BEST ASIAN INVESTMENT BANK
When highlighting their credentials, Asia’s home grown investment banks have tended to emphasise their commitment to the region and particularly the fact that they continue to grow and invest resources while global banks tend to ebb and flow with market cycles. But the last few years have challenged that idea as pan-regional names re-evaluate their strategies and reduce costs through job cuts.
One notable exception to this trend is DBS, our pick for the Best Asian Investment Bank. DBS’ strategy is always to be nimble so rather than downsize in times of stress, the bank has remained at full strength but redeployed resources as necessary.
This is all the more notable given that DBS’ home market of Singapore, and the broader ASEAN region, have not provided the best opportunities. Volumes in the Singapore equity market have been lacklustre and the defaults that emerged in the oil and gas sector in the second half of the year have hurt sentiment. Of course, where there was activity in Singapore, DBS dominated. Standout transactions include the S$903m ($636m) IPO for Frasers Logistics & Industrial Trust, the first pure play Australian real estate investment trust in Singapore, and its role as joint financial adviser to Citic Private Equity on its S$1.4bn acquisition of Biosensors International.
DBS was not immune from the fallout of the problems in the commodity sector and reported a 6% fall in net profit, dragged down by its exposure to troubled energy firm Swiber Group. But the bank seems well placed to deal with problems. Certainly the market gave it a strong vote of confidence when the bank managed to secure the lowest ever coupon for an AT1 transaction through its dollar debut in August. The $750m bond, for which DBS was sole global co-ordinator, is our pick for Best Financial Bond.
But DBS’s real strength this year has come from its China franchise. China is home to the bank’s biggest office outside of Singapore and the investment is paying off. It was financial adviser on seven M&A transactions in the country including China Merchants Group’s $333m privatisation of China Merchants Holdings.
And India, where the bank has traditionally had a strong commercial banking presence, is also now starting to be a place where it can win mandates for the investment bank. This has been particularly noticeable in bonds where it priced five of the nine G3 corporate bonds from the country sold during the awards period. Issuers include Adani Transmission, Glenmark Pharmaceuticals, ONGC Videsh, Jubilant Pharma and Samvardhana Motherson Automotive Systems.
The fixed income team, led by DBS stalwart Clifford Lee, remains the strongest component of the investment bank, regularly ranking in the top 10 league table for Asia ex-Japan, ex-China bonds. It also boasts a diversification across geographies and products that is still to be matched by equities, which is almost exclusively active in Singapore, and M&A which is starting to make some strides into China.
But in a year when many of Asia’s investment banks scaled back their ambitions and failed to capitalise on the growth in opportunities in China, DBS is the deserving first winner of our Asian Investment Bank award.
BEST INVESTMENT BANK
It’s been a year that has shaken the very notion of what it means to be an investment bank operating in Asia. Even the most robust franchises were challenged this year as falling transaction volumes, bearish sentiment and the competitive threat from Chinese banks led to a serious reassessment of resources. The fallout has been well documented with strategic retreats and headcount reduction as banks try to find a model that suits the new environment.
It will take some time for the new strategies to settle down but throughout the upheaval, HSBC has demonstrated that its investment banking franchise is able to deliver in the tough times as well as the good.
HSBC did implement a restructuring under new co-head of global banking Matthew Westerman earlier this year, which merged global banking with capital financing. But in Asia, there was no headcount reduction and the leadership team of the last few years remains in place with Gordon French as head of global banking and markets Asia Pacific, and Martin Haythorne and Liu-Che Ning as regional co-heads of banking. In addition, Stephen Williams moved into a new role as head of ASEAN to strengthen the bank’s operations in that region.
The development of HSBC’s franchise into a full service investment bank has not happened overnight. Always a strong bond and lending house, in the past clients were happy to choose HSBC for financing but more often than not it missed out on advisory work.
But thanks to a greater emphasis on deal making since Stuart Gulliver became CEO in 2011, the bank has been working towards a more cohesive investment banking model.
