Show me the Money — Global Capital Markets Perspective · 2016-09-26 · Show me the Money —...

Issue 2October 2012

Show me the Money — Global Capital Markets Perspective

Table of contents

3 Foreword

4 Timeline of events affecting capital markets

5 Debt market

11 Equity market

14 Private equity

17 Others

19 Outlook

21 Debt & Capital Advisory practices

22 Key contacts

23 Acknowledgement

Show me the Money — Global Capital Markets Perspective Issue 2 3

Foreword

Welcome to the second issue of DTTL’s “Global Capital Markets Perspective”.

Issuance across most capital market instruments improved in the first half of 2012 from the second half of 2011; however, it did not reach 1H11 levels. The year started on a positive note with signs of improvement in the U.S. economy and corporate results. The European Central Bank’s (ECB) liquidity infusion through Long-Term Refinancing Operation (LTRO) also helped stabilize issuance in the first quarter. However, issuance declined in the second quarter as the Eurozone crisis resurfaced, U.S. macroeconomic indicators weakened, rating agencies downgraded large global banks, and growth slowed in countries such as China and India.

Europe, traditionally a bank-driven financial market, witnessed a shift in investor preference toward corporate bonds. As banks scaled back lending in light of stricter capital requirements and the ECB made cheaper loans available to banks, the bond market was left open for corporate issuers. Corporate bond issuance across Europe increased in 1H12 as issuers took advantage of the favorable markets to refinance debt and hoard capital for the future. Even though corporate bond issuance in Europe peaked during July 2012, this shift to bonds is likely to be temporary; Asia Pacific and the Middle East are expected to see this shift for a while longer due to easing regulations in the bond market and deleveraging by European banks.

Corporations in the United States and Europe are sitting on large volumes of cash (US$1.3T in the United States and £750B in the UK), which offers the potential for new investment; although companies seem to have been reluctant to do anything significant with these large cash balances to date.

The rest of the year shows signs of optimism and recovery, despite concerns about the likely impact of the London Interbank Offered Rate (LIBOR) scandal on loans, a shrinking German economy, and a muted M&A pipeline. Government intervention in the United States and Europe — with the proposal of Operation Twist and a third round of quantitative easing in the United States, the European Council Agreement, the ECB’s proposal of unlimited bond buying, and greater supervision of banks in Europe — is likely to spur growth in issuance. In addition, markets in regions such as Latin America, Asia, and the Middle East seem attractive due to easing regulations, lower exposure to the Eurozone crisis, more nations being granted investment grade status, and growth in infrastructure.

The capital markets are expected to remain uneven across geographies and asset classes. It will be important to keep a constant watch on global market developments and emerging reforms in order to gain insight into some of the most important trends facing these markets.

Enjoy the read!

Robert Olsen Partner National Leader — Corporate Finance Deloitte Canada

James Douglas Partner Leader — Debt Advisory Deloitte UK

4

Timeline of events affecting capital markets

While global capital markets ended 2011 on a weak note, 2012 started with a revival across all instruments with the easing of the Eurozone crisis and an improvement in the U.S. economy. However, as the second quarter approached, the global economic crisis resurfaced, dampening issuer sentiment. As the first half ended, regulatory authorities across the globe took efforts to ease the crisis, which will likely lead to an improvement in the capital markets in 2H12 (see Exhibit 1).

1Euromoney — €529 billion LTRO 2 tapped by record 800 banks — 29 February 20122The Financial Times Limited 2012 — US economic growth of 2.2% disappoints — 27 April 20123Chicago Tribune — UPDATE 1-China's first "junk bond" market opens for business — 8 June 20124The New York Times — Spain to Accept Rescue From Europe for Its Ailing Banks — 9 June 20125The Economist — The rotten heart of finance — 7 July 2012

Long-term Refinancing

Operation (LTRO) — II

The European Central

Bank (ECB) offered another

unlimited 3-year LTRO at a

cost of 1 percent to European

banks. Around 800 banks

raised a total of €529B1.

29 February 2012 27 April 2012 9 June 2012 27 June 2012

Announcement of the first

estimate of 1Q12 U.S.

economic results

The U.S. economy grew

slower than predicted in the

first quarter — GDP registered

at 2.2 percent2.

Spain bailout

Spain accepts a bailout of

US$125B offered by the

European finance ministers4.

LIBOR scandal

Alleged involvement of

almost 20 big banks in the

manipulation of the LIBOR led

to panic among investors5.

IRS issues proposed

Foreign Account Tax

Compliance Act (FATCA)

regulations

The Treasury Department

and the IRS released the

proposed regulations

providing long anticipated

guidance on FATCA.

Jumpstart Our Business

Startups (JOBS) Act

The JOBS Act eases

fundraising requirements

for small businesses when

going public.

Launch of Chinese

bond market

The Shanghai exchange

approved seven

companies to issue High

Yield (HY) bonds. Analysts

expect the market to

grow to US$50B in

three years3.

Coalition government

in Greece

Greece swore in a new

cabinet, which is comprised

of three parties: the center-

right New Democracy,

Pasok, and the Democratic

Party of the Left.

European Council

Agreement

The agreement will allow

the European Stability

Mechanism rescue fund to

infuse capital directly into

troubled banks.

8 February 2012 5 April 2012 8 June 2012 21 June 2012 29 June 2012

Exhibit 1: Significant events that impacted capital markets in 1H12


Debt market

Corporate bond market

The global bond market saw a revival in 1H12 with a total issuance of US$1,066B — 63 percent of the total amount issued in 2011. The year started with encouraging news from the United States and the Eurozone that led to a surge in total bond issuance. However, activity slowed as the second quarter approached — declining 43 percent in 2Q12 from 1Q12 — due to the continued economic turmoil in the Eurozone and disappointing economic results from the United States (refer to Exhibit 2).

6The Wall Street Journal — Ratings Cut for Giant Banks — 22 June 20127Bloomberg — US Generic Govt 10 Year Yield (USGG10YR:IND) — 1 July 20128Standard & Poor’s Leveraged Commentary & Data (LCD) — High-yield primary market slumps in 2Q, but ends on up note — 2 July 2012

The global bond market saw a revival in the first half of 2012 with a total issuance of US$1,066B — 63 percent of the total amount issued in 2011.

U.S. bond issuance in 1H12 was at US$439B — 64 percent of the total issuance in 2011. Strong growth of nearly three percent in the U.S. economy in 4Q11 and the easing of the Eurozone crisis in 1Q12 appear to have improved investor sentiment and liquidity in the credit markets (refer to Exhibit 3). However, U.S. bond issuance declined by about 25 percent in 2Q12 from 1Q12 as investment conditions were impacted by a slowdown in economic growth in the United States and Moody’s downgrade of 15 of the world's biggest banks6. Moreover, the anticipated help from the Federal Reserve through another round of quantitative easing did not materialize. The fears of default by Spain and Italy also seem to have contributed to the decline in issuance in 2Q12. These negative sentiments were partially offset by the suppressed Treasury bond yields that led to an apparent shift of institutional investors from government bonds to higher-yielding corporate bonds. High cash on hand with U.S. corporates, steady default rates, and low debt on corporate balance sheets helped boost investor confidence in these asset classes.

