IFR Asia reviews 2012 in charts
Please click on the arrows to scroll through the graphics published during 2012 in IFR Asia.
To see the digital version of this report, please click here.
IFR Asia reviews 2012 in charts
Please click on the arrows to scroll through the graphics published during 2012 in IFR Asia.
To see the digital version of this report, please click here.
Fortress Asia has held fast since the global financial crisis struck in 2008, but there is certainly no room for complacency. While another full-blown crisis seems unlikely, a less-severe shock is certainly possible. Somewhat bizarrely, Asia’s resilience has made it both a haven from the turmoil in more developed markets and a destination for investors looking for decent returns and a credible growth story. Huge amounts of money have flowed into the region over the past 12−18 months. This is a positive story, but this inflow of foreign capital is also eerily reminiscent of the “hot money” that poured into the region in the run-up to the Asian financial crisis. Likewise, 2012 has been a record year for US-dollar bond sales in Asia, but short-term foreign debt − both sovereign and corporate − was a major contributing factor to the devastation of 1997. Poor corporate governance was also a feature of the Asian turmoil 15 years ago and events, surrounding companies from Sino-Forest in China to the Bakrie Group in Indonesia, show scandals are also back. Could a repeat of the Asian crisis befall the region again? There are some disturbing similarities – and some reassuring differences – between Asia today and 15 years ago. In fact, much of the region’s present-day strength can be attributed directly to the lessons learnt and reforms undertaken in the wake of the 1997 turmoil. The recovery almost came too fast for Asia and, with the good times, there is always a risk that policymakers may take the foot off the pedal. Asian governments, for one, learnt a great deal. Many have since adopted floating exchange rates, so their central banks will not be forced to spend huge chunks of their foreign reserves to maintain pegged exchange rates (Thailand spent all of its reserves during the Asian crisis). If Asia’s central banks did look to shore up their currencies, they each have far more foreign reserves at their disposals today, while the Chiang Mai Initiative promises to provide a regional alternative to IMF assistance. Asia’s banks, even after considerable balance-sheet expansions in recent years, are very well capitalised – in part because the crisis forced Asia to adopt the kind of banking reforms and consolidation that Europe and the US are undertaking at the moment.Local liquidity Another major difference is that Asia has worked very hard, and with considerable success, to develop its local currency debt markets to reduce dependency on offshore debt. Local currency bonds have come so far that Thailand now plans to turn all of its sovereign debt into baht. Given that Thailand is where the Asian financial crisis began in June 1997, it is quite an achievement that the Kingdom has built a baht bond market that now matches its Bt8trn (US$268bn) bank market. Likewise, the Philippines, although not a victim of the Asian crisis (due to its being an underachiever before the crisis rather than prudential fiscal management), has clearly learnt the value of liquid local currency markets. It has embarked on several liability-management exercises aimed at turning dollar liabilities into peso debt, and has been a pioneer in selling local currency bonds to global investors. Indonesia, Malaysia and South Korea have, equally, worked hard to develop local currency bond markets. Deeper local capital markets reduce the likelihood of a repeat of the Asian crisis because companies that have borrowed in their local currencies are sheltered from exchange rate movements. This also limits contagion, because one of nastiest effects of falling exchange rates is the way they can quickly turn good companies into bad ones even if they hold only modest levels of foreign debt. In addition to local bond markets, individual wealth is also changing the Asian liquidity landscape. “Singapore has emerged as a major private banking and investment management centre. So now more Asian money stays in Asia and is managed in Asia. Private banks are now providers of liquidity. Ther
JP Morgan has long been acknowledged as the house of choice for Australia’s blue-chip issuers seeking to tap overseas markets. These enviable credentials were, if anything, reinforced in the review period as the bank held off determined challenges from the likes of Citigroup and Deutsche Bank to retain an 11% market share, more than any other bank. It is the fourth year running that the bank has won this award. It was not just the number (over 45) and size of deals that impressed, but also the range of products and currencies that JP Morgan facilitated in a global marketplace that recovered impressively from a near shutdown in the second half of 2011. The bank boasts a long list of debuts and repeat businesses, thanks to its strong client relationships, especially among Australia’s four major banks and leading corporations. Indeed, JP Morgan was on the ticket at home and abroad for six trades from Westpac, five from ANZ, four from National Australia Bank and two from Commonwealth Bank of Australia. Making full use of JP Morgan’s range of products, Westpac printed a US$2.0bn three-year covered floating-rate note in July, a US$800m Tier 2 10-year non-call five the following month and