The efforts have paid off. Now senior bankers in Asia talk about increasingly receiving the first call when clients are looking to do something strategic. As well a sign of the progress the bank has made, this also means it has more say over which mandates it decides to take on.
One of these first calls was on Tencent’s acquisition of Supercell. The $8.6bn deal was the largest investment in EMEA by a Chinese privately owned company and required a loan of $3.5bn for which the bank was a joint MLAB and underwriter.
And HSBC’s role advising Tesco on the disposal of its South Korean business last year was one factor behind French supermarket operator Casino’s decision to pick the bank as the lead financial adviser for the sale of its Thailand and Vietnam units as part of a plan to strengthen its finances. Mandated in January, HSBC ran two parallel and concurrent sale processes that wrapped up within four months with Casino’s Big C Thailand sold to TCC Group for $6.4bn and Big C Vietnam purchased by Central Group for $1.1bn.
Yet while the bank is keen to emphasis the more advisory aspects of its business, it’s not afraid to put its huge balance sheet to work and take large positions where it makes strategic sense. This has been important in a year when the impact of cheap liquidity from Chinese lenders has challenged the viability of some its peers’ models. Bankers at HSBC make no bones about the fact that they are able to go head-to-head with their Chinese rivals. So on China National Chemical Corp’s $46bn acquisition of Syngenta — the largest overseas acquisition by a Chinese company — while China Citic Bank Corp was able to solely underwrite the $12.7bn Asian leg of the financing, HSBC was able to underwrite the $20bn portion that had recourse to the target but not before securing a role as the lead financial adviser to ChemChina, underscoring the bank’s growing reputation for advising on more complex transactions.
One way the bank has been has been able to thrive in tougher markets is that it took the view that rates were going to be lower for longer. This led to a decision a few years ago to focus on more event driven business as well as de-risking and looking for ways to replace revenues.
And in line with many banks, a key area of focus has been FIGs. The clearest demonstration of this comes from HSBC’s dominant bond franchise run by global co-head of debt capital markets, Alexi Chan. In G3 currencies, the bank worked on 15 of the 17 bank capital transactions during the awards period while deals in the insurance sector include Ping An Life Insurance’s $1.2bn dual tranche debut.
When assessing HSBC’s investment banking credentials, its rivals often highlight the bank’s limited equity business. There is some merit to this argument. The bank has still not demonstrated the ability to win important mandates outside Hong Kong, but in a year when IPOs have delivered terrible results this has not hurt the bank. And it has still tried to stay relevant. In an environment where Chinese liquidity was key to getting deals priced in Hong Kong, the bank brought in Shanghai International Port Group as a cornerstone investor for Postal Savings Bank of China’s $7.4bn IPO in September.
And the ongoing wait for regulators to approve its Chinese joint venture is one of the year’s obvious disappointments. The bank remains committed to China and the Pearl River Delta strategy but progress will be constrained until it gets the go ahead.
More positively, the collaboration with commercial banking continues to be a key source of new revenues with many of its M&A mandates coming from this set up. For example, HSBC bankers are keen to point out that ChemChina started as a CMB client.
The same effort is now going into working with the private bank which promises to deliver new opportunities.
The harnessing of private bank relationships and investment bank deal making has also proved a winning formula for Credit Suisse.
The Credit Suisse model is unique. Asia operates as a standalone business with all risk managed from the region and all revenues staying within the Asian business across every division. This has given Credit Suisse an agility and level of control that is unrivalled among international banks.
Underpinning the model is the idea of servicing the entrepreneur. This combined with its strong frontier markets coverage and an ability to support deals with balance sheet has seen Credit Suisse thrive this year while others have fallen by the wayside. It will be interesting to watch if the bank can sustain this performance over the longer term and how its competitors respond to the challenge.
But HSBC has shown that the investment bank model it has developed over the past few years is well positioned to meet the challenges and opportunities in Asia’s financial markets. For staying nimble and relevant in difficult markets, HSBC is our choice of Best Investment Bank.