• Investment Grade (IG) bond issuance was at US$184B in 1Q12 as issuers took advantage of the low borrowing costs benefiting from 10-year U.S. Treasury yields that remained below 2.2 percent7 — an all-time low — leading to a tightening of spreads by 24 percent in 1Q12. Issuance declined 24 percent over 1Q12 due to heightened economic uncertainty. However, this decline was not as significant as other markets, as spreads continued to remain low primarily due to a dip in the U.S. Treasury yields — the 10-year note touched a record low of 1.4 percent in June7 (see Exhibits 3 and 4).

• HY bonds in the United States also saw a spike in issuance, contributing to 60 percent of the global HY bond issuance in 1Q12. Investor receptiveness to high-risk HY bonds increased in 1Q12 primarily due to positive developments in the market and historically low default rates. Further, U.S. HY bond activity was affected in 2Q12 — declining 28 percent to US$48B. However, this performance was better than other markets, as European investors seem to have rushed to the comparatively safer U.S. market. Moreover, refinancing continued to remain a major driver of HY issuance until 1H12 with 50 percent of the total issuance being used for this purpose8.

Exhibit 2: Global bond market revives in 1H12

2,282

1,406 1,392883

203

345 302

183

0

1,000

2,000

3,000

2009 2010 2011 1H12

Issua

nce

(US$

B)

IG Bonds HY Bonds

567

316

111

72

0

200

400

600

800

1Q12 2Q12

Source: Standard & Poor’s Financial Services LLC

6

The European bond market witnessed a revival at the start of the year, as fears of an imminent meltdown in the region started to dissolve. The recovery was primarily due to liquidity infusions by the ECB’s LTROs — €489B in December 2011 and €529B in February 2012. Investors remained risk-averse but preferred corporate bonds over government bonds for the additional yield, thereby boosting demand for IG and HY bonds. However, as the Eurozone crisis appeared to resurface at the start of 2Q12, bond activity in Europe slowed drastically — a 56 percent decline in total bond issuance from 1Q12, despite issuers taking advantage of the “window of opportunity”9.

• In 1Q12, approximately 50 percent of global IG bond issuance was from Europe, as investors seemed to prefer the higher yield from these bonds compared to government bonds that hovered near an all-time low10.

9Financial News Online — Debt issuers second-guess volatile markets — 21 June 201210The Wall Street Journal — Negative Thinking Is Driving Bond Yields Lower — 11 July 201211Bloomberg — High-Yield Funds in U.S. Attract Most From Europe Since February — 27 August 201212LeveragedLoan.com — Pre-Spain bailout, European high yield funds record largest outflow of 2012 — 12 June 2012

Exhibit 3: IG and HY bond issuance declined in 2Q12 triggered by a drop in European issuance


U.S. Europe Other Developed Markets Emerging Markets

184 140

284

130

57

20

42

26

0

200

400

600

1Q12 2Q12

6748

30

8

5

3

9

13

0

40

80

120

1Q12 2Q12

567

316

IG Bonds

-44%

111

72

HY Bonds

-35%

Issu

ance

(US$

B)

However, the European share declined to 41 percent in 2Q12 as issuers moved to the U.S. IG bond market.

• While the decline in the IG bond market was significant, HY bond market declined drastically, with an issuance of US$8B in 2Q12 — a decline of 73 percent from the previous quarter (see Exhibit 3). The HY bond market in Europe saw an exodus of investors as they shifted to the safer U.S. market11. The months of May and June in particular saw a five-week continuous outflow of €861M from the HY bond market — the largest outflow of the year12. However, a series of positive developments toward the end of the second quarter — particularly, the Spanish bailout, Greek elections, and the European Council agreement — will likely stabilize these markets.

Exhibit 4: U.S. corporate bond Option-Adjusted Spread (OAS) index continues to tighten in 1H12

Source: Economic Research — Federal Reserve Bank of St. Louis

80

100

120

140

31-D

ec-1

1

31-J

an-1

2

29-F

eb-1

2

31-M

ar-1

2

30-A

pr-1

2

31-M

ay-1

2

30-J

un-1

2

80

100

120

140

31-D

ec-1

1

31-J

an-1

2

29-F

eb-1

2

31-M

ar-1

2

30-A

pr-1

2

31-M

ay-1

2

30-J

un-1

2

BofA Merrill Lynch US Corporate Master Option-Adjusted Spread

BofA Merrill Lynch US High Yield Master II Option-Adjusted Spread


As the Eurozone crisis appeared to resurface at the start of 2Q12, bond activity in Europe slowed drastically — a 56 percent decline in total bond issuance from 1Q12, despite issuers taking advantage of the “window of opportunity”.

Emerging markets’ bond issuance reached nearly US$90B in 1H12 — 65 percent of the total issuance in 2011. The markets appear to have benefitted from the uncertainties prevailing in the United States and Europe. Strong monetary policies and low debt-to-GDP ratios across nations seem to have led to an improvement in economic fundamentals, thereby fuelling growth in issuance. Over

45 emerging market countries are now rated investment grade, including Indonesia, Brazil, Turkey, and the Philippines. Moreover, 22 additional countries are expecting upgrades in 201213. Increasing interest in these nations has encouraged a few governments to open up their bond markets to international investors. For example, the Chinese government eased regulations that led to an increase of 60 percent in bond issuance by volume in 1H12 from a year earlier, despite a slowdown in the Chinese economy14. Issuance in the HY bond market in emerging nations, contrary to the global trend, increased in 2Q12, mostly due to a rise in support from the emerging market governments through the easing of regulations. Furthermore, the inclusion of quasi-sovereign bonds in the HY bond segment makes the asset class a safer investment. The launch of the Chinese HY bond market on 8 June 2012, also added to the positive tone of the market; analysts expect this market to grow to US$50B in the next three years15.

13HSBC Global Asset Management — Reasons to invest in emerging markets debt — May 2012 14CNBC — China’s Corporate Bond Market Booms — 12 July 201215Chicago Tribune — UPDATE 1-China's first "junk bond" market opens for business — 8 June 201216Standard & Poor's Financial Services LLC — Why A Liquid Corporate Bond Market Is Vital For Australia (Podcast) — 7 June 201217Moody’s Investor Services — Moody's publishes Australian covered bonds 2012 Q1 performance overviews — 31 July 2012

Regional Spotlight — Australia

Over the past two years, the Australian bond market has expanded as AAA-rated government bonds attracted foreign investors, bond issuance by the banking sector increased, and non-financial institutions started testing the market. However, the corporate bond market is in its early days, with less than six percent of the total bond issuance coming from non-financial institutions16. This is primarily due to a lack of secondary market liquidity, negative gearing tax breaks, a dearth of rated companies, favorable tax treatment for dividend imputation of shares, a high cost for local issuance, and allocation constraints in the Australian superannuation market. Attractive alternatives in the form of an offshore market and competitive bank lending seem to have further contributed to slow growth in Australia’s domestic bond market.