a US$2.25bn three-year senior unsecured floater in September. However, the standout US-dollar transaction was CBA’s innovative US$4bn five-year covered and three-year senior bond issue in March. Syndicate bankers were initially sceptical as to how the dual-tranche offering would be received and raised concerns about the dangers of overlapping investors. However, CBA was able to sell its US$2bn five-year covered bond at 115bp over mid-swaps, along with a US$2bn three-year senior unsecured note at 155bp wide of US Treasuries. JP Morgan also helped Australasian financials tap the euro market and the transactions include January’s debut €1bn (US$1.27bn) 2.625% five-year covered bond from NAB. Across the Tasman, JP Morgan arranged BNZ’s 2.625% €500m long three-year covered bond in January and ANZ National’s €750m 1.375% five-year covered in September. Outside the majors, JP Morgan was also a joint bookrunner on Macquarie’s US$250m Tier 1 hybrid. On the corporate scene, JP Morgan’s longstanding association with BHP Billiton was extremely fruitful in a year when the world’s largest miner raised more than US$12bn-equivalent from the US dollar, euro and sterling markets. With JP Morgan’s help, the A1/A+/A+ rated mining giant – still headquartered in Melbourne – managed to issue a record-breaking US$5.25bn five-tranche SEC-registered Yankee in February made up of a two-year floater, as well as three-, five-, 10- and 30-year fixed-rate prints. This was followed in September with an audacious four-part, dual-currency bond totalling almost €3.5bn. BHP Billiton ended up issuing a €1.25bn eight-year and a €750m 15-year bond, before quickly following up with a £750m (US$1.89bn) 12-year and £1bn 30-year. All these were launched and priced on the same day, a remarkable achievement, especially for the only bookrunner involved in all tranches. Other corporate highlights include Telstra’s 3.5% €1.0bn 10.5-year in March. JP Morgan also arranged Origin Energy’s euro-denominated debut in September. It also led all three of Goodman Group’s forays to the US dollar 144a market. The bank emphasised its execution capabilities by resetting Westfield’s existing US dollar curve through September’s US$500m 10-year Yankee and US$300m tender offer. Australian corporations have also called on JP Morgan’s services to access the US private-placement market, where CitiPower, Port of Brisbane, Foxtel, Newcastle Coal and Envestra raised a combined US$1.725bn in 2012. To see the digital version of this report, please click here.
Change is afoot in Asia’s capital markets. This year’s Review comes after the best year on record for Asian bonds, but one of the toughest ever for primary equities, turning the region’s established investment banking model on its head. While many readers will doubtless be relieved to see the end of 2012, the region’s debt specialists are looking forward to a well-earned break. The breakthrough growth of Asia’s debt capital markets has been one of the highlights during a challenging year, but it is just one of a number of themes that have emerged over the past 12 months and are now challenging banks and clients to rethink their traditional playbooks. Unable to compete with cheap bonds, Asia’s international lenders have relied on a rebound in acquisition financings to boost their budgets, paving the way for an M&A boom as underwritten financings become more readily available. South-East Asia has attracted a greater share of attention than it has for years, forcing firms to reshuffle resources. Block trades and follow-on offerings now account for almost 75% of the ECM pie, raising the stakes for underwriters. With the corrections in Europe and the US still ongoing, and with China’s economy coming off the boil, these are not likely to be temporary phenomena. However, while analysts debate when US rates will rebound, and whether or not Asian companies will keep up their record pace of bond sales in 2013 and beyond, investment bank chiefs face tougher challenges ahead. The arrival of tougher banking regulation and capital rules, against a backdrop of slower global growth and continued uncertainty in the eurozone, has left investment banks at a crossroads – in Asia and beyond. The way they go from here will determine which institutions emerge as sustainable businesses, and which fall by the wayside. These pages aim to honour the deals and institutions that stood out during the year. They also intend to show just what can be accomplished against a tough backdrop. In this period of upheaval, many different directions are possible. Some difficult decisions have already been made, and recognition must go to the institutions that have dared to rethink their approaches, rather than persisting with flawed business models in the hope that others will drop out first. Even in the beaten-down equity capital markets in Hong Kong and China, companies like Alibaba, Hong Kong Exchanges & Clearing and Swire Pacific proved they could still access the capital needed to meet their objectives, and the resulting block trades, convertible bonds, loans and private placements all feature among this year’s list of winners. These, and many more fine examples of creative thinking, reveal that there are still plenty of opportunities in Asia –no matter what the market conditions may be. They also confirm that Asia’s investment banks are doing what they do best, bringing capital investment to where it is needed. That is a worthy message for the end of any year. To see the digital version of this report, please click here.
