covenant where the issuer agrees, in the absence of a trustee, that the
records of the clearing systems may be relied upon as to who has an interest in the global certificate.
DDQ: A due diligence questionnaire as the basis for the discussion where the JLMs conduct a due diligence
session with the management of the issuer.
Financial information certificate: A financial information certificate signed by a director or chief
financial offices of the issuer confirming that there has been no material change in the turnover/profit /
asset /liabilities of the issuer since the last accounting period. This may be required in order to address the
lack of line item coverage given by the issuer s auditors in comfort letters.
First comfort letter: A first comfort letter from the issuer s auditors to the JLMs confirming at the
signing that the JLMs may rely on the financial statements in the OC. It also sets out the limited non-audit
due diligence carried out for the period after the last financial statements and confirms that on this basis
there has been no material adverse change, and that certain financial information in the OC has been cross
checked to the audited financial statements, see Tick and Tie.
Global certificate: A global certificate issued by the issuer and containing the issuer s promise to pay
interest and repay principal on the bonds. This is delivered to a custodian to hold for the clearing systems,
for example, Euroclear and Clearstream.
Incumbency certificate: An incumbency certificate containing specimen signatures of the authorised
signatories of the issuer.
Intercreditor agreement: An intercreditor agreement between various security providers and security
trustees where the same collateral is shared for the benefit of different bond issues by the issuer.
Legal opinions: Legal opinions to the JLMs and the trustee from the lawyers advising them and from
lawyers in the jurisdiction in which the issuer (and the guarantor, if any) is incorporated.
Listing documents: Listing documents for a listing of bonds on the Hong Kong Stock Exchange include
Form C2 for the issuer (or guarantor), Form A , formal notice, the waiver letter with respect to the
definition of professional investors, the SEHK checklist and the Par t XV SFO exemption.
Mandate letter: A mandate letter from the issuer to an investment bank or banks authorising them to
arrange a bond issue.
OC: The OC (in preliminary form, i.e. without pricing details) setting out the terms and conditions of the
bonds (or a description of the bonds where the bonds are governed by New York law and the subject of
an indenture) and the business, risks, S&S of the issuer together with its most recent audited financial
statements, plus interim results if applicable, furnished to prospective investors.
Process agent: A process agent appointment letter is required where the issuer is incorporated in a
jurisdiction which is different from the jurisdiction of the courts in the submission to jurisdiction clauses.

Debt Capital Markets | The Basics for Issuers (Asia Edition)

 Roadshow materials: The roadshow materials are in the form of Powerpoint slides to show potential
investors. The information presented must be consistent with the OC. Roadshow materials accessible with
a password via the Internet are called the net roadshow .
Subscription Agreement/Purchase Agreement: A Subscription Agreement/Purchase Agreement
setting out the terms upon which the JLMs agree to subscribe or procure subscribers for the bonds.
Bringdown comfort letter: A second comfort letter updated at closing in similar terms to the first
comfort letter.

WHAT ARE THE USUAL TERMS AND CONDITIONS?

In addition to the terms relating to the calculation and payment of interest and repayment of principal, the terms
and conditions of unsubordinated, investment grade bonds will usually contain:
Change of control investor put option: A change of control investor put option where the
bondholders have the right to put their bonds back to the issuer at say 101 percent of the principal if the
controlling shareholders cease to be able to control the composition of the board of directors of the issuer.
In some cases, this right arises when the change of control also results in a credit rating downgrade.
Events of default: Events of default impact the issuer and its principal subsidiaries. Principal subsidiaries
are usually defined to mean subsidiaries with a 5 percent /10 percent total revenue/profit /asset when
compared to the total consolidated revenue/profit / asset of the issuer/guarantor. Upon an event of default,
the bonds may become immediately due and repayable.
Make whole or preset premium issuer call option: A make whole or preset premium issuer call
option allowing the issuer to pay off the remaining bonds early. A make whole amount is a lump sum
payment derived from a formula based on the NPV of future coupon payments that will not be paid
because of the call. This differs from the early prepayment right in bank loans where the borrower is
typically free to prepay on any interest payment date without premium or penalty.
Negative pledge clause: A typical capital markets negative pledge clause is only activated by the issue of
secured bonds in the future.
High yield bonds will contain a more extensive covenant package. For more information, please see our
publication entitled High Yield Bonds An Issuers Guide.