However, bank lending in Australia has declined in the recent past mostly due to higher lending costs, impending Basel III regulations, and a retraction by European banks; this has prompted corporates to turn to the bond market as the stock market continues to underperform. Furthermore, there is an increase in the funding needs of Australian non-financial corporates,

with US$100B in debt refinancing in the medium-term and more than US$600B of infrastructure upgrades over the next six years16. Investor demand for bonds appear to be on the rise as the aging population becomes risk-averse, increasing the proportion of fixed income allocations to equity in the superannuation funds. Foreign investors also seem to prefer investing in Australia’s AA rated bonds as they have minimum exposure to the Eurozone crisis.

Australian debt market is further appearing attractive with the debut of covered bonds in November 2011. While, issuance as of now has been limited to the five largest banking institutions, other regional institutions seem to be exploring their options in this space. However, banks are limited by the legislation to capping their covered bonds at eight percent of Australian assets. Total issuance as of July 2012, was AUD30.7B17.

Encouraging a vibrant corporate bond market has become an important policy objective for the Australian government, particularly after the Johnson Report of 2010 that is leading to streamlining of disclosure standards for certain bonds and launching of government securities trading.

8

Corporate loan market

Global IG lending reached US$382B in 1H12, an increase of 53 percent over 2H11 primarily due to the easing Eurozone crisis and positive developments in the U.S. economy in the first quarter. However, issuance in 1H12 remained below the levels reached in 1H11 mostly because of limited M&A activity and lower refinancing needs18.

IG loan issuance in the United States increased by 76 percent in 1H12 from 2H11 and reached US$275B, as an expected increase in pricing boosted refinancing activity at the start of the year (refer to Exhibit 5). This increase is likely to be accompanied by a shortening of the tenor given the stricter lending environment brought on by the impending Basel III regulation. Despite this surge in issuance, IG lending in 1H12 continued to remain below 1H11 levels, as banks became price-sensitive and increased the focus on ancillary businesses — an important lending criterion for banks in the IG loan market18.

European IG lending reached US$102B in 1H12, an increase of 23 percent from 2H11, as M&A activity seemed to revive in 1H12 (see Exhibit 5). However, issuance decreased by seven percent in 1H12 from 1H11 as funding costs in the region soared19. This decline was mainly due to the deleveraging efforts undertaken by banks to boost their capital ratios and a drop in the refinancing volume. Europe’s two largest banks are expected to de-lever their balance sheets by €5B over the next three years through a combination of sales, asset run-offs, and recapitalizations20. Asia Pacific will be the most affected region by these deleveraging efforts as European banks will look for opportunities to offload these assets21. Moreover, traditional European borrowers appear to shift their fundraising preference to the United States. Another trend shaping the market is a shift toward the bond market

European IG lending reached US$102B in 1H12, an increase of 23 percent from 2H11, as M&A activity revived in 1H12.in the region22. As the crisis continues, IG companies appear to have become conservative and thus are hoarding cash and buying more bonds.

While IG loan issuance in Central Asia and the Pacific Rim more than doubled from 1H11, lending declined 61 percent in 1H12 from 2H11. This decline in issuance is primarily due to a shift in investor preference from loans to bonds. Moreover, European banks started scaling back operations in these regions in preparation for Basel III regulations21. Although local banks from Japan, China, and Taiwan in particular have moved in to replace them, the negative impact on overall IG lending seems significant.

Global leveraged loan issuance improved by 56 percent in 1H12 from 2H11; however, activity continued to remain below 1H11 levels (refer to Exhibit 6). This was primarily due to a shift toward the bond market, continuing Eurozone crisis, and a sluggish U.S. economy. The leveraged loan issuance in 1H12 was primarily due to refinancing needs as issuers took advantage of the “window of opportunity” prevailing in the first quarter and until mid-May to refinance large amounts of debt. The loans due by the end of 2014 were reduced by 40 percent to US$88B23.

18US Bank — U.S. Bank Loan Capital Markets – Market Snapshot — 2 April 201219Bloomberg — European Stocks Fall as Borrowing Costs Rise at Debt Sale — 13 June 2012 20International Financing Review, Thomson Reuters — European banks' asset sales face disastrous failure — 2 December 201121Euromoney (Emerging Markets) — ASIAN CAPITAL MARKETS: The colour of money — 5 March 201222The Wall Street Journal — Bonds With Banks Fraying — 10 April 201223Standard & Poor’s LCD — Maturity wall erodes further in 2Q due to repayments, A-to-E — 15 June 2012

Exhibit 5: Global IG loan market improves consistently in 1H12

Source: Bloomber g, August 2012

134 15482 74

139 136

4664

5033

2775

181

221

136114

167

215

0

50

100

150

200

250

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

Issu

ance

(U

S$B)

US$403B

US$250B

US$382B

U.S. Europe Paci�c Rim Central Asia Africa and Middle East

Source: Bloomberg, August 2012


24Standard & Poor’s LCD — Leveraged loan volume contracts in 2Q as clearing yields push higher — 29 June 201225Standard & Poor’s LCD — Leveraged loan default rate by number hits 11-month high in June — 2 July 201226Forbes — May 2012, European Leveraged Loan Market Trends and Analysis — 17 May 2012

Exhibit 6: Leveraged loan issuance improved in the United States from 2H11

Leveraged Loan New Issue (US$B) Growth

Region 1H11 2H11 1H12 1H11 to 1H12 2H11 to 1H12

U.S. 260 114 200 -23% 75%

Europe 39 22 21 - 46% - 5%

Asia Pacific 9 13 11 22% - 15%

Source: Standard & Poor’s LCD

Moreover, Exhibit 8 shows that for issuers in the United States, Debt/EBITDA multiple was at 4.1x at the start of the year, which grew to 4.7x by June 2012. Also, Senior Debt/EBITDA was at 3.9x as of January 2012 and rose to a record level of 4.6x by mid-year — the highest level recorded since 2007. The higher multiples indicate a higher probability of default. In fact, the end of the second quarter saw default rates for leveraged loans at an 11-month high25.

The United States remained the biggest market for leveraged loans in 1H12 — the region saw six times the total issuance in Europe and Asia Pacific combined (refer to Exhibit 6). Issuance in the United States declined by 23 percent in 1H12 from 1H11; however, it improved from 2H11 by 75 percent due to positive sentiments prevailing in the market coupled with low default rates maintained in the first quarter. The second quarter of 2012, which was affected by the deteriorating economic environment, witnessed an increase in average new-issue yields to maturity for leveraged loans and a reduction in returns from loans24 (see Exhibit 7).

1H12 issuance was due to refinancing needs as issuers took advantage of the “window of opportunity” prevailing in the first quarter and until mid-May to refinance large amounts of debt.

Issuance in Europe witnessed a decline of 46 percent in 1H12 from 1H11, but declined only marginally from 2H11 (refer to Exhibit 6). The escalating Eurozone crisis and increasing interest of European issuers in the U.S. loan market primarily contributed to the lower issuance in Europe. In addition to this, an issuer-friendly documentation process and favorable covenants attracted issuers to the United States26. The effect was seen on returns, which fell by 380 bps in the second quarter, from 4.4 percent in 1Q12 (refer to Exhibit 7).