A breakthrough year for bonds has left the traditional equity-focused approach to Asian investment banking looking increasingly misguided. Goldman Sachs, however, emerged looking smarter than ever, having built a more balanced platform and stayed a step ahead of the market. Rather than pursuing the wait-and-see approach that many of its equity-dependent rivals favoured, Goldman read the winds of change and shifted its focus. After building out its debt capital markets platform over the last two years, it reaped the benefits of those efforts during IFR’s review period, while broadening its range of both clients and business to maintain a leading position in the equity capital markets. “We’re trying to do more and broaden our footprint and I think others are trying to shrink their footprint,” said David Ryan, Goldman’s president for Asia Pacific. Goldman has long prided itself on being the go-to firm for the biggest capital raisings, with countless major Chinese IPOs on its resume. Those deals were few and far between during the review period, but Goldman adapted to the change in market conditions. It stepped up its focus on South-East Asia and excelled at block trades – two defining themes of the year – and competed hard for mandates whether they were a US$100m convertible bond or a US$6bn share sale. At the same time, it emerged as a real contender in Asia’s debt capital markets just as issuers in the region were embracing bonds as a fundraising tool. Goldman arranged a wide variety of bond issues across the capital structure and throughout the region, including an enviable array of lucrative sole mandates. “You can no longer be a credible financier out here just by being strong in ECM or, for that matter, just by being strong in DCM,” said Dan Dees, co-head of investment banking for Asia, ex-Japan. “I don’t know if we’re a little lucky or a little good or a little bit of both, but the decision to invest has given us an impressively balanced portfolio on the financing side.” Goldman’s book of business over the review period is proof of its ability to get in front of those trends. It is no accident that the firm posted its best year so far in Asian debt capital markets, or that it paid more attention to South-East Asia’s equity markets. It is also a global shift. “The diversity of our business, both by product and by geography, is really coming through,” said Richard Gnodde, co-CEO of Goldman Sachs International. “Over the last many years, we’ve made very significant investments across the product range. We’ve moved away from being an M&A and equity underwriting house to something that’s much more diversified.”Very different firm At a time when investment banks are under intense pressure from both regulators and return-hungry shareholders, Goldman’s ability to reshape its business comes as welcome reassurance that it is able to meet the challenges of an evolving marketplace. “Everything we’re doing is making sure that we’re current and that we’re dealing with the world as it is today. When we see issues coming, we move immediately,” said Gnodde. “What it enables you to do as an organisation is to focus on what you should be focused on, which is executing the business of the day, and dealing with the challenges our clients are facing.” This year’s Bank of the Year is a very different firm from the Goldman that last picked up IFR Asia’s top honours. In other ways, however, the old hallmarks have not changed. It still featured in the big trades and nobody can accuse the firm of sacrificing quality in its quest to win more business: indeed, rivals pointed to plenty of examples where Goldman was outbid on competitive block trades. “The story is really adapting your approach to the business to whatever the market gives you, and leading your clients in the right direction,” said Dees. “It’s been an incredibly tricky market and, as a result, the theme ends up being ‘how to get in and out fast’.” Goldman’s Asian debt capital markets
The last 12 months have reversed the traditional mix in Asia. The current year has been an outstanding one for Asia’s debt capital markets, just as equity issuance has faded. Is this a function of rates and markets, or is there a more significant shift taking place? The increase in debt-capital-market volumes has been momentous. Total Asian debt issuance in G3 was US$115bn up to early November in 2012, compared with US$73bn for the whole of last year. “You’re talking about a 48% increase year to date and the year hasn’t ended yet,” said Paul Au, head of DCM syndicate at UBS in Hong Kong. Moreover, it has been a fairly broad-based improvement. “The issuance has been across the region, from many different countries, with a good mix of corporate and sovereign issuance and a pick up in high yield issuance.” One interpretation is that the increase, and the decline in ECM volumes, is a function of temporary circumstances. “It’s part of a global phenomenon of record low interest rates and credit spreads that have been tightening through the year,” said David Ratliff, head of investor sales and relationship management, Asia Pacific, at Citigroup. “You’ve got US Treasuries at all-time lows, and in a lot of local currency markets you’ve also seen rates come down to dramatically low levels. Issuers are taking advantage of that.” At the same time, equity issuance has been problematic in such difficult markets. “It’s been challenging for ECM,” said Herman van den Wall Bake, head of fixed-income capital markets for Asia at Deutsche Bank. “The reduced growth prospects in the region, and the fact that margins have come under pressure, have impacted valuations and investor appetite. Many companies have opted not to dilute themselves at these levels and have looked at the debt market instead.” However, there are broader