ARE ANY CONSENTS AND APPROVALS NEEDED?

Issuers need to ensure no consents are required from third parties (for example, lenders of existing loans,
regulators) for the bond issue. Issuers need to obtain their board approval which includes, for example, approving
the issue of the bonds, entering of the transaction documents, roadshows, listing application and the content of
the OC. Subsidiary guarantors providing upstream guarantees may also require shareholder approval.

WHAT IS WALL CROSSING?

Wall-crossing is when the sell side of an investment bank talks to the buy side of an investment bank about a
potential bond issue before it is announced on BBG and prior to the roadshow with a view to the buy side gauging
investor interest in the deal, and if so, at what pricing and subject to what terms and conditions. Any inside
information disclosed to the buy side must be on the basis that any potential investor acknowledges it to be inside
information and that it must be kept confidential and that no trading in the shares of the company on the basis of
that information can take place.
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STAGE THREE

Trust deed: A trust deed between a trustee and the issuer whereby the trustee is appointed to hold
the issuer s covenant to pay on trust for bondholders. Also known as an indenture where the bonds are
governed by New York law.

STAGE FOUR - LAUNCH

WHAT SIGNIFIES THE LAUNCH?
Launch is when the BBG announcement is released and the launch announcement (if required) is published. The
lead manager sends the e-red version of the OC to potential investors and invitations to attend a presentation or a
one-on-one meeting with the issuer at meetings usually held in Hong Kong , Singapore and London (depending on
the target investor base) and to present information about the issuer (NDR) and the potential bond issue (DR).

WHAT ARE THE DIFFERENCES BETWEEN AN NDR AND A DR?

An NDR is a non-deal roadshow where the issuer only provides information about itself, without disclosing any
information regarding the bond issue in meetings with investors prior to potential pricing of the bonds.
A DR is a roadshow marketing both the issuer and the indicative terms of the bond issue.

WHAT DO WE NEED TO TELL OUR SHAREHOLDERS IN A LAUNCH ANNOUNCEMENT?

STAGE FOUR

The issuer needs to ascertain if there is any PSI in the OC. If so, the PSI must be disclosed to shareholders.
According to the SFC, law firms are not normally qualified to give advice regarding what should or should not be
disclosed for two reasons. First, to do so would involve an assessment of facts about which external lawyers are
not always fully informed; external parties could therefore run the risk of falling between the cracks when
providing such advice. Second, the directors and senior management of listed companies (the controlling mind
of a company, but not others) have to take responsibility and to consider all factors, including whether the
relevant information should be disclosed to the investing public, and whether the disclosure of such information
would be likely to move the share price. While external lawyers are able to provide guidance on what the legal
disclosure requirements are, they are handicapped when it comes to assisting a client in making a substantive
disclosure assessment, because they lack the controlling minds perspective.
If there is no PSI, there are two levels of market practice:
1. Do nothing , i.e. announcement: Only applicable if the issuer believes the information relating to the bond
issue is non-price-sensitive.
2. Publish an awareness announcement: Applicable if the bond issue is potentially price-sensitive or the issuer
believes good corporate governance requires that its shareholders be informed.

SHOULD WE BE CONCERNED ABOUT BLACK-OUT PERIODS?

The prohibitions under Clause 3 of Par t A , Appendix 10 (Model Code for Securities Transactions by Directors of
Listed Issuers ) of the Listing Rules are only binding on the directors of a listed company.
However, it is rare for bond issues to be launched in a black-out period due to the risk that material information
was withheld from investors. Also, investors like to invest on the basis of recently released financial information so
launches occur immediately after the release of results.

11

Debt Capital Markets | The Basics for Issuers (Asia Edition)

STAGE FIVE - PRICING

WHAT HAPPENS BEFORE PRICING?
While bookbuilding is being undertaken by the bookrunner(s) (the receipt of buy orders for the bonds in certain
amounts at certain prices), the SA , the trust deed and the agency agreement will be finalised. The listing eligibility
letter confirming the bonds are eligible for listing (subject to pricing), as well as the waiver from the strict
definition of professional investor in the Listing Rules to accommodate the wider definition under the SFO will
be granted by the SEHK.