Exhibit 7: U.S. S&P/LSTA U.S. Loan Index and S&P European Loan Index (ELLI) declines in 2Q12


2.6%

0.1%

-3.9%

2.9%3.8%

0.8%

4.2%

0.1%

-5.1%

1.4%

4.4%

0.6%

-6%

-4%

-2%

0%

2%

4%

6%

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

US (S&P/LSTA Loan Index) Europe (S&P European Loan Index)

10

Exhibit 8: U.S. Leveraged Loan debt multiples increase, peaking in 2Q12


Note: The multiples above the bars in the given chart represent the Debt/EBITDA values for the respective years

3.3 3.4 3.4 3.3 3.6 3.5

3.4 3.5 3.5 3.74.0 3.8

Jan Feb Mar Apr May Jun

Debt/EBITDA

First Lien Debt/EBITDA Second Lien Debt/EBITDA

4.1x 4.0x 4.0x4.4x 4.6x 4.7x

Going into the second half of the year, encouraging news from Europe — the Greek elections and a second bailout for Spain — may improve issuance. However, cautious optimism prevails as rumors surface that a few Eurozone members, including Germany may consider withdrawing their continued support for Greece27.

Regional Spotlight — Latin America

Latin America experienced robust economic growth with GDP likely to register at 4.5 percent in 201229. This performance is supported by a sound banking system, which survived the 2008 recession because of its conservative approach to credit risk and lending. Further, the banks’ exposure to the troubled European banking system appears limited as most of the loans in the region are funded by local deposits rather than by the Western parents.

The banks seem to have adopted an aggressive growth strategy given their strong foundation. This strategy is supported by rising loan demand in the region. Guillermo Babatz, president of the National Banking and Securities Commission, is predicting growth of

15 percent in Mexican banks’ outstanding loans this year. Brazil, the largest economy in the region, saw an uptick in lending, which led banks to maintain their outlook for credit growth at 15 percent this year30. The Brazilian government has taken measures to boost the demand for loans by pushing the benchmark interest rates to near record lows, which is likely to spark competition in the sector.

With Brazil gearing up for the 2014 Soccer World Cup and the 2016 Olympics, lending in the infrastructure sector is likely to rise. Other nations such as Peru, Colombia, and Chile are also attractive loan issuance destinations due to their growing political stability, collaborative efforts (such as the Latin American Reserve Fund (FLAR))31, and greater bank efficiency.

27LeveragedLoan.com — European markets weaken on sovereign fears; loans resilient — 23 July 201228Standard & Poor’s LCD — Asia Pacific Leveraged Loan Review — 2Q12 29AACargo.com — Trends Driving Opportunities in Latin America — 19 March 201230Bloomberg — Mexico Bank Regulator Says Loans to Grow 15% This Year — 22 August 201231The Latin American Reserve Fund (FLAR) is a collaborative effort, consisting of Bolivia, Colombia, Costa Rica, Ecuador, Peru, Uruguay, and Venezuela, with objectives to: • Support the balance of payments of member countries by granting loans or guaranteeing third-party loans;• Improve the conditions of international reserve investments made by member countries; and• Contribute to the harmonization of exchange rate, monetary, and financial policies of member countries.

Opposing the global trend, issuance in the Asia Pacific region increased by 22 percent in 1H12 over 1H11. This may be attributed to the fact that Asia Pacific is seen as a comparatively safer haven in the current economic environment. Refinancing and Leveraged Buyout (LBO) remained the major purpose for the loan issuance, with Singapore and Hong Kong together accounting for 63 percent of total issuance28.


Equity market

Global Initial Public Offering (IPO) issuance declined substantially in 1H12 over the past year, despite a marginal increase from 2H11 to 1H12 (refer to Exhibit 9). Slow growth in China and a weak U.S. economy added to the Eurozone crisis, affecting issuer and investor confidence. Global IPO proceeds in 1H12 were at approximately half of the 1H11 level, signifying a weak IPO market. However, 2Q12 saw a recovery of the global IPO market that is likely to continue in the remainder of 2012 as most exchanges report a stable pipeline for the next quarter32.

North American exchanges were the most active during 1H12 with approximately 62 percent of the global IPO activity concentrated on the NASDAQ and NYSE exchanges. Asia Pacific exchanges witnessed 30 percent of overall activity, while European exchanges accounted for a meager 3 percent (refer to Exhibit 10). This decline in activity on the European exchanges is primarily due to European companies listing on foreign exchanges to avoid unstable local markets33.

Source: Renaissance Capital, Greenwich, CT (www.renaissancecapital.com)Note: Global statistics include IPOs with a deal size of at least US$100M and exclude closed-end funds and special purpose acquisition companies (SPACs)

41%

21%

11%8% 7%

5% 4% 3%

0%

15%

30%

45%

NASDAQ NYSE ShenzhenStock

Exchange

BursaMalaysiaBerhad

Hong KongExchange

Bovespa ShanghaiStock

Exchange

Euronext/Amsterdam

Proc

eeds

as

a %

of g

loba

l is

suan

ce

Exhibit 9: Global IPO activity remains sluggish


5370

32 3220

48

422

482 413 404 324 379

0

200

400

600

800

0

20

40

60

80

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

Num

ber o

f dea

ls

Proc

eeds

(US$

B)

Proceeds (US$B) Number of deals

1H11 (US$123B, 904)

2H11 (US$64B, 817) 1H12 (US$67B, 703)

While European exchanges faced a decline, Asian exchanges strengthened their hold over the IPO market with 8 of the top 20 deals in 1H12 taking place on Asian exchanges34. Moreover, in 1H12, Bursa Malaysia became the second largest IPO market in Asia Pacific and the fourth largest in the world, primarily due to two large IPOs in the Oil & Gas and Health Care sectors35. However, Bursa Malaysia is unlikely to sustain this level of activity in the future, as issuers are expected to return to larger markets such as Europe when the market improves.

32Renaissance Capital, Greenwich, CT (www.renaissancecapital.com) — Global IPO Market, 2Q 2012 Review — 29 June 201233Thomson Reuters (reuter.com, U.S. Edition) — Deal Talk: U.S. offers escape route for European IPO hopefuls — 24 November 201134Renaissance Capital, Greenwich, CT (www.renaissancecapital.com)35Bloomberg — IHH Healthcare Raises $2 Billion in Third-Biggest IPO of 2012 — 12 July 2012

http://www.renaissancecapital.com

12

The United States was the only region to record an increase in IPO activity in 1H12 compared to 1H11 and 2H11; US$33B was raised from 189 deals, a significant increase from the US$13B raised in 2H11 (refer to Exhibit 11). However, excluding the US$16B Facebook deal in May 2012, IPO activity improved only marginally from 2H11 and declined significantly compared to 1H11 as 23 deals were withdrawn or postponed in the first quarter and 37 in the second quarter36. Moreover, only US$7B was raised from 89 deals in 1Q12, compared to US$16B from 46 deals in 1Q11 indicating that investors showed greater confidence in smaller emerging IPOs than large deals37.