shifts at work, too. If this was just a case of people ignoring equities for all forms of debt, there would have also been a rise in loan volumes, but that has not been the case. “It’s not a function of leverage all of a sudden going up,” said van den Wall Bake. “The syndicated loan market is down 20% year on year. Instead, what you’ve seen is a trend away from bank financing and towards bond financing.” People have been expecting this to happen for some years, but the exceptionally high liquidity among Asian lenders has stopped it from taking place. Earlier this year, however, banks globally began to be squeezed and the term and quantum of lending began to change. “Hong Kong blue chips, instead of getting five- or seven-year loans, were only getting three-year loans,” van den Wall Bake said. With margins on those loans increasing, too, as banks passed on borrowing costs, bonds started to look much more attractive. “The minute bond markets reopened in January, there was a stampede of corporates trying to lock in term funding,” said van den Wall Bake. “As the year progressed and we saw base rates rally and credit spreads tighten, the appeal of terming out debt was compounded.” This has become increasingly clear through the current year as rates from the perspective of issuers have got better and better. Take Hutchison Whampoa, for example. It launched five- and 10-year bonds in January, raising US$1.5bn at 3.5% and 4.625%, respectively. It returned in November for the same volume and tenors, this timing paying 2% and 3.25%, respectively. “Basically, they’ve saved themselves 150bp in the same year, with just 10 months in between,” said van den Wall Bake. On top of that, there is a continuing change in the nature of the Asian investor base. This manifests itself in a number of ways, from the growth in the number and scale of sovereign wealth funds, to the steady development of pension funds, and the increasing appetite for debt securities among private-banking clients. “The Asian investor base has become a lot more independent, which means issuers from the region are able to depend a lot more on Asian investors alone for their issu
ANZ opened the Kangaroo market for foreign corporates, was instrumental in getting Australian corporates to issue at home rather than abroad and arranged deals for corporates and financial institutions alike. It also led trades in all asset classes, including securitisations, local banks’ senior unsecured and covered bonds plus the SSA Kangaroo market. Much of the bank’s success is attributable to its ability to identify and respond to trends early. The bank was on top of two such themes that were certain to benefit the Australian market: increased global appetite for Australian assets, and a desire to invest in new names, away from European Union financials and SSAs. “The environment has been very supportive of credit markets with the primary one very active across every asset class, all of which are expected to hit record levels in 2012,” said Paul White, global head of syndicate at ANZ. ANZ took full advantage of the upturn in activity in local and Kangaroo markets, following their near closures in the latter half of 2011, and was the dominant arranger with a commanding league table lead in Australian dollar-denominated bonds, including Kangaroos, ABS and RMBS. ANZ lead managed 70 transactions worth more than A$12.3bn (US$12.8bn) for a 16.3% market share over the period under review, almost five percentage points above its closest rival, and no mean feat in a highly competitive market. The bank was notably active in the Kangaroo market and was instrumental in opening the market for foreign corporates. ANZ secured a plum position on BP’s debut A$500m five-year Kangaroo on August 29, the first corporate Kangaroo bond since 2006. Almost as if to prove it had opened the market, ANZ returned less than a month later as a co-lead on state-owned Korea Gas’s A$300m three-year Kangaroo, priced at 4.50%. In fact, ANZ was unquestionably the go-to Australian dollar arranger for Korean companies. After a five-year absence, Korean financial institutions came to the market in force with Industrial Bank of Korea, Korea Finance Corp, Export-Import Bank of Korea and Shinhan Bank all issuing Kangaroos. ANZ was a lead on all of them. The bank’s success in bringing foreign corporate issuers to the Australian market also had domestic implications. After BP’s successful deal, several top Australian issuers decided again to raise funds in their home market after a long reliance on overseas funding. BHP Billiton and Telstra were among the most notable of these. On October 9, Sydney-headquartered global mining giant BHP Billiton raised A$1bn in its first Australian dollar-denominated bond since 2001, via arrangers ANZ and CBA. The five-year bond marked Australia’s biggest single issue outside the banking sector. It priced 5bp inside guidance at 90bp over ASW, after the A1/A+/A+ issuer attracted an order book in excess of A$2bn. Likewise, Telstra, which had previously favoured the euro market, returned home on November 8 with a A$750m five-year print. All of Australia’s four major banks were arrangers. ANZ proved its credentials in the SSA market as a joint bookrunner on Kangaroos for an impressive array of clients, including KfW, EIB, the World Bank, Asian Development Bank, IFC, FMS, NIB and Export Development Canada. ANZ was also lead on nine securitisations in the period under review (second only to NAB) for A$1.605.2bn. The pick of the bunch was Bank of Queensland’s ABS transaction in May, which included a rare sterling tranche. The enlarged A$700m 2012-1E Reds EHP Trust securitisation of auto loans was the first Australian-dollar ABS transaction of the year. To see the digital version of this report, please click here.