WHAT CHANGES CAN BE MADE TO THE FINAL OC FROM THE POC?

Material changes made to the final OC, must be circulated to investors. Typographical errors need not be
recirculated.

WHAT HAPPENS AT PRICING, AND WHAT DOCUMENTS ARE REQUIRED TO BE SIGNED?

Following the roadshows and the bookbuilding exercise, the issuer and the JLMs then agree the interest rate, the
issue price, the issue date and the maturity date of the bonds. The SA is signed by the issuer and the managers. The
managers are now legally committed subject to conditions precedent and force majeure. The first comfort letter
and the arrangement letter are also signed and the final OC (containing the pricing terms) is despatched to
prospective investors. The process agent should also be appointed. The issuer s counsel makes a formal listing
application to the SEHK.

If the bonds are being priced by reference to a spread over comparably dated UST, it may be necessary to agree to
an issue price below or above par to create a rounded coupon, for example, 5.25 percent which provides the
desired YTM of say 5.43 percent. Another explanation is because an issue price below par enables the bonds to be
distributed at par enabling the distributors to earn a turn in the process equal to the initial discount to par in
addition to any management and underwriting fee or private banking investor rebate.
See also Zero coupon bonds under What are the different bond structures? in Stage One.

WHAT DO WE NEED TO TELL OUR SHAREHOLERS?

A pricing announcement will be published by the issuer immediately after pricing and signing of the SA to inform
shareholders of the bond issue in the circumstances below.
The issuer will need to announce the details of any pledging of shares by the controlling shareholder as required
under paragraph 13 .17 of the Listing Rules and details of any covenants relating to specific performance of the
controlling shareholder as required under paragraph 13 .18 of the Listing Rules which may include a change of
control investor put option.
In addition, the issuer may announce details of the bond issue if the issue itself is PSI or if the issuer believes it is
good corporate governance to inform shareholders.

mayer brown jsm 12

STAGE FIVE

WHY IS THE ISSUE PRICE NOT ALWAYS 100 PERCENT?

STAGE FIVE

The pricing announcement in respect of an issue of convertible bonds will usually contain a summary of the SA
(for example, terms of the subscription, conditions precedent, termination, shareholders lock up), principal terms
of the convertible bonds (including the principal amount, coupon, tenor, issue price, conversion period and
conversion price, call/put options), if listing is sought, the effect on the issuer s share capital upon conversion, use
of proceeds, reasons for the issue and if the issue is covered by the issuer s general mandate and any fund raising
activity by the issuer in the preceding 12 months.

13

Debt Capital Markets | The Basics for Issuers (Asia Edition)

STAGE SIX - CLOSING

WHAT HAPPENS AT CLOSING?
After bringdown due diligence takes place, closing occurs on a delivery versus payment basis which involves
delivery of a global certificate to a common depositary as custodian for the clearing systems and the payment of
the net proceeds of an issue of bonds to the issuer.

WHAT CONTINUING PSI OBLIGATIONS ARISE FROM LISTING BONDS ON THE SEHK?
The principal continuing obligation of the directors of the issuer relates to the disclosure of price- sensitive
information, i.e., inside information which will impact on the trading price of the bonds.
However, if the issuer already announces price-sensitive information pursuant to its obligations as a SEHK listed
company, there should be only bond-related info (as listed below) to disclose:
If aggregate redemptions or cancellations of the bonds exceed 10 percent and every subsequent 5 percent
interval;
Repayment of the bond issue; or
Any public disclosure made on another stock exchange about the issuer s debt securities.

ARE THERE ANY OTHER LISTING OBLIGATIONS?

The SEHK must be notified if any of the following occur:
The existing trustee is being replaced or if the trust deed is amended;
The issuer repurchases or redeems all of the bonds prior to the maturity date pursuant to a liability
management exercise (see below); or
The bonds are listed on another stock exchange.