The IPO market in the United States appeared unbalanced in 1H12 primarily due to a volatile global economic outlook. While 2012 started on a dull note, activity picked up in February through April as the economy showed signs of recovery. However, the five-week freeze after the Facebook IPO amid rising economic worries due to a high unemployment rate and a declining S&P 500 index brought IPO activity to a standstill through May and early June38. Despite an improvement in IPO activity toward the end of June 2012, the outlook for the rest of 2012 and 2013 appears cloudy as the JOBS Act (April 2012) relieves startups from certain regulatory and disclosure requirements while going public, obscuring the usually transparent IPO pipeline39. While the JOBS Act is likely to boost IPO issuance, particularly by technology and other start-up companies, few consumer and investor advocates remain unconvinced about the act as it relieves companies from the obligations of section 404 of the Sarbanes-Oxley Act, thereby potentially increasing the chances of fraudulent activity40.

IPO activity in Europe continues to decline at a rapid pace, as the region remains the epicenter of economic uncertainty. The European IPO market struggled in 1H12 due to the summer lull and the focus on the Olympics in London41. Moreover, European businesses are likely to continue to take their IPOs to other exchanges until markets stabilize.

The Asia Pacific region continued to contribute significantly to the global IPO market despite a decline in activity from 1H11 and 2H11, as Asian markets began to feel the impact of the Eurozone crisis (see Exhibit 11). Another reason for the decline in IPO issuance in 1H12 has been the drying up of state IPOs in Chinese markets as most of the large state IPOs took place over the last decade42. Further, increasing concerns about China’s slowing exports and decelerating economic growth is likely to impact IPO activity as well. However, Asia Pacific is anticipated to remain an important region as markets, such as China and India present a large IPO opportunity in the form of countless small businesses that have the potential to go public in the short term.

IPO Proceeds (US$B) Growth


U.S. 31 13 33 6% 154%

Europe 26 11 4 - 85% - 64%

Asia Pacific 34 22 18 - 47% - 18%

Middle East & Africa 1 1 1 - -

Exhibit 11: The U.S. IPO market remains resilient, while Europe plummets


36Bloomberg, August 201237Renaissance Capital, Greenwich, CT (www.renaissancecapital.com) — U.S. IPO Market, 2Q 2012 Review — 29 June 201238CNNMoney — Post-Facebook IPO market frozen — 4 June 201239CNNMoney — The rise of confidential IPOs: Manchester United on deck — 9 August 201240CFO Publishing (CFO.com, U.S.) — JOBS Act Would Ease Sarbox Standard, but Might Pave Way for Fraud — 26 March 201241MENAFN.com — Positive end to first half 2012 with a promising IPO pipeline for the second half — 9 July 201242The Wall Street Journal (India Edition) — Chinese IPOs to Bolster Hong Kong Market — 10 September 2012

While European exchanges faced a decline, Asian exchanges strengthened their hold over the IPO market with 8 of the top 20 deals in 1H12 taking place on Asian exchanges.


43Emirates 24/7 — Investor confidence to boost Saudi IPO market — 24 April 201244MENA Fund Manager — Risky offering — 18 June 201245Saudi Gazette — GCC government spending set to remain strong: Study — 28 April 201246Saudi in Focus — Saudi’s financial market is still a work in progress — 27 August 201247Saudi Gazette — GCC IPO activity ‘promising’ — 18 July 2012

Asia Pacific is anticipated to remain an important region as markets such as China and India present a large IPO opportunity in the form of countless small businesses.

Exhibit 12: Service-driven IPOs fuel Western markets, while Asia Pacific continues to depend on manufacturing in 1H12


Region

Industry

Financial TechnologyConsumer Services

Consumer Goods

Industrials Other Total

U.S. 21% 16% 17% 11% 15% 20% 100%

Europe 16% 17% 22% 9% 15% 21% 100%

Asia Pacific 11% 12% 9% 14% 31% 23% 100%

Middle East & Africa 33% 11% 22% - 22% 12% 100%

Regional Spotlight — Middle East

Issuance in 1H12 declined from 2H11, primarily due to an uncertain global economic outlook, increasingly onerous listing requirements, and political unrest in some jurisdictions44. Even though Middle East IPO activity is not performing at pre-2008 levels, the market remains cautiously optimistic that activity will improve in the remainder of 2012 and during 2013, due to buoyant regional stock markets (particularly the Tadawul in Saudi Arabia), regulatory intervention (opening of previously restricted markets to overseas investors), high oil prices, and a rebound in economic growth. Moreover, as government infrastructure spending increases, construction and industrial manufacturing companies are expected to become attractive IPO candidates in the region45.

Saudi Arabia and Oman contributed to most of the Middle Eastern IPO activity in 1H12. While the number of deals was limited to nine, these deals were relatively large44. Saudi Arabia continues to be the most active region by a significant factor, with the Tadawul exchange being the largest by market capitalization46.

An increase in government spending, real estate development projects, and consumer spending along with positive corporate earnings and intentions to expand outside the Middle East, have made Saudi Arabia the largest IPO market in the region. The requirement for selected financial services companies (particularly insurance providers) in the Kingdom to be partially listed also resulted in two IPOs in 1H12.

Oman’s Muscat Securities Market saw the first ever IPO by an Islamic Bank (government-mandated) and the exchange is likely to see further IPOs from the recently approved, emerging Islamic banking sector, with two more Shariah-compliant banks expected to go public in 2H12. The IPO markets in Kuwait and Qatar are also optimistic of a revival in 2H12, with several rumored IPO candidates eyeing these exchanges47. Developments in these markets will however be conditional upon regulatory changes, particularly the creation of a secondary market in Qatar and the updating of listing requirements to bring markets in line with other leading global exchanges.

Even though the Middle East’s contribution to the global IPO market in terms of proceeds and number of deals may be insignificant as of now, this region is expected to present great IPO potential, particularly Saudi Arabia as investor confidence in the economy is increasing43. However, the unpredictable political tension in some jurisdictions of the Middle East, in addition to high oil prices and the Eurozone crisis, make it difficult to ascertain the trajectory of the Middle Eastern IPO markets in the remainder of 2012 and 2013.

14

Private equity

Global Private Equity (PE) fundraising activity declined in the first half of 2012 compared to the same period in 2011, as concerns about the global economic crisis resurfaced (refer to Exhibit 13). However, activity did improve from 2H11 as North American PE activity recovered. Aggregate capital raised by PE firms in 1H12 declined by 13 percent from 1H11, increasing 8 percent compared to 2H11; while the number of funds raised declined by 21 percent from 1H11 and 15 percent from 2H11 (see Exhibit 13).

Although the PE fundraising market remained depressed in 1H12 there are hints that momentum in the market is increasing as the number of interim closes and funds in the market increased (see Exhibit 14).

Despite the continuing impact of the global economic crisis, the slowing U.S. economic recovery, and the fast approaching U.S. presidential elections, North America continues to be the only region to register a positive change in PE fundraising in 1H12 from 2H11 as PE firms seemed to close deals in light of expected tax increases after the elections. However, PE firms’ performance in 1H12 is well below 1H11 indicating that new regulations and the PE advertising wars in the ongoing election campaign48 are having an impact on PE fundraising in the United States. FATCA requires both U.S. and foreign fund managers to disclose information on U.S. investors evading taxes, increasing the due-diligence that PE firms have to conduct49.