Alibaba Group had big plans for the year under review. On the slate were a take-private of Alibaba.com, a buyback of Yahoo-owned shares and, what ultimately made it all possible, about US$8bn in debt and equity financing. It was a menacing to-do list that looked almost impossible in the face of mercurial funding markets. In executing the plan, the e-commerce giant exemplified everything successful fundraisers had to be during the year – determined, open-minded and creative. Alibaba executives were able to see opportunity where others could not. That sort of thinking epitomised the against-the-grain ethos that had been the hallmark of Alibaba and its founder, Chinese ecommerce pioneer Jack Ma, since the company’s inception in 1999. Here was an asset-light Chinese internet company looking to raise billions of dollars in loans, while the markets were moving away from bank loans and from Chinese risk. Banks were lending less because tougher regulations had increased their cost of capital, forcing them to be highly selective when it comes to lending money. Discerning lenders had little reason to buck up for an internet company that made most of its money in capital-restricted China – under almost any regulatory conditions, let alone these ones. And there was more to it. Alibaba had interests in California, Hong Kong and the PRC, each with conflicting timetables, regulations and outlooks. The company had to get them all to agree to a plan that, in any event, market conditions and new ideas forced them to change regularly. The European credit crisis in the background only made investors and banks more sensitive to risk. Yet, by the middle of September, Alibaba had raised US$4bn in loans and US$3.9bn in privately placed convertible preference and ordinary shares. Alibaba.com was privatised, Yahoo had halved its stake and put in writing its plans to exit completely once Alibaba Group went public. The Hangzhou-based company’s experience in the public and private capital markets came in handy. Alibaba made its initial foray into Asia’s public markets with the HK$11.5bn (US$1.5bn) Hong Kong listing of business-to-business unit Alibaba.com in 2007. It was the largest technology IPO to price in the city, a superlative that Ma’s successes in the competitive international private equity market foreshadowed years earlier. In August 2005, it coined the private-market deal with Yahoo that, along with the IPO, would ultimately be the subject of its 2012 funding scheme. Yahoo got a stake of roughly 40% in Alibaba Group in exchange for the California-based search engine’s China business and US$1bn in cash.Bigger plans In 2011–12, as the world’s capital markets became more unstable, Alibaba’s plans got bigger. In early December, the company, with the help of Rothschild, its adviser, went to the bank market for a US$4bn loan to buy back part of Yahoo’s 40% stake. It would be the first sizable syndicated loan for a Chinese technology company. The loan, however, turned out to be a mere rough draft of its ultimate 2012 funding plans. As its corporate plans changed, its financing needs did, too. In early February, the company named six banks for a US$3bn financing of Yahoo shares, including a US$2bn bridge and a US$1bn term loan. It scaled down its US$4bn target, in part, to get banks more comfortable with its businesses. “Internet companies are not something they’re used to lending to,” said Alibaba Group CFO Joseph Tsai. It was also in February, when the terms of the Yahoo loan were still in flux, that the company came forward with plans to privatise Alibaba.com. The company offered shareholders HK$13.50 a share, matching the IPO price to the cent. The Hang Seng was down 27% since the dot-com went public, and shareholders were being offered a 55.3% premium to the 10-day average. “We provide our shareholders a chance to realise their investment now at an attractive cash premium rather than waiting indefinitely during this period of transition,” Ma said
While Asia is clearly better positioned than most other regions of the world to weather the ongoing economic storm in Europe and the US, it is, of course, not immune. With growth rates in China, Japan and India reaching multi-year lows in 2012, most of Asia is feeling the pinch. This economic distress, and the competition for natural resources, has exacerbated nationalist tendencies – always lurking beneath the surface, due to Asia’s diverse cultural, linguistic and religious mosaic. The result is an aggressive form of political and economic nationalism that is threatening the concept of Pan-Asianism and making foreign investors think twice about investing in some Asian countries. Natural-resource nationalism is evident in a variety of countries and has manifested itself in a number of ways, ranging from more restrictive foreign-investment policies, to trade restrictions, to militarism. For example, earlier this year, the Indonesian Government adopted new rules that sharply increased the costs of doing business in the mining sector. Foreign mining companies must, within 10 years of commencing production, cede majority control of their businesses to the government. Recent legislation also imposed a 20% tax on scores of unprocessed minerals. These actions are clearly designed to increase government control over the sector, at the expense of foreign investors. Earlier this year, Australia passed a 30% tax on coal- and iron-ore-mining companies, designed to promote infrastructure development in the country. These measures send a distinctly anti-foreign-investment message, which will have a long-lasting negative impact. The other major area of concern is a rising propensity towards militarism – both between regional powers, and on the grand global chess board between China and the US. The high-profile conflict between China and