CAN THE ISSUER OR A SUBSIDIARY OF THE ISSUER PURCHASE AND HOLD ITS OUTSTANDING BONDS?
Bonds purchased by the issuer usually have to be cancelled immediately. Even if the terms and conditions of the
bonds allow a subsidiary to purchase and hold bonds as an investment, any acquisition by a subsidiary, even from
an independent third party, may constitute financial assistance and a connected party transaction under the
Listing Rules (see FAQ 20 of Series 9).

Yes. The directors of the issuer are expected to comply with their existing listing obligations as directors of a listed
company.

ARE THERE ANY DIFFERENCES IF WE HAVE APPLIED FOR PART XV EXEMPTION?

Part XV SFO Exemption only applies to a SPV issuer/listco guarantor structure.
The directors of the SPV issuer are exempted from complying with the disclosure obligation after trading of listed
bonds in their capacity as directors of the SPV issuer, given the exemption exempts the SPV issuer (as a listed
corporation), its substantial shareholders, directors and officers from compliance with the requirements under
Part XV of SFO in relation to the issue of the bonds.

mayer brown jsm 14

STAGE SIX

DO OUR DIRECTORS HAVE TO FILE DI FORMS AFTER PURCHASES AND SALES OF THE BONDS?

However, the directors of the SPV issuer are still required to submit DI forms after trading of listed bonds in their
capacity as directors of the guarantor if it is a listed company.
The SFC exemption only exempts the SPV issuer as a listed corporation, but not the guarantor as an existing listco
listed on the Stock Exchange, from Part XV SFO compliance. The listco guarantor is still expected to comply with
its existing listing obligations.
After consulting the market, the SFC concluded in March 2013 that the SFO needed to be revised to exclude listed
corporations (whose only listed securities are debt securities which are not convertible into equity securities)
from the disclosure of interests regime under Part XV of the SFO.

ANY LOCK-UP OF SHARES?

A lock-up of shares is more common in conjunction with an issue of convertible bonds where shares of existing
shareholders will be prevented from being sold for up to 90 days in order to facilitate an orderly marketing ,
distribution and trading of convertible bonds.

WHAT NOTIFICATIONS HAVE TO BE MADE TO THE TRUSTEE?

The issuer is required to notify the trustee upon:
An event of default;
Late/non-payment of interest;
Redemption or repayment;
Tax redemption;
Change of tax jurisdiction;
Change of authorised signatory;
Becoming aware of material breach of obligation in respect of the bonds by the agents; or
Sending notice to bondholders.

WHEN DOES THE ISSUER NEED TO DEAL WITH THE AGENTS/REGISTRAR?

The issuer needs to deal with the agents/registrar in connection with:
Payment of principal and interest where the issuer pays the paying agent on or before the day on which
payment becomes due;
Replacement of bond certificates with the replacement agent;

STAGE SIX

Cancellation of bond certificates with the registrar;

A redemption event;
Event of default;
Resignation of the existing agent; or
Notices to bondholders via the clearing systems.

15

Debt Capital Markets | The Basics for Issuers (Asia Edition)

DO WE NEED TO PROVIDE COPIES OF AUDITED FINANCIAL STATEMENTS/CORPORATE

COMMUNICATION TO ADDITIONAL PARTIES (FOR EXAMPLE, TRUSTEE), AS A RESULT OF THE BOND
ISSUE?
During the life of the bonds, the issuer is usually required to:
Send copies of the issuer s annual financial statements to the trustee within four months of publication
and within three months for interim financial statements;
Allow the trustee access to its books of account and upon the trustees request;
Issue a certificate of compliance confirming no event of default has taken place; or
Issue a certificate setting out the number of bonds of each series held by or for the benefit of the issuer.

DO ANY ACTIONS NEED TO BE TAKEN ONCE THE BONDS MATURE?

No action is required to be taken. The listing status of the bonds expires automatically on the maturity date.

WHAT IS A LIABILITY MANAGEMENT EXERCISE?

A liability management exercise is a post completion balance sheet restructuring resulting in, for example, a lower
cost of finance, longer maturity profile or less security which, among others, may involve:
The exercise of a call option by the issuer and the redemption of outstanding bonds in accordance with
their terms and conditions;
Repurchases of outstanding bonds in privately negotiated transactions between a willing seller and the
issuer as a willing buyer or via a tender offer to bondholders; or
An offer to exchange existing bonds for a new issue of bonds.