Exhibit 13: Global PE fundraising declines from 1H11

Source: Preqin, August 2012

1H11 (US$168B, 436)2H11 (US$135B, 408)

1H12 (US$146B, 345)

7593

5778 69 77

203 233

170

238

172

173

0

50

100

150

200

250

0

20

40

60

80

100

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

Num

ber o

f fun

ds ra

ised

Agg

rega

te c

apita

l rai

sed

(US$

B)

Aggregate capital raised (US$B) Number of funds raised

Exhibit 14: Global PE market gains momentum


194 204190

210

121

150

32 33 37 41 3549

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

No. of Interim Closes Aggregate Commitments (US$B)

1,594 1,644 1,665 1,728 1,814 1,853 1,863

602 661 673 706 744 787 792

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

No. of Funds Raising Aggregate Target (US$B)

48Inc.com — Private Equity: Threat or Menace? — 29 May 201249The Wall Street Journal (Asia Edition) — FATCA: The IRS’s Very Big Stick — 14 June 2012


While the European PE market saw a revival over the past two years, the market is losing some of its momentum due to prolonged economic uncertainty. PE fundraising declined moderately in 1H12 from 2H11, but continued to perform better when compared to 1H11 (see Exhibit 15). Moreover, PE M&A is likely to decline across Western Europe as the region loses its luster, while the Central and East European nations present attractive opportunities for PE fundraising50. Despite the somewhat positive outlook for overall European PE activity, impending regulations such as Solvency II and the Volcker rule continue to pose challenges for fund managers51. While the Solvency II regulation is likely to influence the ability of institutions to expand, the Volcker rule will affect only those PE firms that are affiliated with banking entities.

Aggregate Capital Raised (US$B) Growth


North America 94 68 84 -11% 24%

Europe 30 35 34 13% -3%

Asia 31 24 22 -29% -8%

Rest of the World (RoW) 13 8 6 -54% -25%

Exhibit 15: PE activity remains depressed across most regions


Fundraising activity in Asia and Rest of the World countries declined significantly over the last year despite an increase in fundraising in the Middle East, Africa, Russia, and Brazil (see Exhibit 15). However, China and India experienced a drop in fundraising activity as PE firms struggled with regulatory uncertainty. The anticipated currency depreciation in these markets is further slowing the pace of investments.

Amid the above uncertainties, easing regulations in emerging nations is likely to boost PE fundraising:

• Brazilian pension funds can now allocate up to 20 percent of their total assets to structured vehicles, such as PE funds, half of which can be allocated to international vehicles51;

• China has also witnessed an easing of regulations regarding PE investments recently, with Chinese authorities actively promoting fundraising and investment in the country51;

• South African pension funds can allocate up to 10 percent of total assets to PE opportunities, compared to 2.5 percent previously51; and

• Sub-Saharan Africa is likely to see an influx of PE activity as the White House formally announced its Sub-Saharan African Policy to increase investment activity in the region52.

Despite the continuing impact of the global economic crisis, the slowing U.S. economic recovery, and the fast approaching U.S. presidential elections, North America continues to be the only region to register a positive change in PE fundraising in 1H12 from 2H11 as PE firms seemed to close deals in light of expected tax increases after the elections.

50CFO Insight — M&A Activity Hits Annual Low — 7 September 201251Preqin — The Preqin Quarterly, Q2 2012 — July 201252The Wall Street Journal (Asia Edition) — Investors, Take Note: U.S. Committing to Africa — 21 June 2012

16

Exhibit 16: Buyout Dry Powder by vintage year as of June 2012

Source: Preqin Quarterly — Q2 2012

142

242208

145

4014 77 15

49 6436 38

95

0

75

150

225

300

2005 2006 2007 2008 2009 2010 2011

Capital Invested (US$B) Dry Powder (US$B)

PE deals will also gain momentum as PE firms rush to put vast amounts of aging dry powder to use in 2012 (refer to Exhibit 16). PE funds of 2007 and 2008 have sizable amounts of dry powder due to limited investment avenues over the last few years. Therefore, these funds are expected to rush to invest in 2012 and 2013 as the five-year investment period ends. However, constrained exit avenues will put pressure on deals across the globe. Western Europe, in particular will witness greater pressure in the PE markets due to high levels of dry powder that resulted due to the economic downturn.

Despite a weak economy and upcoming regulations, investor sentiment regarding the asset class as a whole remains positive.

Regional Spotlight — Latin America

PE activity in Latin America has increased substantially over the past few years, with the Emerging Markets Private Equity Association (EMPEA) 2012 survey ranking the region as the most attractive destination for PE fundraising among the emerging markets53. Fast economic growth, a burgeoning middle class, an emerging energy industry, and the need for infrastructure development are driving PE growth in the region. While Brazil accounts for a significant proportion of the region’s PE fundraising, Mexico is also attracting a lot of attention.

BrazilBrazilian PE activity recovered since 2009 when international investment managers re-entered the market, attracted by the prospect of strong returns and a proven resilience to the global financial crisis of 2008. While the PE market for large companies appears to be getting saturated, the mid-market represents a sizable opportunity with an Enterprise Value/EBITDA of less than 8x54. While a slowdown in the country’s growth and higher interest rates have prompted investors to turn to the local equity markets and neighboring nations, Brazilian PE activity is likely to grow in the short term.

MexicoFunds and investors alike appear to be turning their attention to the Mexican PE market as it is more closely tied to the United States but is not as crowded and expensive as other markets. While PE fundraising reached US$228M in 1H12 from US$84M in 1H11, the number of deals doubled primarily due to a stable economy and lower interest rates55. Mexico lags behind Brazil in PE activity as favorable regulations came in much later in 2009, and the procedures are still cumbersome, although the government is focusing on reducing regulations. PE activity is likely to increase in the short term due to a strong pipeline, an increase in consumer demand, and an expansion in consumer credit, constrained only by a highly concentrated business sector that may be unwilling to relinquish control.

53Reuters (U.S. Edition) — Latin America top choice for emerging private equity-survey — 12 April 201254The Financial Times Limited 2012 — Private equity chances in Brazil’s mid-market — 8 April 201255The Wall Street Journal — Viva Mexico! Mexican Private Equity Deal Volume Enjoys Strong First Half — 4 September 2012


Others

Collateralized Loan Obligation (CLO)

Global CLO issuance increased significantly in 1H12 reaching US$18B — approximately 1.5 times the issuance in 2011 (see Exhibit 17). The year started with a record issuance of approximately US$6B in 1Q12 mainly due to positive sentiments prevailing in the market — the improving U.S. outlook, increased liquidity in the credit markets, and the easing Eurozone crisis. The second quarter saw approximately double the issuance of the first quarter, despite deterioration in the United States and European economies. The enhanced investor base and lower default rates for loans primarily contributed to this increase. The United States became the issuer’s preferred destination over Europe. The European CLO industry declined primarily due to the shrinking size of its leveraged loans market and a less friendly regulatory environment due to the impending Basel III requirements56. Further, risk retention regulation has come into effect in the region unlike the United States. The U.S. CLO industry is lobbying hard for exemption or a delay in risk retention rules. The rules are expected to come into effect by January 201557.

