Domestic bond house

IFR Asia Awards 2012
9 min read
Nachum Kaplan

In a record year for bond sales across the board, one bank stood out for its work in mobilising local currency funding for both onshore and offshore clients. For its leadership of multiple local markets and its pioneering cross-border transactions, Standard Chartered is IFR Asia’s Domestic Bond House of the Year.

Domestic bond house 2012

Standard Chartered’s roster of innovative deals and high-profile mandates across Asia’s domestic currency markets shows the bank is leading with its head.

Having ramped up its capital markets franchise in recent years, StanChart has long faced accusations that it relied more on balance sheet than intellectual capital to win business. It put paid to those criticisms during the IFR review period, with an impressive array of bespoke solutions in different markets and a client list comprising the cream of Asia’s corporate aristocracy.

The bank not only demonstrated an unmatched level of local knowledge and expertise, but its unique model of strong local coverage, coupled with supporting regional hubs.

The sheer scale of StanChart’s local currency fundraising is impressive. The bank raised more than US$20bn in local currency bonds in 2012, a 20% year-on-year increase, and did deals in India, Singapore, Indonesia, the Philippines, Thailand, China, and Hong Kong – among others.

Even more impressive than the size, depth and breadth of StanChart’s operations, however, was the quality of its deals and ideas. Nothing demonstrates its read on local markets and its ability to connect them better than its role in delivering substantial savings to Indian issuers by bringing them to the Singapore-dollar market. The bank opened the market for Indian issuers with IDBI’s S$250m (US$204.5m) five-year issue and followed quickly with an equal-sized transaction for Export Import Bank of India and a S$400m deal for Indian Oil Corp.

“The Indian story is a very interesting one because we are talking about doing high-yield transactions in Singapore dollars,” said Henrik Raber, the bank’s global head of debt capital markets. “We were able to deliver substantial savings to issuers by bringing them to the Singapore-dollar market. We are not talking about saving 3bp–5bp here.”

StanChart was able to link Indian issuers with Singapore investors because of its strong presence in both markets.

In Singapore, StanChart was the top foreign arranger on the local currency league table and was able to compete on an almost equal footing with local banks.

The bank brought many first-time issuers to the market from both Singapore and elsewhere, including Bank of East Asia, NTUC, UOB, AIMS, AMP Capital Industrial Trust and Lippo Malls Indonesia Retail Trust – to name a few.

StanChart may not have played the leading role in introducing corporate hybrids to the Singapore market, but it fully demonstrated its mastery of complex structures in the financial sector.

The bank was bookrunner on five of the eight Singapore-dollar deals from financial and insurance companies during the review period.

These were not ordinary deals, but ones where StanChart added value through complex structuring and a disciplined approach to navigating a changing regulatory environment. NTUC’s S$600m Tier 2 issue had a non-deferral structure that come out of discussions with the Monetary Authority of Singapore. United Overseas Bank’s S$1.2bn issue and BEA’s S$800m issue both achieved Basel 2.5 compliance after discussions with monetary authorities in Singapore and Hong Kong, respectively.

It also brought Dutch lender ABN AMRO to market late during the review period with a S$1bn Tier 2 trade that incorporated some unusual clauses to allow for future changes to European bank capital regulations. The clever trade underlined the growing appeal of the Asian investor base to issuers outside the region, as well as Singapore’s leading role in supporting subordinated products.

Many of the bank’s Singapore-dollar deals were also landmarks. Shui On Land’s S$250m issue was the first Singapore transaction from China’s property sector and the first from an overseas high-yield name. India Oil Corp’s S$400m bond was the year’s largest Singapore-dollar deal from a foreign issuer and the largest such transaction from an Indian issuer. United Overseas Bank’s S$1.2bn deal was the largest Lower Tier 2 done in Singapore dollars.

In India, the bank boasted a client list that would be the envy of many local banks let alone foreign ones. StanChart arranged deals for Hindalco, Tata Steel, TRIL Infopark and Central Bank of India.

Even more impressive than the issuer list was the quality of the deals. Hindalco’s Rs30bn trade, in particular, showcased the bank’s full range of skills. The long 10-year opportunistic tap was triggered when the borrower sought first-mover advantage after the central bank cut rates more than expected. So, rapid execution and a good market read were essential. The deal got done easily, thanks to StanChart’s ability to place it with a diverse range of investors, including asset managers, insurers and pension funds.

StanChart’s India business also showed its ability to hard underwrite deals – often a requirement in Asia’s local currency markets. In India, the bank used its balance sheet to generate decent returns in a market where competition has left it hard to make money and driven fees to absurd levels.

“Every bank can compete on the one-cent fee. We prefer to underwrite and make some money,” said Raber. “In India, underwriting is an expectation and we are proud of some of the backstops we have been doing. The thing about our Indian franchise is that we do both dollars and local currency, but local currency has been the P&L driver.”

With underwriting a standard feature of the rupee market, however, it was StanChart’s ability to identify trends that accounted for much of its success on the sub-continent.

“One of the key trends we spotted in India was that the manufacturing companies would return to the market and the likes of Hindalco and Tata Steel did exactly that,” said Raber.

The India-to-Singapore trade was only one example of StanChart connecting local issuers and investors, as the bank brought an array of issuers from all over the world to Asian local markets.

For example, the bank brought Bahrain’s Mumtalakat to the Malaysian-ringgit market and Korea’s Hana Bank to the Thai baht market and had great success in bringing non-Asian issuers to the offshore renminbi market with trades for Dubai’s ENBD, Holland’s ABN AMRO, France’s Societe Generale, Taiwan’s Chailese Finance and India’s ICICI Bank.

Most of those swapped the proceeds back to their functional currencies, highlighting StanChart’s ability to deliver the right financing solution to its clients regardless of the market.

That product-agnostic approach, coupled with StanChart’s ability to spot an arbitrage opportunity, also triggered an unusual financing in Indonesia with a clever Rp.1.5trn (US$160m) deal for Medco Energy International. Medco issued in rupiah to take advantage of strong demand in that market and then swapped it into dollars to meet its actual funding needs.

In addition to its success executing complex – and lucrative – cross-border transactions, handling everything from the idea to the necessary hedging in the foreign exchange and interest rate swap markets, many of StanChart’s local currency deals were landmarks in their own right.

In Indonesia, Astra Sedaya Finance’s Rp5trn one-, three- and five-year senior secured bond was the country’s biggest corporate issue in 2012.

In Thailand, the bank raised Bt61.5bn (US$2bn) via a string of successful deals for Bank of Agriculture and Agricultural Co-operatives. The issuer’s debut deal in July was followed by two quick and successful taps in August.

In the Philippines, where a bank needs to be able to play in pesos if it wants the play at all, StanChart completed a Ps11.5bn private placement for MTD Manila Expressway. It was the year’s biggest private placement in that market.

If there is one market where the bank has yet to match its overall success it is Hong Kong, where StanChart runs a distant second to rival HSBC in both Hong Kong-dollar and Dim Sum bonds.

The bank’s success in building its commercial banking franchise into a regional bond powerhouse is an undeniable achievement, and StanChart’s solid execution and mastery of complex cross-border transactions will ensure that it remains a formidable competitor in a vast number of Asian markets.

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Domestic bond house 2012