In Azevedo v. Imcopa Importacao, Exportacao E Industria De Oleos Ltd [2013] EWCA Civ 364 , the English Court of
Appeal held that it was acceptable for a company to offer a carrot to bondholders to vote in favour of a
restructuring proposal. Imcopa (the issuer) proposed resolutions postponing the payment of interest that was
due under the bonds and offered a cash payment to bondholders who voted in favour of the resolution, in the
event that the resolution passed. Those that did not vote in favour of the resolution or did not vote on the
resolution at all were not entitled to receive the payment. The claimants voted against the resolutions and argued
that the offer and associated payments were unlawful as they were in breach of the pari passu principle, which was
explicitly required by the Trust Deed, or alternatively they were a bribe and so were unlawful under English law.
The court held that the pari passu obligation only applied to money in the hands of the Trustee and in this case the
money did not pass through the hands of the Trustee. The court further held that it is not inconsistent with English
company law for an offer of payment to be made to bondholders who vote in favour of a resolution, where
payment is available to all members of the class and provided that the basis of the payment is made clear in the
documents relating to the resolution. The court held that it is inappropriate to speak of bribery in this context as
the details of the consent fee were fully disclosed to all bondholders and therefore no bondholder was excluded
from receiving the consent fee.

mayer brown jsm 16

STAGE SIX

IF THE TERMS AND CONDITIONS OF THE BONDS NEED TO BE RESTRUCTURED WITH APPROVAL OF
BONDHOLDERS, IS IT PERMISSIBLE TO PAY A CONSENT FEE TO BONDHOLDERS TO INCENTIVISE
THEM TO VOTE IN FAVOUR?

IF THE TERMS AND CONDITIONS OF THE BONDS NEED TO BE RESTRUCTURED WITH APPROVAL
OF BONDHOLDERS, IS IT PERMISSIBLE FOR A MAJORITY OF BONDHOLDERS TO IMPOSE THE
RESTRUCTURING TERMS ON OTHER BONDHOLDERS?
In Assnagon Asset Management S. A . v. Irish Bank Resolution Corporation Ltd [2012] EWHC 2090 (Ch), the
English High Court considered an exchange offer by an issuer to exchange existing bonds for new bonds. To
accept the exchange, bondholders were required to direct a proxy to vote in favour of the exchange and to amend
the terms of the original bonds to allow the issuer to redeem them for nominal consideration (0.01 per 1,000 in
principal amount of the original bonds) in the words of the court, a coercive threat which the issuer invites the
majority to levy against the minority .

STAGE SIX

The court held it was unlawful for a majority of bondholders to pass a resolution which would destroy the
minority s value of their bonds. This is an exception to the general principle that any validly passed resolution at a
meeting of bondholders is binding on all bondholders even if they vote against or if they are absent from or
unrepresented at the meeting.

17

Debt Capital Markets | The Basics for Issuers (Asia Edition)

GLOSSARY
ABB

Accelerated book build deal

AFS

Audited financial statements

AUP

The agreed upon procedures set out in an auditors comfort letter which are undertaken to assure the
JLMs that the circle up numbers set out in the offering circular have been correctly extracted from the
issuers financial statements, accounting records and schedules prepared by the issuer

Anchor Order

A substantial order for bonds received from an investor during the book building process

Basis point

One-hundredth of 1 percent i.e. 0.01%, also known as a bip and abbreviated as bp

B&D

Billing and delivery in relation to the settlement arrangements for the closing of a bond issue hence, B&D
agent, also known as the settlement lead manager

BBG

Bloomberg and, in the context of the commencement of a roadshow or bookbuilding, an announcement

on Bloomberg

Benchmark

$500 million (or the equivalent in the currency in which the bonds are denominated)

Issue Size
Blackout Period

A self-imposed period (also known as a Quiet Period) that for many listed companies begins one month
before the announcement of its interim or year end results when access to the company s senior
executives is restricted and no meetings with investors are held

