Case Study: Chase's Strategy For Syndication The Hong Kong Disneyland Deal

SKK GSB

Chase's Strategy for Syndication the Hong Kong Disneyland loan

Write-up- assignment #2

Dalal Alkulaib

4/1/2015

1-How should Chase have bid in the first round competition to lead the $HK3.3 billion Disneyland financing?
They are three ways to approach this deal:
1) bid to win, 2) bid to lose and3) no bid. Chase chose to bid to lose on the first round, but just enough to make it to the short list and to maintain relationship between them and Disney. If Chase wanted to lead the competition from the first round, they should have made a bid to win. Instead they bid to lose but just enough to get to the second round mainly to protect their image and reputation. The deal will be more attractive to Chase If Disney awarding

What syndication strategy would you recommend for the loan? Think in terms of the number of tiers, commitments and fees for each tier, nationality and number of banks, final hold positions, sub-underwriting vs. general syndication, etc.
In this case they are three main parties involved in this deal: Disney and its partner Hong Kong government equity owner of HKTP (clients), Chase Manhattan Bank (investment Bank: IB) and investors (the other banks such as: HSBC, Bank of China)
Chase had present to Disney two of three syndication strategies. In all three cases, Chase would fully underwrite the deal. These strategies shown as the following:
Syndication Strategy#1: Sole Mandate; with sub underwriting
According to Exhibit 8a, this strategy involves 4 tiers, 15 banks. Sole Mandate would give Chase the title of lead arranger and invite the other banks to act as sub-underwriters. So, Chase could protect its self from the full $3.3 billion they would in turn gather four other banks. These four banks would also be lead arrangers titles in exchange for commitments of $660 million. The rest would be allocated amongst ten other banks at different tiers. So, there would be 5 lead arrangers including Chase at HK$300 million each, four arrangers at HK$250 million each, four co-arrangers at HK$150 million each, and two lead managers at HK$100 million

Thus, more willing to underwrite the deal. Local banks support the project on the level of banking market. In addition, the project would receive more approval from the government side. However, more banks involved may lead to higher administration costs and coordination issues. In addition, Chase would hold less controlling power with more banks included in the deal (in strategy #4, arrangers were 12 which are quite high otherwise strategy #5 without any arrangers)
Syndication enables Chase and other lead arranger meet the demand for the loan amount without having to bear the market and credit risk alone. For Syndication, chase has to decide the lowest amount of fees that could attract the required level of commitment.
Joint mandate: can result into higher efficiency if each bank shares costs and any risk involved in this deal. Since Chase doesn’t know the Chinese market very well, it has the option to partner with one of the local Chinese banks thus decrease its overall risk. This will not only reduce the competition but will also make the deal more politically viable for politicians who are willing it back up the plan. Though, the risk involved is low compared to other strategies, this would also mean sharing the profit as well as league table