Euromoney awards for excellence 2008: Australia, Singapore, Taiwan

Euromoney magazine, awards for excellence, July 2008

AUSTRALIA

Best Bank: Westpac

Westpac gained a new chief executive in February, the much-admired Gail Kelly, who had transformed St George Bank from a second-tier bank to a powerful and genuine alternative to Australia’s big four banks. She wasted little time in setting about something transformational, confirming in May that her new bank was in talks with her old one to merge and create the country’s biggest financial services group.

Whether or not that deal goes through – and its timing seems to have been perfect – Westpac is travelling well. Though not (yet) the biggest of the big four it has seven million customers and 1000 branches, and its ratios are among the best in the business: 22.7% return on equity as of its interim results in May, a 34% year-on-year increase in net profit despite a miserable credit environment, a strong capital position and a well-diversified funding profile.  Westpac had no direct exposure to sub-prime and comparatively little to troublesome CDOs or conduits.

In recent years its wealth management group, centred around the BT franchise bought from Deutsche in 2002, has been turned from a complicated mess into a keystone of the group’s growth. With consumer and corporate business running well, and write-offs low compared to its peers, Kelly looks to be continuing predecessor David Morgan’s good work.

Best equity house: UBS

UBS leads the field in the Australian equity markets. It tops the tables both in terms of volume and number of deals, but where it really starts to stand out is when one looks at the choppy markets of the second half of 2007. During that difficult period the bank raised 60% more equity than any other house, and three times as much as anyone else in the fourth quarter. Key deals included the IPOs of NRW and Boart Longyear, and a secondary for Newcrest Mining using an accelerated renounceable entitlement offer structure. Australian banks were in particular need of smart solutions late in the year, and UBS helped with a A$766 million placement for St George and an underwriting to help ANZ boost its regulatory capital. UBS raised more equity, and more through IPOs, than anyone else in the field.

Alongside that, it has also been the dominant trader on the ASX, and its equity derivatives business is going from strength to strength: 400% notional growth over the last two years. Unlike many multinationals it has a derivatives team on the ground in Sydney, structuring, pricing, wrapping and risk managing in Australia rather than out of a regional hub.

Best M&A house: UBS

The M&A award in Australia typically comes down to a fight between UBS (the leader on volume during our period under review) and Macquarie (the leader on number of deals, many of them involving Macquarie itself). As with previous years this award could go either way but UBS shades it. The bank was everywhere in Australian M&A in the last 12 months: advising Babcock & Brown on the A$13.4 billion acquisition of Alinta; PBL on the A$5.6 billion spin-off LBO of PBL Media; Rinker on its A$18.3 billion takeover by Cemex, in which UBS helped to get the best outcome for Rinker from a hostile bid, ensuring that a controversial cash bid did end up being cash rather than US dollar assets. Other highlights included roles for Multiplex in its acquisition by Brookfield Asset Management, and Toll on the demerger of its transport infrastructure assets and network and supply chain business. A host of recent mandates – advising BHP on its vast proposed merger with Rio Tinto (Macquarie and Morgan Stanley are on the other side), and Zinifex on a proposed merger with Oxiana – suggest a continued bright future.

Best debt house: HSBC

How did that happen? As little as two years ago, HSBC was nowhere in the Australian debt markets. But over our period under review, it led the field for international bond issuance from Australia.

It won’t always be the case that we give this award to a bank with relatively little presence in the local currency markets, but the Aussie dollar credit and asset-backed markets have been moribund for the best part of a year now: this was a year to reward those who’ve found funding options for Australian clients overseas, and none have done it better than HSBC lately. It has taken clients offshore in dollars, euros, sterling, yen, Hong Kong and Singapore dollars in the last 12 months, alongside the vital US private placement market. HSBC was on both of the cross-border ABS deals that re-opened that market earlier this year, for Bank of Queensland and for St George. It was a joint bookrunner on the A$7 billion-equivalent RMBS deal for Westpac, one of the biggest deals of its type ever attempted. And it has been putting its capital to work in syndicated lending too, leading vital facilities for Macquarie Group and Leighton Holdings. Benchmark deals for three of the four big four Australian domestic banks underline the impression that HSBC has arrive in force.

SINGAPORE

Best Bank: DBS

DBS is the bank that every Singaporean grows up with: almost the entire population are consumer customers. That legacy hasn’t always been of assistance to DBS as it has tried to transform itself from a sleepy deposit bank to a regional powerhouse, but it has given it the most powerful franchise in the country.

It is the largest bank in the nation measured by assets. It reaches retail clients through 79 branches and 900 ATMs, between them handling half of the ATM transactions in Singapore; it is powerful locally in consumer banking, treasury, markets, asset management, securities brokerage, equity and debt; it estimates it has 76% of the local online banking market with over a million customers using the internet platforms.

Departed CEO Jackson Tai made it a point of pride to turn DBS into a regional business but the fact is Singapore accounts for the lion’s share of the bank: S$3.94 billion of the S$6.16 billion total income in 2007, and S$1.63 billion of the S$2.49 billion net profit. In a tough market Singapore-derived income grew 14% year on year, group NPLs are down to 1.1% and the balance sheet is robust with a total capital adequacy ratio of 13.4%. Nobody else can compare with its local corporate loan book, while custody and securitisation are examples of growing business lines.

DBS has never faced tougher competition, not just from OCBC and UOB but increasingly from Citi, which has built a formidable franchise which is only going to get better as the host of new businesses launched in the last year are bedded in. For now DBS has the bigger platform but they can surely see the threat.