Cap table

A table summarising the short-term and long-term debt finance owed, and shareholders equity, as at a
particular date comprising the capitalisation of the company

CoC

A change in the identity of the controlling shareholder of an issuer which may result in a down grade of the
credit rating of the issuers bonds

CoC Put

A right granted to holders of bonds to require the issuer to redeem the bonds before their scheduled
maturity date if a CoC occurs

Condensed financial

An issuers interim financial statements in respect of an accounting period of less than one year which are

statements

not as comprehensive as its audited financial statements in respect of a full year

DDQ

Due diligence questionnaire

DI

A disclosable interest in a Listcos shares or bonds

Doc bank

The JLM with overall responsibility for finalising the transaction-documents in respect of a bond issue

DR

Deal roadshow

Dry Run

After obtaining the current trading price of comparably dated UST (or the equivalent) and immediately
prior to the actual pricing of a new issue of bonds, one of the JLMs will read out the proposed terms to the
issuer (including the spread over comparably dated UST)

EBIT

Earnings before interest and taxes

EBITDA

Earnings before interest, taxes, depreciation and amortisation

F-pages

Separately numbered pages of the OC reproducing the issuers (and the guarantors) most recent
financial statements
Final pricing guidance

GLOSSARY

FPG

mayer brown jsm 18

Fungible Issue

In the context of an already outstanding issue of bonds, a further issue of such bonds which is
consolidated with, and forms part of the same series as, the outstanding issue of bonds and which is
traded through the clearing systems with the same securities identification number and, where the
existing issue was a tap issue, the fungible issue, may also be referred to as a re-tap

G-spread

The excess return which investors specify in the bookbuilding process in order to invest in an issue of
fixed rate bonds by the issuer to compensate for the additional risk investors perceive relative to
investing in comparably dated government bonds issued by, for example, the United States government
(UST in the case of US dollar denominated bonds)

Go/No go call

A conference call involving the working group to provide a market update and to ensure all necessary pre
launch steps have been taken immediately prior to uploading a BBG announcement about the potential
deal

Hard Underwriting

An undertaking by an investment bank to subscribe for bonds at a predetermined price irrespective of

market conditions at the time of the pricing the deal, also known as backstopping a deal

HIBOR

Hong Kong Interbank Offered Rate

ICMA /FCA

International Capital Markets Association/Financial Conduct Authority. The former provides

recommendations with respect to the syndication of bond issues in the primary market and, in
conjunction with the latter, rules relating to stabilising actions with respect to the trading of a bond issue
in the period immediately after launch

Interest Cover

In relation to a financial period, the ratio between an issuers EBIT and interest expenses in that period a
high ratio implies that the issuer will be able to service its obligation to pay interest on the bonds without
stress. Also known as debt service coverage ratio (DSCR).

Investment grade

Issuers rated by a rating agency as investment grade who can issue covenant lite bonds

IPD

Interest payment date

Issuer Call

A right granted to the issuer to prepay bonds prior to their scheduled maturity date upon payment of a
make-whole redemption amount or in other circumstances such as when payments in respect of the
bonds become subject to withholding tax - a Tax Call

JGCs

Joint global coordinators

JLMs

Joint lead managers

L/C

Letter of Credit

LIBOR

London Interbank Offered Rate

Listco

Listed company

Listing Rules

Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (or the equivalent)

Live run

A repeat of a dry run except that, after the pricing terms are read out by one of the JLMs, the issuer will be
asked if it agrees with the proposed terms

LTM

In the context of a comparison of the results of operation for the financial year ended 31 December, the
last twelve months ended 30 June

MD&A

An abbreviation for management s discussion and analysis of results of operation which appears in some

GLOSSARY

OCs including where the bonds are being offered pursuant to Rule 14 4 A

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Debt Capital Markets | The Basics for Issuers (Asia Edition)

MS

The mid swap rate is the average of the bid and asking prices of the relevant swap

MTN

A medium term note programme facilitating the issuance of notes on a syndicated or non-syndicated
basis on short notice in response to market conditions

