Licensed to thrill
Its rapid rise, committment to innovation and head-turning hires make UBS the one to watch. Joanne O'Connor reports.
Since stepping away from emerging market bonds for 18 months after the 1998 Russian crisis, UBS has made rapid strides back into the arena. In 2001, UBS was ranked 10th in Dealogic's league tables for bond issuance out of eastern Europe, the Middle East and Africa, with a 3.1% market share. In 2005, it was third, with its market share more than doubling to 8.1%.
The bank's statement of intent last year came when it hired Jonathan Brown from JP Morgan as its head of emerging market syndicate for central and eastern Europe, the Middle East and Africa (CEEMEA). The appointment followed the hire in 2004 of Richard Luddington, also from JP Morgan, as UBS's head of debt capital markets in eastern Europe, the Middle East and Africa.
"We're making a huge investment into emerging markets, whether that be through buying Banco Pactual in Brazil or getting a licence to operate in Russia," says Brown.
And the bond business is at the forefront of this push. "We've had a number of relationships opened through a bond mandate that has led to other opportunities," says Brown.
The work done in the CEEMEA bond team is based on the twin foundations of high profile but routine transactions such as floating rate notes and sovereign issues and secondly, maintaining a leadership position in new products and structures.
In the sovereign market, the bank has completed such deals as February's Eu400m increase to Lithuania's Eu600m 3.75% 2016 bond at a super-tight 5bp over mid-swaps. And on the more complex and high margin deals, UBS worked with Russia's Sberbank on its $1bn debut lower tier two issue and for Vimpelcom on its 144A corporate debt exchange — the first ever out of Russia.
The deal was 18 months in the making, but now that the bank has the technology in place, it hopes to secure a position at the forefront of liability management in emerging markets. "Liability management will become a very important tool for emerging market corporates," says Brown. "There are huge opportunities in Russia in particular. This will be a key focus for us in terms of deals next year."
UBS is one of only two banks that has executed Turkish issues in both dollars and euros — a fact Brown says is testament to its broad and powerful distribution capacity.
Last September, UBS worked with Deutsche Bank to sell the $250m seven year bond for the Export-Import Bank of Ukraine. The deal attracted $1.2bn in orders and achieved the lowest ever fixed coupon for any Ukrainian borrower.
On the origination side, eight staff report to Luddington, while on the syndicate side, Jonathan Brown and James Marriott are the two emerging markets experts. The pair liaises closely with, for example, the sovereign and supra-national team when executing a deal for Poland or Hungary.
UBS's licence to operate in Russia is expected in the coming months, giving the bank its own presence on the ground in Moscow.
In addition to liability management, UBS predicts opportunities arising out of changes to bank capital requirements, especially in Russia, where the regime is in a state of flux. The bank is also ensuring it has a rouble trading platform in place to capitalise on the growth of the local currency market in Russia.
With its European presence assured, the bank is now focusing on the Middle East, where Brown predicts subordinated issues by Middle Eastern borrowers will become a natural product.
|Key people: Richard Luddington (head of debt capital markets in eastern Europe, the Middle East and Africa), Jonathan Brown (head of emerging market syndicate for CEEMEA), James Marriott (syndicate, EEMEA)|
Key hires: Jonathan Brown (2005), Richard Luddington (2004)
Key clients: Republic of Turkey, Development Bank of Kazakhstan
Key deal (2006): Vimpelcom exchange. $600m 10-year deal completed May 2006 priced at 8.25%. The first ever corporate exchange out of Russia.
League table position (2001-05): 10, 5, 4, 7, 3