Citigroup made full use of its pan-Asian platform and global balance sheet in 2017, increasing earnings from its key institutional clients and performing across asset classes. It stepped up in equity underwriting, added to its track record in debt, and built on recent successes in the technology sector.
The institutional client group, which includes corporate and investment banking, grew revenues by 6% in the third quarter to US$1.76bn, with net income up 11% year on year.
There is a sense among insiders that the universal banking model is back in fashion. Regulation designed to prevent banks from becoming too big to fail has in fact played into the hands of the global incumbents, making it harder for would-be rivals to scale up.
The Citigroup of 2017, however, is very different from the pre-crisis era. The bank still takes pride in its league tables, but the days of low-margin relationship lending are long gone. Balance sheet commitments are carefully targeted to support priority clients, and the bank’s performance over the last year has come despite only a modest increase in the Asia Pacific loan book, with total loans up 5% in the first nine months of 2017.
Instead, the focus is on maximising returns from its existing clients, supporting future champions and making the most of events as they arise.
“In Asia it pays to spread your bets and be nimble in capturing opportunities,” said Mark Slaughter, head of corporate and investment banking for Asia Pacific. “It’s like fine-tuning a car: you need all the cylinders to be working.”
Citigroup’s successes in 2017 were no accident. It deliberately set out to increase its wallet share with a target group of emerging champions, and increased the integration of its corporate and investment bank under Gerry Keefe, appointed to a new role as head of the corporate division for Asia Pacific in 2016. Coverage bankers are now measured on how much they contribute to a single revenue figure for each client, rather than individual country or product-specific targets.
Rather than being seen as an expensive, volatile add-on to the core corporate bank, investment banking increasingly works for corporate and commercial banking clients. The technology team, for example, regularly presents to corporate boards on the future of specific industries, and Citigroup’s recent run of Indonesian high-yield bonds stems from its corporate client book.
“In many cases it’s the corporate banking relationship that really delivers,” said Keefe. “Once you get people up to speed on the opportunities around technology, Belt and Road, or the expansion of South-East Asia, it’s the coverage teams on the ground who can drive that with their clients.”
Citigroup had an especially strong year in the technology sector, handling debt, equity and acquisition financings for some of Asia’s most exciting companies.
It played a key role in the US$3.5bn financing backing Alibaba Group’s Ant Financial on its acquisition of US money-transfer company Moneygram, using its balance sheet and syndication capabilities to support a key strategic client and win the sole financial adviser title.
Citigroup also led syndicated financings for technology heavyweights Alibaba and Tencent during the review period. It was the coordinator and MLAB on a US$4.65bn five-year loan for Tencent in March that attracted 11 other banks, and one of 13 banks on a US$5.15bn five-year loan for Alibaba in May.
In equities, Citigroup was one of the lead banks on the W2.65trn (US$2.3bn) float of South Korean mobile gaming company Netmarble Games, the largest Korea IPO from the sector and the largest IPO in Asia Pacific in 2017.
It also handled the US$1bn US IPO of Chinese online microlender Qudian, the biggest Chinese listing in the US in a year, and the US$221m US IPO of Chinese peer-to-peer online lender Ppdai Group.
“We have invested in the technology sector, and we now have a leadership team in place who can deliver the right content and who believe in the model,” said Slaughter.
Jan Metzger, who joined at the end of 2015 to head technology, media and telecommunications coverage for Asia Pacific, is credited with improving relationships with new economy companies and working more closely with the corporate bank. He was promoted to global co-head for TMT in January 2017.
Citigroup has also strengthened its bench in China, bringing in Jiang Guorong from UBS in September to head corporate and investment banking and William Tang from HSBC in August to run consumer and retail coverage.
Globally, Citigroup CEO Michael Corbat has earmarked equities as a growth opportunity, and recent investments in the secondary platform have supported the underwriting business in Asia.
Citigroup jumped nine places on the Thomson Reuters table for all equity and equity-related issuance in Asia Pacific, including Australia but not Japan, ranking fourth during IFR’s review period.
Excluding Chinese A-shares, it jumped two places to fourth, increasing its market share by 1.78 percentage points and its underwriting credit by an impressive 51% – both the most among the top 10 arrangers.
“This year has been about growth equity,” said Ashu Khullar, head of capital markets origination for Asia Pacific. “We captured the hottest investment themes of the year, around fintech, technology, education and real estate.”
In Hong Kong, Citigroup was one of the sponsors for the HK$1.4bn (US$179m) IPO of Minsheng Education, a provider of higher education in China, and a bookrunner for the HK$978m IPO of Chinese K-12 education services provider Wisdom Education.
It also seized on the recovery in the Chinese property sector to price five follow-on offerings in two months, raising US$1.2bn for clients including China Vanke, Yuzhou Properties and China SCE Property.
In India, Citigroup was instrumental in bringing the insurance sector to the public markets, working on the over US$1bn IPOs of insurers SBI Life and General Insurance Corp of India. It also managed the Rs22.5bn (US$350m) IPO of India Grid Trust, one of the country’s first listed investment trusts, InterGlobe Aviation’s Rs39bn share sale, India’s largest under the institutional placement route, and the government’s Rs40bn sell-down in Larsen & Toubro.
In South-East Asia, Citigroup’s highlights included Vincom Retail’s D16.1trn (US$708.5m) initial equity offering, Vietnam’s largest IPO, and the S$2.35bn IPO of NetLink NBN Trust, Singapore’s biggest listing since 2011.
STRENGTH IN DEBT
Citigroup played to its traditional strengths in the Asian bond market, with another strong showing on investment-grade offerings and in the energy sector. It led more 144A offerings than its peers, and won repeat mandates from high-profile borrowers, including the Philippines, Indonesia and PC maker Lenovo.
It won the lead coordinator role on State Grid Corporation of China’s US$5bn four-tranche offering in April, the biggest from a Chinese state-owned corporate issuer during the review period, and led Kyobo Life’s subordinated offering – a first from South Korea.
But it also broadened its footprint in high yield, bringing first-time borrowers such as HPCL-Mittal Energy to the international markets and addressing refinancing challenges for existing clients, such as India’s Vedanta Resources and Indonesian miner Indika Energy.
Indika’s US$575m bond came after Citigroup had led a US$565m bridge loan for the company’s consolidation of coal producer Kideco Jaya Agung – one example of its smart use of its resources.
Citigroup remained selective with its capital but did not shy away from large commitments to support priority clients or event-driven opportunities.
It took the lead role in the US$4.11bn financing for the leveraged buyout of Singapore-listed Global Logistic Properties, Asia’s largest LBO, underwriting half the debt and leading the structuring, syndication and documentation.
Citigroup showed its expertise in smaller LBO situations with a repeat sole mandate from L Catterton Asia, which handles the private equity investments of French luxury goods maker LVMH Group, on its purchase of the remaining stake in GXG, a menswear retailer in China.
Its technology prowess and global distribution were on show again with Australian slot machine maker Aristocrat Leisure’s expansion into online and mobile gaming. Citigroup led a US$425m add-on to the company’s existing term loan B in September to fund the acquisition of Plarium Global, before returning as one of three underwriters of a US$890m financing for US gaming app developer Big Fish Games two months later.
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