Euromoney emerging markets feature: CIMB

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

CIMB has long been the pre-eminent investment banking presence in Malaysia. Year after year it sweeps the investment banking categories in our Awards for Excellence, commonly making a clean sweep at the top of the equity capital markets, debt capital markets and M&A league tables to complement the most powerful brokerage in the country.

Nazir Razak, CIMB Group’s CEO – and sometimes referred to in Kuala Lumpur circles as Malaysia’s unofficial finance minister, since his brother, the Prime Minister, is said to seek his advice – rose through investment banking. He built that business before the many mergers that turned CIMB into a full service bank, and it remains the bank’s most impressive arm.

It’s consistently on the deals that matter nationally each year: the RM14.8 billion IPO for Petronas Chemicals Group in 2010, the US$3 billion bonds and US$1.5 billion sukuk from Petronas the previous year, the RMB20 billion Islamic MTN programme for Pengurusan Air, the RM11.2 billion Maxis IPO. And it has been a leader when Malaysia’s national champions have ventured into other markets, such as on the S$1.5 billion sukuk for Khazanah Nasional and US$1.26 billion of trust certificates for 1 Malaysia. Major M&A deals in recent years have included Sin Chew Media and Nanyang Press Holdings merging with Hong Kong’s Ming Pao and the demerger of Telekom Malaysia.

But local excellence is no longer the challenge. “We have gone quite public on the fact that we want to be the top regional universal bank – meaning southeast Asia,” says Dato’ Charon Wardini Mokhzani, CIMB’s deputy CEO and the head of the corporate and investment banking businesses, who combines a smooth confidence with a magnificent Koizumi-styled shock of silver hair. “Within that, that includes also being the top regional investment bank.”

This is a much bigger ask than dominating Malaysia’s investment banking landscape, and it puts them into competition with some powerful local competitors across the region. But there are a lot of signs of progress: CIMB is among the leaders in broking in Singapore, where it has been strong ever since acquiring local broker GK Goh in 2005, and in Indonesia, where CIMB is extremely well entrenched through its ownership of CIMB Niaga, the fifth largest bank by assets in the country.

More recently, CIMB has sought to beef up in Thailand, striking a deal with Siam Industrial Credit Public Company (usually abbreviated, tremendously, as SICCO) to buy 70% of SICCO Securities in September. This broker has 13 branches across Thailand and will be built into the existing presence, CIMB Thai Bank; Charon says that combining their market shares immediately brings it into the top 15 brokers nationally, and should be a platform to build a leader. There is already strength in investment banking. “In Thailand, Bloomberg ranks us number one for IPOs this year,” Charon says. “We are getting there.”

“Clearly, it is going to take time to be in the top three in each market in all categories. But it’s something we think is achievable.”

Next up is likely to be the Philippines, where Charon confirms the bank is in discussions to take a stake in Bank of Commerce, owned by San Miguel. That wouldn’t, in itself, create a meaningful presence in investment banking, but it would give a platform to build one; additionally, it has an agreement to distribute Philippine equities and research. “There are 10 Asean countries and we are present in eight of those [the Philippines and Laos being exceptions – CIMB’s commercial arm already has an established presence in Cambodia].

Evidence is beginning to come through in significant deals, most notably in Indonesia – which, being the region’s most populous market, has the greatest potential. CIMB was, for example, appointed as an underwriter on a bond issue from Indomobil earlier this year, and was an advisor on CVC’s buyout of Matahari Department Stores in 2010. “Because we have the number five bank, we’re really able to offer a complete universal banking-type solution,” Charon says. “Because we are positioning ourselves as an Asean regional bank, we can give regional solutions to clients; it’s surprising the number of southeast Asian companies who are investing elsewhere in southeast Asia. There is a lot of interest in regional investment flows.”

Growth in these cross-border flows will clearly be crucial to CIMB’s success as a regional player. “Intra-Asian trade is a big number, and a growing number; clearly we want to be there, growing with that,” he says. As Asean moves towards a free trade zone, more cross-border trade and investment within the region should follow. “Asean as a unit has a population half the size of China, with a GDP probably bigger than India. As a region, it’s very dynamic.”

One problem with the idea of an Asean bloc (see Euromoney, September 2011) is that it doesn’t yet exist in a meaningful form: there are still different regulations from one market to another and capital does not yet move freely. But Charon tries to present this continued variance as a positive. “Because it is diverse, it is an interesting place to be in: it’s not one homogenous market,” he says. “Finance is finance. The economics which make an M&A effective, or raising capital internationally – these don’t change and can apply anywhere.

“Each country clearly has different regulations and structures, but because we are a southeast Asian bank, we have a very strong indigenous team in these markets. We don’t fly expatriates into another country and ask them to run investment banking. We use the people in the country.”

And how about the opportunity presented by other western investment banks pulling back due to problems at home? “I don’t want to sound like a vulture fund taking advantage of other people’s weaknesses, but you would imagine that as people have issues back in their core domestic markets, they would retreat to some extent from southeast Asia,” he says. “There will be opportunities for southeast Asian banks to step in.”

BOX: Badlisyah Abdul Ghani

One area that both Malaysia and CIMB have excelled in taking an early lead is Islamic finance. Malaysia has the most sophisticated industry, and enabling framework, for Islamic finance anywhere in the world; within it, CIMB is probably the name most closely associated with innovation.

The man most responsible for building CIMB’s Islamic business, particularly on the investment banking side, is Badlisyah Abdul Ghani, now the overall CEO of CIMB Islamic. He made his name being a part of innovative structuring techniques, among them the world’s first ijarah sukuk, and asset-backed deals using the musyarakah structures. Quietly spoken and lacking some of the more outgoing statesmanship that some of his peers assume, he is nevertheless known as one of the most effective and connected people in the Islamic finance industry worldwide. Beyond CIMB, he was closely involved in Bursa Malaysia’s launch of a Shariah-compliant commodity exchange, and is also closely involved in attempts to build fund flows from the Middle East to Malaysia (he is, among other things, head of corporate client solutions for the Middle East and Brunei at CIMB at a group level). He’s on the Islamic capital market consultative panel of the stock exchange and chairs the Islamic capital market committee of the Malaysian Investment Banking Association. His involvement in such a wide range of sukuk from Malaysia has helped to shape the country’s distinct approach to Islamic finance, which differs in some crucial ways from the interpretation of the Middle East; but he has always argued that differences in interpretation, rather than needing to be ironed out and standardized, should be welcomed as a spur for innovation.

All of this has helped CIMB to a position of strength in Malaysian Islamic investment banking, but the place it might really pay off is Indonesia. The opportunity here is vast. Indonesia is, like Malaysia, a Muslim nation, but has almost nine times the population. Islamic finance is far less developed in Indonesia than Malaysia, but all the same drivers that spurred it in Malaysia exist there too: a desire to invest in a way consistent with faith; growing sophistication of the investor base; and a rising wealthy middle class. Most of the necessary legislation is in place in Indonesia now, and it’s really a question of when, not if, Islamic finance becomes widespread. Through its Niaga presence, CIMB and Abdul Ghani are better placed than most to take the opportunity.