In a year when trade tensions and rising interest rates rattled Asia’s emerging markets, one bank turned its stable home base to its advantage. For its carefully targeted approach to Asia, Australia & New Zealand Banking Group is IFR Asia’s Asian Bank of the Year.
Australia & New Zealand Banking Group has transformed its institutional business into a leaner, sharper and more agile offering. While much of the focus in recent years has been on scaling back its retail and wealth management units in Asia and selling off joint ventures, the bank’s wholesale offering ended 2018 stronger, more focussed and – importantly – more profitable.
By better leveraging its network and honing its attention on a target group of industry champions, ANZ won repeat business from regular issuers and picked up a number of first-time mandates. Its more agile approach allowed it to spot opportunities, whether it was connecting Middle Eastern companies with Australian investors or pioneering new sustainable financing structures in Asia.
Overall there is a sense among insiders of a renewed push in the institutional division under chief executive Shayne Elliott, after years of rapid expansion under his predecessor gave way to retrenchment. With Australia’s retail banking sector currently reeling from the scandals exposed by the Royal Commission, the emphasis on the wholesale business is even more important.
“When we sat down two and a half years ago, we asked ourselves some tough questions about how to build a business that is sustainable in Asia, and hence we have decided to place our focus on the institutional business and decided to exit businesses where we did not think we had a winning proposition,” said Farhan Faruqui, group executive for the international business.
“We are seeing real success and that is because of the investment we have been making. We have built a dominant position in the region in the loans and DCM space. We have invested in cash management to build a strong platform in the region. Our markets business has become extremely successful.”
ANZ has always had the biggest Asian presence among Australia’s big four banks, but its super-regional expansion strategy under previous CEO Mike Smith earned it few points with shareholders, with analysts arguing that the overseas operations diverted too much capital away from the lucrative local market and weighed on group profits. Since Elliott took up the reins in January 2016, the bank has been selling off disappointing businesses and minority stakes in other lenders. Save for some minority shareholdings, such as a 12% stake in Bank of Tianjin and 24% of AmBank, the divestment process in Asia he kicked off is otherwise complete.
ANZ also shrunk its institutional business by around a fifth during that period, whittling down its client base to around 8,000 customers. It now only chases clients that offer multiple sources of income, and has focused its efforts on certain key sectors in which the bank has traditionally excelled, namely financial institutions; technology, media and telecommunications; food and agriculture; resources and infrastructure; and real estate. The focus is now firmly on wallet share and profitability per client, rather than league tables or simple revenues.
“What we have done is to reshape the business to grow revenues with the right customers and the right returns,” said Mark Whelan, group executive for the institutional business. “We have a pretty enviable network throughout the region and so our key strength is really intermediating those intra-regional trade and capital flows, in particular into and out of Australia and New Zealand.”
Despite its period of retrenchment, ANZ has maintained its institutional presence in all 15 Asian markets where it had previously built a customer base. The bank is particularly fond of noting that it is the only international lender with a presence in all five countries in the Greater Mekong region. Its regional footprint has enabled it to compete for a share of the more lucrative cross-border financing mandates with larger rivals such as HSBC, Citigroup and Standard Chartered.
“I think our connectivity and our footprint in all the major economies is really quite unique,” said Richard Dawson, head of loans and specialised finance for the international business. “You’ve got a small number of monolith banks operating in the region and clearly their footprint is similar, but I think our connectivity is better.”
ANZ leveraged its international network well in 2018 to win international mandates. It acted as mandated lead arranger on the NT$19.3bn (US$625m) financing for the Formosa 1 offshore wind project in Taiwan, which involved a local currency financing with insurance cover from Danish export credit agency EKF and was led by a consortium that included Macquarie Capital.
Its cross-border activity was not confined just to supporting Australian clients either. It advised two entities ultimately owned by Hong Kong-based conglomerate Jardine Matheson on their acquisition of the Martabe gold and silver mine in Indonesia, the largest natural resources deal in the last 12 months in Asia, and also provided the financing and hedging.
“Obviously for anything Australia and New Zealand related, we should be on that channel and I think we’re doing pretty well, but it’s not just Australia and New Zealand” said Dawson. “The acquisition by United Tractors and Pamapersada Nusantara of the Martabe goldmine, involving Hong Kong, Indonesia and our home markets, is a good example. We did the advisory and supported the transaction with a range of other products. That’s very much the strategy to have all the different areas of the bank working in tandem.”
It was no stranger to using its balance sheet to support its key clients, acting as one of three joint underwriters, MLAs and bookrunners on the A$1.5bn (US$1.1bn) loan to support Beach Energy’s acquisition of the Lattice Energy gas assets from Origin Energy, one of the few big event-driven financings of the year, and also underwrote big tickets for SB&G Hotel Group and the sponsors of Melbourne’s metro tunnel project among others.
ANZ also paved the way in sustainable financing, acting as part of a club of 15 MLAs on Olam International’s US$500m sustainability-linked revolving credit facility. This was the first loan in Asia to tie the interest margin to the borrower’s performance on environment, social and governance metrics.
ANZ took a measured approach in the Asian bond market amid a backdrop of market volatility. It led the way in bringing issuers from the Middle East and Asia to Australia, including Qatar National Bank’s A$700m trade, the country’s first Kangaroo bond and the largest Australian dollar deal from the Middle East, and Shinhan Bank’s A$400m issuance, its first ever Tier 2 deal in a currency other than US dollars.
It added to its expertise in bringing Australian corporates to the Reg S market, acting as joint lead manager along with Credit Suisse, HSBC and JP Morgan on Bluescope Steel’s debut Eurobond, a US$300m 4.625% five year-note, and also as joint global coordinator alongside Bank of America Merrill Lynch and HSBC on electricity distributor Ausgrid’s US$1bn dual-tranche offering, its debut in US dollars.
“We’ve been following the strategy of the bank in finding the areas where we have an obvious advantage, which is particularly crucial given the competitive dynamics in the Asian capital markets,” said Jimmy Choi, global head of debt capital markets. “It’s really a case of picking the pockets where we have a good network and trying to come up with the right solutions as we’re not always looking to compete with some of the larger houses.”
The bank won mandates on a number of headline-grabbing deals during IFR’s review period, notably acting on the Republic of Indonesia’s US$4bn triple-tranche issue. It was the sovereign’s first SEC-registered bond in more than 20 years and achieved negative new issue premium across all three tranches, resetting the Indonesian yield curve.
ANZ also became the first among Australia’s big four banks to open a securities business in Japan after receiving its licence from Japan’s Financial Services Agency. Among other things, the licence allows it to offer Australian dollar-denominated and New Zealand denominated dollar products to Japanese investors, further expanding its distribution capabilities in the region.
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