Euromoney emerging market series: DBS

Euromoney, January 2012 (part of multi-writer cover story on emerging market banks)

No Asia-domiciled house has made a more strident attempt to be a regional player than Singapore’s DBS. It’s been this way for more than a decade, as one CEO after another has come to fulfil a vision of a bank from Asia, covering Asia. The latest CEO, Piyush Gupta, puts it like this: “The Asian bank of choice for the new Asia.”

DBS got its pan-regional ambitions underway with the acquisition of Dao Heng in Hong Kong in 2001 and has been steadily adding pieces and bedding down businesses ever since. Today, Gupta aims for a DBS with a 40:30:30 split of earnings, split Singapore/Greater China/South and southeast Asia, chiefly India. In this, it differs from CIMB, the closest comparable approach in the region, which aspires only to be a powerhouse within Asean.

Where does investment banking fit into this? In truth, it’s not the sharpest part of Gupta’s vision; he told Euromoney in September 2010 that “We are really a good commercial bank, a good universal bank.” He said that did not cut out investment banking, but “there is a recognition that this will not be our forte, to go out against the bulge bracket banks in high end capital market transactions. It’s not our principal area of strength.”

Be that as it may, DBS is an exceptionally powerful presence in investment banking in Singapore and is increasingly exporting that into other markets. “We originate out of Asia and distribute globally,” says Clifford Lee, who heads the fixed income business. “From an origination standpoint we are very much focused in Asia: this is where our expertise lies, when we are investing to add more value to the market.” Asia’s occasional opacity is an asset for DBS, he says. “The most valuable commodity in the market now is information. Certain markets are more opaque, onshore and offshore areas of control make things a little less transparent than we would like, and credit information is less available. We hope to be able to navigate through these issues in a more informed manner, considering this is our back yard.”

It is already a leader in all areas of investment banking at home: it has turned up on the landmark IPOs from SingTel’s S$4 billion IPO back in 1993 right through to the deal that took its record, HPH Trust, which raised US$5.5 billion in March. It was instrumental in launching the REIT market (and business trusts, of which HPH was the biggest example) and has handled a greater volume of underwriting on these than anybody else. It is a clear leader with the debt and equity needs of SMEs. It has helped to build one of the greatest duration curves in any local currency debt capital market, beyond 40 years. And it appears on most M&A deals involving a major Singaporean institution.

Along the way has come a sense of what can be achieved in other markets too. It has been involved on cross-jurisdiction equity deals for years: examples are Adaro Energy in Jakarta, San Miguel Brewery in Manila, Astro All Asia Networks in Kuala Lumpur and Australand in Sydney. And generally, the newer frontiers are making a steadily bigger contribution: China, India, Taiwan and Indonesia contributed 17% of group revenues in the third quarter, with earnings up 35% from a year earlier.

It’s perhaps on the debt side where regional strength with a local feel is most valuable. “In the immediate future, we intend to stay relevant and competitive in the G3 space, which is extremely crowded in Asia already,” Lee says. “But it is in local currencies in the region that we really hope to continue to grow. The faster markets open up, the faster we will be able to make headway.” DBS dominates Singapore dollar league tables in the debt side but is also starting to appear more frequently on CNH, or offshore RMB bonds. DBS was a bookrunner on the RMB3.6 billion offshore RMB bond from Baosteel in November – the largest corporate dim sum bond to date. It has appeared on several others as well. “CNH feels more like a credit market than the bank space, which is more of an interest rate play,” Lee says, suiting DBS’s strengths. He says he will “continue to monitor” Indonesia for opportunity, with a focus so far on the high yield space (where it has worked on deals for Indosat and Adaro, among others), and has built a rupee capability in India.

China is an example of a business where investment banking does make a key contribution. Gupta has said corporate and investment banking in China, which drive that business, have been growing at 40 to 50% per year, at least in the run-up to China’s slowdown. This is arguably the great advantage of Dao Heng: the fact that it creates a way in to China rather than starting from scratch. Half of DBS’s customers in China are from Hong Kong, while red chips are responsible for the biggest growth in the Hong Kong business.

Going regional is not straightforward. “The difficulties of maintaining a multi-regional, multi-country strategy or platform for an investment bank are not only must you be very good in your home market, you must at the same time take on the best of the local market players in each of the other countries you set your sights on,” Lee says. “That’s becoming increasingly difficult as domestic banks are improving, increasing in sophistication, and are increasingly able to provide more basic investment banking needs.”

But going regional is now a key part of the DBS plan. “We were born in this region, we’ve been invested in it for a long time, and we invest on a much longer term basis and have ridden the storms,” Lee says. “The competition is harsh but we just have to psych ourselves accordingly to take them on.”