Mezzanine financing

The global mezzanine market experienced a surge in issuance in 1H12 — approximately double the 2H11 levels (see Exhibit 18). Issuers have been attracted to the instrument due to its cheaper pricing and greater stability. The uncertainties in the global market have led to an increase in interest from the small and mid-sized companies in the asset class as the loan sizes are typically small — starts from US$3M. The 2008 crisis saw issuance of a large amount of debt with maturities coming due this year. Thereby, mezzanine debt seems to be an attractive investment for refinancing as it provides yield much higher than other instruments58. Further, the arrangers appear to be using it to support buyouts.

North America had the highest issuance in 1H12 — 86 percent of total issuance. The activity in this region rose by 23 percent. However, issuance in Europe declined by 62 percent in 1H12 compared to the same period in 2011. Low investor confidence in the region led to a withdrawal from these funds. Market depth remains low in the Asia Pacific region, which is reflected in the limited issuance (refer to Exhibit 18). At the end of May, there were 63 mezzanine PE funds in the pipeline that are collectively looking to raise over US$25B. North America constitutes the majority in these funds — 57 percent of the pipeline. 25 percent of the funds are focused on Europe, and the remaining 18 percent are targeting investment in Asia and Rest of the World countries59.

Exhibit 17: Global CLO issuance surged in 2Q12


US$5B

US$7B

US$18B

1 4 3 46

12

0

4

8

12

16

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

56Thomson Reuters — Practical International Corporate Finance Strategies — 10 June 201257Creditflux — CLOs gain respite as US risk retention rules are pushed back, says LSTA — 2 July 201258Financial Times — Hybrid debt: a new old way to lose money? — 30 April 201259Preqin — Current Mezzanine Private Equity Fundraising — 28 May 2012

18

Exhibit 18: Mezzanine issuance increased in 1H12


Note: Mezzanine financing is debt capital that is generally subordinated to debt provided by senior lenders such as banks and non-banking financial institutions.

US$7.3B

US$4.1B

US$7.4B

6.1

1.2

2.51.6

6.1

1.3

0

2

4

6

8

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

North America Europe Asia and ROW

Dim sum bonds

Dim sum bond issuance have increased significantly in 1H12 over 1H11 due to China’s increasing economic size and expectations that the renminbi will become a key global currency60 (see Exhibit 19). These bonds have grown in the past 18 months as most issuers attempted to cash in on the Chinese growth story and investors subscribed for quick and high returns. However, dim sum bonds may lose flavor as hopes for appreciation of the renminbi against the dollar fade. Slowing growth in the Chinese economy along with increasing regulations is likely to affect issuance of these bonds61.

Exhibit 19: Dim sum bonds gain momentum


Note: Dim sum bonds are denominated in Chinese renminbi and issued in Hong Kong. They are attractive to foreign investors who desire exposure to renminbi-denominated assets, but are restricted by China's capital controls from investing in domestic Chinese debt.

1H12 (US$16B, 245)

2H11 (US$11B, 176)1H11 (US$12B, 114)

3

107

5

8 720

94 101

75

139

106

0

30

60

90

120

150

0

3

6

9

12

15

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

Num

ber

of is

sues

Am

ount

(US$

B)

Amount (US$B) Number of issues

60Forbes — China Yuan Inches Closer To Global Currency — 12 April 201261Chinadaily.com.cn — New rules on 'dim sum' bond issuance — 9 May 2012


Outlook

The bond market in the United States is expected to see high issuance due to a demand for yield and better alternatives to low-yielding treasuries. The U.S. IG bond market is anticipated to perform well in the rest of 2012, while the HY bond market is expected to be volatile due to economic conditions. Leveraged loans are expected to perform above expectation as refinancing remains a major driver for issuance. Further, a shift from the HY bond market is likely as loans are safer and less volatile62. The growing CLO market and low leveraged loan default rates may also boost the asset class. Expectations for the U.S. IPO market appear to be rising as well, with regulations, such as the JOBS Act likely to boost issuance.

Given the continuing crisis in the Eurozone, there appears to be an ongoing shift from loans and equity markets to bonds in the region. Market sentiments also appear to be low and the cost of funding for banks is on the rise, thus making it difficult to offer loans at competitive prices. Bonds, which showed resilience in the start of the year are likely to perform above expectation as they provide investors yields that they are not likely to get anywhere in the region. However, with the Eurozone situation still volatile, issuance is likely to dry up in this market as well. To further diversify their funding, companies are anticipated to look at international markets that are less affected by the Eurozone crisis. European businesses are likely to continue to take their IPOs to other exchanges until markets stabilize.

Markets in Asia Pacific and the Middle East are anticipated to be attractive destinations to raise capital as issuers and investors alike appear to view the region as a safe haven. Asia Pacific bond issuance will likely increase in the future due to easing regulations and more nations receiving IG status. The loan market is expected to experience a shift toward the bond market in the region as European banks

scale back lending and de-lever their balance sheets. However, leveraged loans may perform well in light of greater refinancing needs63 and higher yields64. IPO activity will continue to remain slow as the region finally starts to feel the impact of the Eurozone crisis. IPOs are not likely to witness a significant revival without government intervention.

Globally, PE fundraising activity for the rest of the year is expected to remain consistent with the first half. In the United States and Europe, PE fundraising may be challenged by an increase in regulatory policies. PE activity in emerging markets is likely to increase due to easing regulations in countries such as Brazil, South Africa and China; however, the focus is likely to shift to Latin America and Africa, from China and India, which are witnessing slower economic growth.

In the short-term, it will be important to observe the impact of the following on capital markets:

• The U.S. Federal Reserve’s third round of quantitative easing totaling US$1.7T65;

• The ECB’s recent decision — to buy unlimited quantities of Eurozone government bonds to stabilize the euro and reduce borrowing costs of big countries, such as Italy and Spain — to help stabilize the Eurozone66;

• The LIBOR scandal and its impact on investor confidence in the loans market67;

• U.S. presidential election and the PE advertising wars68;

• Snowballing impact of the Eurozone crisis on Asian economies; and

• Possible contraction of the German economy — 0.1 percent during 3Q12 and 0.2 percent during 4Q12, as predicted by the Organization for Economic Cooperation and Development (OECD)69.