the Philippines over the Scarborough Shoal and, over the longer term, between China and five other Asian nations over the Spratly Islands is evidence of this, as is competition for superior blue-water military capabilities between China and India. The stage is set for rising expenditure in support of superior military capabilities throughout the region, which will only heighten the propensity towards militarism and negatively impact already-strained national budgets. Nationalism and militarism combined this year in a higher-stakes dispute between China and Japan over the Senkaku Islands (the Diaoyu Islands to the Chinese and the Tiaoyu Islets to the Taiwanese), and between Japan and South Korea over the Takeshima Islands (the Dokdo Islands to the Koreans). In neither case does it appear that the spats will result in overt military action between the countries, but the economic costs will be high. Japan invested more than US$6bn in the PRC last year and, although China is Japan’s largest trading partner, trade between the two countries fell 1.8% in the first nine months of 2012. In September alone, China’s imports from Japan fell 14% year on year, having a profound impact on the Japanese economy.Fanning the flames None of the governments of these countries appear to have much interest in resolving the conflicts swiftly, preferring instead to fan the flames rather than pursue international arbitration. One reason is that domestic politicians so often utilise nationalism to achieve their own objectives, and the average citizen is more likely to rally around the flag than consider thoughtfully the consequences of their governments’ actions in territorial disputes. Another reason is that so many Asian governments continue to be products of their own histories, and have little interest in moving past these with their neighbours – even though it would clearly be in their long-term interests to do so. For instance, at some point in time, a Japanese Prime Minister will refuse to visit the Yasukuni Shrine simply because Asia is living in another era. However, until electorates choose to put into office enlightened lea
HSBC led more than 100 US-dollar bonds for Asian clients during the year under review – more than total market just a couple of years ago. Its dominance was such that it arranged two thirds of the debut issues during the period, and won a similar share of the high-yield business. It covered every corner, bringing hybrid issues, perpetuals, Islamic bonds and all the key sovereign trades to market. While HSBC has always run a big platform in Asia, it is only in recent years that the bank’s long and deep relationships with Asia’s corporate sector have become a source of frustration for its rivals. Rather than extending new loans to win capital markets business, however, the bank has managed to turn its existing relationships into mandates – a tactic that paid dividends during the review period. HSBC’s execution skills were also first rate. Its ability to deliver a quality of execution that matched the breadth of its franchise was particularly impressive in a record-breaking year, and the bank’s ability to dodge the list of failed deals made it clear that quantity did not come at the expense of quality. “In the global marketplace, unexpected news can have an immediate, unpredictable and profound impact. Only banks with good networks and strong relationships are able to deliver. The team at HSBC does this and provides top-notch service,” said the funding manager for an Asian sovereign. The bank certainly benefited from a record year in its home market, with Hong Kong accounting for 12% of all dollar bonds sold during the year under review. While it would have been easy for HSBC to sit back and watch the local deals roll in, it did far more than that, however, winning landmark transactions all over Asia. “We are the dominant bookrunner this year in G3 and we have led many of the landmark deals this year,” said Stephen Williams, head of debt capital markets for Asia Pacific at HSBC. He has the deal roster to prove it. HSBC was a bookrunner on a jumbo market reopener from the Export-Import Bank of Korea in January, on the Citic Pacific deal that marked the return of sub-investment grade credits, on a deal for Sinopec where the 30-year tranche proved so popular it inverted the curve from 10 to 30 years. It also led a clutch of dollar deals for sovereigns, such as Indonesia, the Philippines and Sri Lanka, to name just three.Execution skills If there was ever any doubt of HSBC’s ability to read the market, the US$500m five-year benchmark for Hong Kong developer Sino Land more than answered it. The drive-by style transaction was a bold move because, just a couple of years ago, few Asian issuers dared come to market without an extensive roadshow and books took days to close. It paid off – and saw the bank rewarded with a rare sole mandate on a well-banked corporate name. This was the first time any bank had tried announcing a Reg S-only transaction at the close of the Asian day, effectively limiting execution to just a couple of hours. HSBC announced the deal at 5pm Hong Kong time and priced it a couple of hours later at 99.561 to yield 3.346% on a 3.25% coupon. The day was September 12, when Germany’s decision to approve the European Stability Mechanism came through in the middle of the Asian trading day. Ignoring common practice, and spotting the beginnings of a market rally, HSBC decided to go ahead and announced the deal at 5pm, Hong Kong time. Within one hour, books had soared to US$3.5bn from 140 accounts. This allowed the company to revise price talk from 280bp over Treasuries to 265bp–270bp over, and to print at the tight end of that. At the reoffer spread, the bond offered only 5bp of concession versus Kerry and Henderson and was 30bp inside Nan Fung. Yet, it still performed well in secondary and was quoted at 255bp the next morning. “Trades like these don’t come on a silver platter for HSBC, we delivered the expertise they expected,” said Alexi Chan, head of DCM origination for Asia at HSBC in Singapore. It was also a bookrunner
