GlobalCapital Asia regional capital markets awards 2015, Part IV: Investment Bank
In the fourth and final part of our annual awards we reveal our choice for Best Investment Bank.
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BEST INVESTMENT BANK
There is more than one way to show leadership in investment banking. Some franchises do it by dominating deal flow in chosen areas. Others do it by picking their spots more carefully, differentiating themselves through innovation or connectivity that solves for a client's specific needs, while seamlessly balancing buyside and sellside priorities. The very best do both — and with a relentless focus on the bottom line in the process. Goldman Sachs is once again our pick for Best Investment Bank in Asia.
The year saw a management change at the top of Goldman's IB franchise in Asia, with Matthew Westerman relocating to Europe after three years and replaced by co-heads Kate Richdale and Andrea Vella. With Vella having previously served as head of credit capital markets and head of investment banking solutions for Asia, and with Richdale having joined Goldman in 2013 from running Asian investment banking at Morgan Stanley and after a long career in the region, continuity has not been a problem.
Together the new co-heads have shepherded the franchise through a period of continuing evolution. In keeping with the contemporary mantra of doing more for fewer clients (and sticking to a minimum fee rule), the firm is much more focused in Asia than it was just a few years ago, with about two-thirds of the clients it had in the region back in 2013. And only a fraction of Goldman's Asian clients are in what it calls its "Super League" that have massive needs across all business lines, meaning that the bulk of its work is carried out for bread and butter "core" clients for whom it must always be on top of its game to maintain share of wallet.
Staying nimble means building and cutting quickly as market opportunities wax and wane. A trend towards more bespoke, private financing requirements has driven Goldman to leverage its private wealth relationships. But this has also played out in the public transaction arena. Pouring effort into cultivating relationships with individual Chinese entrepreneurs has been crucial to Goldman's success. Work done by teams such as that led by Christina Ma, head of China equities coverage, is bearing rich fruit now. On occasion it can mean being comfortable working with clients who might want to build a book in unconventional ways, such as on WeChat. One senior banker at the firm says the keys to success in Asia are flexibility, an ability to learn fast and to adapt to local trends.
At the same time, a cool-headed ability to cut where needed has also looked smart. Goldman's much-noticed reduction in its southeast Asia investment banking staffing in early 2015 — which was lowered from what one insider calls an "unacceptable" 45 to something more like 25 — reflected a savvy prediction of the likely business opportunity that was to be had in the region this year. And despite lurid comments from rivals at the time, the move merely brought the firm into line with much of its competition. The broader client rationalisation of recent years has been seen in this region too, with Goldman now servicing about one third of the clients it had there three years ago.
Such moves are not done without leaving in place the ability to scale up quickly if needed, though, and Goldman bankers regularly cite the franchise's ability to crank up its presence in one market in response to weakness in another.
When China slowed this year, for example, the bank ran (as joint global co-ordinator alongside JP Morgan) a Rph20tr ($1.38bn) rights issue and placement for Indonesian tobacco firm Sampoerna in a deal that saw Philip Morris International cut its stake (while avoiding the capital gain that would have come from a conventional sell-down) and effectively re-IPO the business. Identification of key accounts — the top five took almost half the deal — was critical to success for the client, but the trade was also a terrific fee generator for Goldman. The deal priced at the top of the range, making it the first Asia ex-Japan to do so for three months.
In fact, there was no better example of Goldman's approach to the IB business than its stellar performance overall this year in equity capital markets, where it also won our Best Equity House award alongside working on the deals that we chose for Best IPO and Best Follow-on/ABB.
The firm finished second in the Dealogic Asia ex-Japan ex A-share ECM league table for the awards period of the 12 months to November 15 2015, behind Morgan Stanley. But it stood out for its ability to innovate with clever solutions to specific challenges, including in China.