62The Wall Street Journal — 'Junk' Loans Gain Leverage — 30 July 201263Standard & Poor’s LCD — Asia Pacific Leveraged Loan Q3 Update — Quarter 364Thomson Reuters (reuters.com, Canada Edition) — Booming emerging corporate debt vies with U.S. junk — 10 October 201265Thomson Reuters (reuters.com, India. Edition) — UPDATE 1-FED FOCUS-New round of quantitative easing biggest yet? — 15 September 201266Businesstoday — ECB unveils bond-buying plan to fight euro crisis — 13 September 201267Thomson Reuters (reuters.com, U.S. Edition) — Barclays paying $453 million to settle Libor probe — 27 June 201268The New York Times — Private Equity — 11 October 201269The New York Times — O.E.C.D. Warns of Recession in Germany — 6 September 2012

20

Exhibit 20: Potential instruments and geographies in which to raise capital in the short-term

Legend

Growth in issuance (1H11 to 1H12) Forecast: Remainder of 2012

Financial Instrument United States

Europe Emerging Markets/

Asia Pacific

United States

Europe Emerging Markets/

Asia Pacific

IG bonds

HY bonds

IG loans

Leveraged loans

Equity

Private equity

Mezzanine debt

Dim sum bonds

Market Range Symbol

High — growth market 30% and higher

Low — to moderate — growth market 5% to 30%

Neutral -5% to 5%

Declining market Below -5%

Insignificant market -

Sources: Preqin, Standard & Poor’s Financial Services LLC, Leverage Commentary & Data, Bloomberg, Thomson M&A, Private Placement Letter, and Hong Kong Monetary AuthorityNotes: 1. Definition of Emerging Markets/Asia Pacific differs across instruments; CLO is not included; 2. Outlook is based on inputs from research professionals and senior practitioners of the various member firms of Deloitte Touche Tohmatsu. The analysis for this section is as of September 2012.

Recognizing the most suitable instruments and geographies to ensure continued access to adequate low cost funding is crucial. Exhibit 20 provides possible options — financial instruments and geographies — for companies to raise capital based on growth rates and the short-term outlook.


Debt & Capital Advisory practices

Deloitte member firms’ Debt and Capital Advisory practices provide independent advice to a wide range of public, private, and institutional borrowers. Our expertise ranges from the provision of strategic advice on the optimum capital structure and available sources of finance, through to the provision of highly experienced execution resources. Furthermore, because we are independent of providers of finance, our objectives are closely aligned with those of our clients.

Deloitte member firms’ debt and capital advisory network encompasses over 120 dedicated professionals spanning 32 countries, giving us a global reach.

Scenarios in which the member firm professionals in the Debt & Capital Advisory practices will advise include:

• Restructuring or renegotiating debt: Covenant waiver and reset negotiations, trading downturns, credit rating downgrades, facility extensions and amendments, new money requests and debt buybacks.

• Refinancing: Maturing debt facilities, new debt markets, syndicated borrowings, asset-based financing, off-balance-sheet financing and minority equity raises.

• Acquisitions, disposals and mergers: Acquisition financing and merger financing.

• General financial advisory: Board assistance, loan sales and acquisitions and General Partners/Limited Partners (GP/LP) assistance.

Private equity• Midmarket PE House

• Buy-side versus Sell-side

• Internal versus External marketing

• GP/LP fundraising (U.S./Canada)

• Current issues facing the market

– Increasing risk of buy-side mandates

– Restructuring portfolio company debt

Financial institutions• Understanding opportunities coming out of new

regulations/capital requirements:

– Dodd-Frank

– Basel II & III

• Opportunities around structured credit

• Non-core asset divestment

Corporate debt• Raising and restructuring existing debt

• Increasing use of capital markets (especially in Europe)

– Corporate bonds

– Hybrid bonds

– Multicurrency bonds

Property finance• Commercial real estate

• Structured finance

– Restructuring and origination

• Hedging strategies

• Secured corporate lending

Service offerings

22

Key contacts

For further information on capital markets services, please contact the specialists shown below from the respective Deloitte member firms:

Americas

Miguel Arrigoni — Argentina Tel: +54 11 5129 2030 Email: [email protected]

Jose Paulo Rocha — Brazil Tel: +55 11 5186 1684 Email: [email protected]

Robert Olsen — Canada Tel: +1 416 601 5900 Email: [email protected]

Jaime Retamal — Chile Tel: +56 2729 8784 Email: [email protected]

Jorge Schaar — Mexico Tel: +52 55 5080 6392 Email: [email protected]

Martin Battaglia — United States Tel: +1 312 486 2572 Email: [email protected]

EMEA

Serge Prosman — Belgium Tel: + 32 2600 6232 Email: [email protected]

Lars Munk — Denmark Tel: +45 36 10 37 88 Email: [email protected]

Edith Bengio — France Tel: +33 1 5837 9686 Email: [email protected]

Wulf Ihler — Germany Tel: +49 69 75695 6100 Email: [email protected]

Christian Ukens — Germany Tel: +49 69 75695 6323 Email: [email protected]

Michael Flynn — Ireland Tel: +353 1 417 2515 Email: [email protected]

Mario Casartelli — Italy Tel: +39 0283325017 Email: [email protected]

Alexander Olgers — Netherlands Tel: +31 88288 6315 Email: [email protected]

Andre Pottas — South Africa Tel: +41 58279 6449 Email: [email protected]

Jordi Llido — Spain Tel: +34 93 280 40 40 Email: [email protected]

Juerg Glesti — Switzerland Tel: +41 44 421 6449 Email: [email protected]

Anthony Wilson — Turkey Tel: +90 21 2366 6063 Email: [email protected]

James Douglas — United Kingdom Tel: +44 207 007 4380 Email: [email protected]

Declan Hayes — Middle East Tel: +971 4 506 4740 Email: [email protected]

Asia Pacific

Ian Thatcher — Australia Tel: +61 2 9322 7640 Email: [email protected]

Lawrence Chia — China Tel: +86 10 8520 7758 Email: [email protected]

Avinash Gupta — India Tel: +91 22618 55070 Email: [email protected]

Andrew Grimmett — Singapore Tel: +65 6530 5555 Email: [email protected]


Acknowledgement

This report is a joint effort of the Debt & Capital Advisory practices of Deloitte member firms. This edition relies on the client experience and marketplace insight of Andrew Luetchford, Katherine Howard, Georg Schroeder, and Ross Pennington. Rainer Moerike and Satyajit Saha were vital in developing the concept and managing the project from beginning to end. Shweta Khanna and Purti Trehan were instrumental in the research, analysis, designing, and writing of this report. The leaders of the Debt & Capital Advisory practices of the member firms wish to thank all those who have contributed to the development of Global Capital Markets Perspective, Issue 2.

About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s approximately 195,000 professionals are committed to becoming the standard of excellence.

Disclaimers: This publication is provided for general information only and is not intended, nor should it be relied upon, as a recommendation to purchase or sell securities. This publication is neither an offer to sell nor a solicitation of an offer to buy, any security. This publication does not provide information reasonably sufficient upon which to base any investment decision and must not be used for that purpose. This publication is not to be construed as legal, accounting, business, financial or investment advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any action or decision that may affect your business.

The charts and graphs used in this publication have been compiled by Deloitte Touche Tohmatsu Limited solely for illustrative purposes. All charts are as of the date of issuance of this publication. The information provided in this publication was obtained from sources believed to be reliable, but has not been independently verified and its accuracy cannot be assured. Information, opinions and estimates reflect Deloitte Touche Tohmatsu Limited’s judgment as of the date of publication and are subject to change without notice. Deloitte Touche Tohmatsu Limited undertakes no obligation to notify any recipient of this publication of any such change.

© 2012 Deloitte Global Services Limited

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