ICBC was at the forefront of the development of China’s bond markets during the year under review, pioneering new products and setting benchmarks that added depth and breadth to both the onshore and offshore markets. In the fast-developing onshore renminbi market, ICBC was again the leading underwriter, having maintained a market share of around 10% over the last five years. It managed over 150 domestic bonds and worked with 100 corporate issuers to raise a total of Rmb300bn (US$44.1bn) during the review period. Tellingly, ICBC has repeatedly been the underwriter of choice for Chinese authorities looking to bring innovative products to market. That vote of confidence underlines the bank’s experience, relationships with regulators and its ability to read the market accurately. ICBC was a joint lead on Industrial Bank’s Rmb30bn five-year 4.2% special finance bonds, priced on December 28. It was the first off a Rmb200bn issuance plan the government specially designated to provide loans to SMEs to ease their financial pressures during monetary tightening. ICBC led three of the first five municipal bonds sold directly by local authorities – in Guangdong, Shenzhen and Zhejiang – making it the top underwriter for a new asset class with enormous potential. It also arranged the first finance bond from a financial leasing company, with a Rmb1bn dual-tranche transaction for Huarong Financial Leasing in May. ICBC has also emerged as a player in the international bond markets, where it built market share faster than any of its Chinese peers during the review period. ICBC Asia and ICBC International, the overseas investment banking arms, allow clients to access a wide range of investment-grade and high-yield markets in G3 currencies or in the offshore renminbi market. ICBC began bringing Chinese clients overseas in 2010, and that strategy paid off as ICBC led eight US-dollar and 20 renminbi deals in the review period. One notable achievement was a US$1.15bn offering in April for oil and gas giant CNPC. ICBC, as joint global co-ordinator, helped design an innovative structure combining a keep-well structure with an onshore guarantee that ensured the bonds rated only one notch lower than the PRC parent. ICBC’s anchor order of US$250m was the largest real-money order from a Chinese investor, helping drive momentum for the transaction and underlining its ability to stand behind its clients. Eventually, the deal received US$12.3bn of orders and became one of the most heavily oversubscribed issues from China’s public sector in 2012. The high-yield market provided another illustration of ICBC’s ability to add value beyond China’s borders. Fantasia’s US$250m bond in September was remarkable for reopening the high-yield market for PRC property companies after a long summer lull. With deep knowledge of the credit and an effective marketing strategy, ICBC and its joint bookrunners managed to pull together an order book of over US$1.5bn from 118 accounts across the region. Pricing at a yield of 13.9%, inside initial guidance of mid-14%, the deal not only came inside Fantasia’s existing yield curve, but also threw open the doors for other Single and Double B rated issuers to follow. As many as 10 PRC property firms tapped the G3 market in period between September and November. The fast-growing offshore renminbi bond market was another feather in ICBC’s cap. The bank showed its muscle as a joint bookrunner in many landmark Dim Sum bonds. The Ministry of Finance’s latest sovereign issue, the first Dim Sum bond from a domestic corporate issuer for Baosteel, and the first 15-year tenor for Export-Import Bank of China were among the highlights. To see the digital version of this report, please click here.
To John Wright, CEO of Global Sage, this has been the toughest year of his career. “If banks in Asia have felt the crushing pressure of miserable business and flagging margins, then the financial services recruitment industry felt it doubly. In 2012, nobody was hiring; nobody was paying; and no one is likely to do those things in the foreseeable future.” Harry O’Neill of Heidrick & Struggles set the scene. “It’s been pretty rough,” he said. “The first half of the year was terrible. By November last year , things had slowed down decidedly, and the normal hiring season just didn’t happen. All the activity you expect to see in November and December, with people starting searches to hire in February and March once people had been paid bonuses, didn’t happen. Banks were cutting staff and deal activity was very low.” Things have improved since and “every month has been a little better than the month before”, but it is still a far cry from the good times. In such an environment, financial services businesses have had to reshape in order to survive. Christian Brun at Wellesley Partners, for example, says that in a difficult year, his house has done a lot of work on the asset-management side, particularly around private equity and hedge funds. Wright claims Global Sage has “been ahead of the curve in terms of implementing changes, but has had to do a complete rethink of its strategy and approach to executive search”. A key change, he says, has been to diversify the client base: “We’re not wedded any longer to the traditional investment banks as much.” Areas of momentum have included a range of asset management, risk, corporate and insurance work, as well as anti-money-laundering and technology. Global Sage has changed strategy more than many financial recruitment groups, having undergone not