In high gear
Nowhere was this more evident than in the landmark sale of stock in China's Industrial Bank by Hang Seng Bank in February, where Goldman Sachs Gao Hua Securities acted as sole bookrunner on what was the first ever institutionally marketed A-share block. The firm devised a way to use the Shanghai Stock Exchange's block trade platform, which had been originally designed to handle small trades between brokers, to price a $2bn transaction that was executed in a 30 minute window.
Goldman is famous — or notorious, depending on your point of view — for shunning run of the mill transactions in favour of high fee-generating business where the intellectual capital that can be put to work is the differentiator. Those running the firm in Asia point to a trade like Industrial Bank as a clear example of this.
Another was the $4.1bn IPO of GF Securities in Hong Kong, where Goldman was the only independent sponsor, working alongside GF Securities itself. Pricing in March came at the top of the range for what was the biggest IPO in the region since 2011. Hong Kong IPOs have been characterised by farcically big syndicates for some time — 22 banks graced the GF Securities deal — but Goldman's broad approach in focusing on the highest roles at the cost of volume is in keeping with its desire to have the edge when it comes to economics.
Bonds is undoubtedly the area where Goldman's focus on ensuring it can service client needs in all products while not concerning itself with volume is most obvious. It finished the year in seventh place in Dealogic's G3 bonds league table, but it notched up top-level roles in two thirds of the 45 deals it worked on.
The firm's business is skewed towards the higher grade of issuer, but it was also present in high yield by virtue of trades for Shimao and Country Garden, and it ensured that it was active across all major trends — bank capital trades for ICBC, Bank of Communications and China Life Insurance; the green bond for Agricultural Bank of China; senior bank debt for the likes of Bank of China and CDBL; Chinese SEO trades for Sinopec, CNOOC and COSL; and the first ever international corporate hybrid from Korea, for SK E&S.
Goldman doesn't actively chase sovereign mandates, judging them to be poor fee generators, but it was on the Philippines' $2bn switch tender and new issue in January, the eighth deal it has worked on for the sovereign since 2010.
In M&A, the bank continued its dominance, ranking top for announced deals with any Asia ex-Japan involvement, with a 20% market share. Standout deals in the period under review included its work advising Hutchison Whampoa on its merger and reorganisation with Cheung Kong Holdings (CKH) and the issue of new CKH shares for the acquisition of a stake in Husky Energy, a combined $78.8bn transaction that is the largest ever in Asia ex-Japan. The bank's mandate as sole adviser to LIG Insurance in the Korean firm's acquisition by KB Financial Group saw it maintain its presence in the Korean insurance sector after its work on the sale of ING Life in Korea in 2013.
It was lead buyside financial adviser to Carlyle in the buyout firm's acquisition of AsiaSat, the biggest satellite deal in Asia, while it also successfully steered Lazada, an e-commerce start-up in Singapore, through a second round of funding that was led by Temasek, in what was a small $249m trade but notable for being the first such deal in that sector in southeast Asia.
Goldman stood out in Asian investment banking in 2015, but was pushed hard by the competition, which included Morgan Stanley, UBS and now unequivocally HSBC, a bank that is making more inroads into traditional IB areas with every year that passes. The firm's much-vaunted collaboration effort between its commercial banking unit and its global banking and markets division is paying huge dividends in terms of mandates.
HSBC is now being picked for crucial M&A strategic advisory work by some of the most important global clients, a fact that renders ludicrous critics' complaints that the bank simply garners fee-generating work by virtue of its extensive lending book. It was also strong in equity-linked, and worked on some notable IPOs. But outside the extraordinary breadth of debt capital markets work, HSBC still needs to widen its IB reach, and particularly in ECM. Its planned onshore China securities venture, which is awaiting final regulatory approval, may make the difference as it beds down.
But in a year where leadership in equity capital markets was of key importance to Asia's investment banking franchises and to their clients, Goldman Sachs's prowess in this area, coupled with its presence in other products, mean that it retains the crown in 2015.