NDR

Non-deal roadshow

NPV

Net present value

OC

Offering circular

OM

Offering memorandum

OPE

Out-of-pocket expenses which are usually not taken into account when calculating the net proceeds of a
bond offering for inclusion in the OC

Page pull

A circulation, usually by the printer of the OC, of only the amended pages of the OC

Page turn

A meeting of the working group to review an OC, page by page

ParentCo

The parent company sometimes also referred to as the holding company (Holdco)

Publicity memo

A memorandum addressed to directors and officers of an issuer containing dos and donts in respect of
what can be said at a NDR

Printed

Means, in the context of a bond issue, issued

Pro-forma financials

Financial statements which have been adjusted to illustrate the effects of an acquisition of a target
company as if, in the case of an income statement, the acquisition was completed at the beginning of the
period to which the income statement relates

POC

Preliminary offering circular, also called the red herring version or e-red or prelim OC

POE

Privately owned enterprise

PSI

Price-sensitive information, also known as inside information being information not generally known to
the persons who customarily deal or who are likely to deal in listed securities but would, if so known, be
likely to materially affect the price of such listed securities

Reg. S

Regulation S under the U.S. Securities Act of 1933, as amended

Review

In the context of the inclusion of an issuers interim financial statements in the OC, a review by the issuers
auditors in accordance with the Hong Kong Standard on Review Engagements 2410 (HKSRE2410 or its
equivalent in other jurisdictions such as a CSRE 2101 review of financial statements in accordance with
PRC accounting standards) which may be required by the JLMs as part of their due diligence defence - a
review is substantially less in scope than an audit
Renminbi sometimes also referred to as CNH or CNY in the context of dim sum bonds

RSP

An abbreviation for the road show presentation

Rule 144A

Rule 14 4 A of the U.S. Securities Act of 1933, as amended

SA

Subscription agreement

S&S

The issuers competitive strengths and its business strategies

SCA

Signing and closing agenda

SCM

Signing and closing memorandum

SEHK

The Stock Exchange of Hong Kong Limited

GLOSSARY

RMB

mayer brown jsm 20

SFO

Securities and Futures Ordinance (Cap 571)

SGXST

Singapore Exchange Securities Trading Limited

SOE

State owned enterprise

Spot

In the context of a price, the current price at which a particular asset, currency or commodity can be
bought or sold. Also used instead of point in the context of a decimal point

Spread

The difference between yields of bonds with similar quality and different maturities, or of different
quality and the same maturity

SPV

Special Purpose Vehicle, also known as a Special Purpose Company (SPC)

Sub investment grade

Below investment grade issuers, also known as high yield or junk bond issuers, who can only issue bonds

issuers

with extensive covenant packages or credit enhancement such as a standby L/C

Tap Issue

In context of a debt issuance or medium term note programme, an issue or drawdown pursuant to the
terms of that programme

Teaser

A summary description of the issuer s business and financials and indicative terms of the bonds sent to
investors in advance of roadshows to gauge their interest

T+5

The settlement date on which the issuer receives the net proceeds from an issue of bonds, typically, the
trade date on which an issue of bonds is priced plus five business days

Ts&Cs

The terms and conditions of bonds

USD

United States dollars

UST

United States Treasury bonds

Wall crossing

The act of making a person on the sell side an insider by providing them with an inside information about
an issuer and a potential bond issue on the basis that they will not use such information to profit from
trading in the issuers securities
An original signed signature page required by the arranger s counsel to follow after the emailed version

YTD

Year to date

YTM

Yield-to-maturity

GLOSSARY

Wetink

21

Debt Capital Markets | The Basics for Issuers (Asia Edition)

KEY MEMBERS OF OUR HONG KONG BASED DEBT CAPITAL MARKETS PRACTICE:

Jeckle Chiu
Partner
+852 2843 2245
jeckle.chiu@mayerbrownjsm.com

Jason Elder
Registered Foreign Consultant
(New York)
Partner, Mayer Brown LLP
+852 2843 2394
jason.elder@mayerbrownjsm.com

Thomas Kollar
Partner
+852 2843 4260
thomas.kollar@mayerbrownjsm.com

Phill Smith
Partner
+852 2843 2528
phillip.smith@mayerbrownjsm.com

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