one, but two mergers or alliances in the space of 12 months. In the first deal, announced in January, it sold a stake to Bó Lè Associates, the general executive search firm focused on China with a growing South-East Asian presence. In June, it signed an agreement with The Rose Partnership, the London-based financial services headhunters firm. They are interesting moves. Bó Lè’s stake gave Global Sage badly needed funding to do other things, but the firm has a different model, covering not just banking, but consumer and retail, industrial and manufacturing, new media and pharmaceuticals. Subsidiary BRecruit is different, too, focusing on mid-level positions and large recruitment projects. Rose Partnership looks a lot more like Global Sage, with a focus on investment banking, risk and compliance, wealth management, private equity, asset management and board practice. So, is headhunting now a scale game? “Absolutely,” said Wright. He will maintain his firm’s global tilt. “I think there’s a lot more to be done in North and South America. In terms of strategic direction, that’s where a lot of our focus is going to be.” In traditional investment banking, clients are still trying to work out the right business model that is going to revive them. “You cannot run the sort of businesses that all the investment banks have been running in this new world,” said O’Neill. “Under Basel III, it doesn’t make sense.” That is not to say, however, that the good times are gone forever. “If you look at the banking industry, it has been very good at regenerating itself through hundreds if not thousands of years, and this is another one of those exercises: figuring out what the new model looks like and how to make money from it,” O’Neill said. Brun agreed. “Investment banking in Asia is going through a secular change and it’s not going to come back in the form it was before. Even if markets come back, people are going to have to reconfigure themselves in a new world, focusing on profitability rather than share of wallet or league tables as they did before.” Big hires have still taken place in this environment. One of the biggest was the move of Deutsche Bank’s fo
Temasek Holdings’ return to the US dollar bond market in July was a defining moment for Asian credit. The US$1.7bn 10.5- and 30-year Global underlined the enormous demand for high-quality Asian credit, allowing the Singapore state investment fund to price well inside its existing curve. While that feat alone stood out in a year when investors still insisted on new issue premiums, the inverted curve between the two tranches made the deal even more impressive. The transaction set a new, liquid benchmark for an issuer that is widely regarded as one of Asia’s top names, thanks to its increasingly rare Triple A rating. In particular, the tighter pricing benefited local Singapore issuers – a point underlined by utility company SP Power Assets with an extremely tight US$500m 10-year in September. Temasek’s inverted curve starkly illustrated that there was nascent demand for long-tenor issuance from investment-grade Asia, and that Temasek and leads Citigroup, Deutsche Bank, Goldman Sachs and UBS had made the right call to tap that tenor. Pricing a two-part trade with an ultra-long tranche is always challenging and puts leads’ pricing skills fully in the spotlight, with the risk of mispricing the curve high. Not only was that risk present, but Temasek was looking to price on extremely aggressive terms versus its implied curve. One bank was even said to have dropped out of the syndicate when talk of a 90bp–100bp spread over US Treasuries first emerged – an illustration of the challenge at hand. In the event, the 10.5-year came 30bp inside Temasek’s theoretical curve at US Treasuries plus 100bp, using the Treasuries plus 85bp bid-side print on the Temasek due 2019s at the time of pricing and building in the curve. Meanwhile, the plus 95bp pricing on the new 30-year saw the deal come in at 15bp inside Temasek’s theoretical curve, using the plus 110bp print seen on the issuer’s due 2039s at the time of pricing. The deal’s timing was bang on, with pricing against a rallying Treasury market, enabling Temasek to price the lowest coupon – of 3.375% – for a 30-year maturity from an Asian issuer. “They timed the Treasury market impeccably,” said Herman van den Wall Bake, head of Asian debt capital markets at Deutsche Bank. “And, in getting such a tight deal, they effectively repriced the whole Singapore corporate-dollar curve.” With US Treasuries hitting record lows, the 10.5-year came at one of the tightest coupons on record from Asia, at 2.375%, while the 3.375% coupon on the 30-year came 22.5bp through a record Monsanto set that month. To do so, Temasek made a smart decision to take advantage of a unique set of circumstances. In the weeks leading to the transaction, US stock markets had been nearing year-to-date records, but Treasury yields remained low, breaking their traditional correlation with equities. However, in the run-up to a key Federal Reserve meeting in July, with bets on what sort of monetary stimulus would be put in place, investors became averse to risk and Treasuries rallied. The flight to safety was just the cue that Temasek needed. At the close of bookbuilding, there were orders of US$7.6bn from 284 investors, including asset managers, pension funds, insurers and central banks. The decision to take the 144a route was entirely justified with 56% of the 10.5-year piece and 50% of the 30-year going to US accounts. “The success of the deal underscores the confidence which the investing community has in the strength of Temasek’s resilient portfolio and the depth of its management team,” said Keith Magnus, head of investment banking for Singapore at UBS. To see the digital version of this report, please click here.