Best equity house: JP Morgan

JP Morgan swept the board in Singapore equity capital markets in our period under review, more than doubling its nearest rival’s performance based on Dealogic’s volume numbers. Two convertible bonds for Capitaland, worth S$1 billion and S$1.3 billion respectively, helped boost the total, as did a US$2 billion tier two issue for DBS Bank. But it wasn’t just size that JP Morgan did well: one of the Capitaland CBs was the longest tenor for an equity-linked deal out of ex-Japan Asia, at 15 years, and other, smaller deals have been equally significant. JP Morgan was sole financial advisor and joint lead underwriter on the IPO of Ascendas India Trust, the first pure-play India REIT (strictly speaking a business trust, but it’s the same principle) to be listed in Singapore. IPOs for Financial One and Hyflux Water Trust, convertibles for GuocoLand, Gneting International and Noble, a block trade for Noble, an accelerated bookbuild for SembCorp Marine and a follow-on for CapitaRetail China Trust all underpin the sense of a manager capable of doing any type of equity-related deal in a range of market environments.

Best M&A: Morgan Stanley

If you want to be a leader in Singapore M&A, it helps to be on good terms with Temasek. Morgan Stanley and Credit Suisse stand out in this regard, with Morgan shading it for the wider range of landmark transactions through the year.

Morgan was sole advisor to Temasek on its $4.4 billion purchase of Merrill Lynch common stock, but it was other, smaller deals that demonstrated the bank’s nouse. It was an advisor, with Credit Suisse, on Temasek’s sale of Tuas Power to China Huaneng Group for $3.1 billion, the largest divestment to date by Singapore’s investment arm, and the largest ever overseas acquisition by a Chinese power company. The advising banks put two and a half years of preparatory work into this deal, and are mandated on the divestment of two more Temasek gencos.

Morgan was also an advisor at the Singapore end of a real landmark transaction in 2007, when a consortium of Singapore Power and Babcock & Brown bought the Australian energy group Alinta for $11.5 billion. This was a big, hard-fought deal, with several counter bids; the final deal involved four forms of share consideration and cash. Another interesting deal was Mitsubishi UFJ Securities’ $118 million partial tender offer for Kim Eng Holdings, with Morgan advising the Japanese party. Between them, the eight completed deals in Singapore with Morgan Stanley involvement during our period under review represented $21 billion of value.

Best debt house: DBS

DBS remains the standard bearer for the Singapore dollar bond markets, leading the field as an underwriter, a market maker and a dealer. It has completed bond issues for every statutory board in Singapore, and has proven itself adept at bringing first-time foreign issuers to the Sing dollar markets, among them Emirates and Cathay Pacific. Over the years it has bolstered this platform with a strong G3 footprint, and a presence in the region’s local currencies, bringing deals such as the US$600 million zero coupon convertibles for Wilmar International in late 2007, or the RMB1.16 billion convertibles for SPG Land Holdings earlier in the year.

If that was all it did, it would face strong competition for this title from the likes of Standard Chartered, but DBS combines its securities expertise with a powerful syndicated financing platform. It was involved in several of the iconic financings that took place in Singapore in 2007-8, including the S$5.5 billion package for the Marina Bay Sands Integrated Resorts, and the $4.4 billion of credit facilities for Resorts World Sentosa. Others have included a S$661 million syndicated guarantee facility for Siltronics Samsung Wafer, and the first LBO after the credit crunch for Supernova.

TAIWAN

Best Bank: Chinatrust

Chinatrust remains the best positioned bank in Taiwan. This is the bank that has been smartest and most successful in building businesses that generate fee rather than interest income, particularly wealth management, the one great cash cow left in Taiwanese banking. In 2007 the fee income ratio at Chinatrust hit 42.48%, among the best in the industry; the share of the national wealth management client market has grown from 11 to 18% since 2004, according to the bank itself, with assets of over NT$1 trillion for 320,000 wealth management customers by the end of 2007. Revenue from wealth management grew 133% between 2006 and 2007.

Chinatrust has many more strings to its bow than wealth management: it holds one third of the country’s internet banking market, has a sophisticated risk management system, low NPLs at 1.66%, and powerful distribution through 142 branches. It boasts strong positions in syndicated lending and transactional banking. Taiwan’s not going to be an easy market to stay on top of: thawing relations with China will present challenges as well as opportunities, and more and more foreign banks are entrenching themselves through their stakes in troubled local institutions. But for now, Chinatrust leads the field.

Best investment bank: Morgan Stanley

While it topped neither the M&A nor the equity league tables, Morgan Stanley’s across the board strength was notable (as it also was for JP Morgan, in a similar position).

On the capital markets side, Morgan Stanley has remained active despite the turbulent markets, leading both the Asia Cement $210 million exchangeable bond and the Uni-President China Holdings $518 million Hong Kong IPO since the credit crunch kicked in. Before that, the manager was busier still, as a joint global coordinator on a $1.4 billion GDR offer for Innolux Display and a $219 million GDR for solar cell manufacturer Motech Industries. And, although outside the time period under consideration, its role on a recent Hong Kong IPO for Pou Sheng International, a spin off from Yue Yuen Industrials, suggests more of the same ahead.

In M&A, Morgan Stanley advised Cosmos on its recapitalisation and sale to SAC and GE Money (opposite Citi, discussed below), and was on two other significant cross-border deals: Aegon’s purchase of a stake in Chang Hwa Bank, and Carlyle’s in Ta Chong Bank. Morgan Stanley’s own role in private equity has helped the bank’s advisory business, since it is advising Morgan Stanley Private Equity on its investment in E.Sun Financial through a $260 million convertible bond.

Best equity house: Goldman Sachs

Goldman’s strength in Taiwan has been to build long-term partnerships with the biggest clients, such as Taiwan Semiconductor Manufacturing (TSMC), Chunghwa Telecom and Hon Hai. When those guys have a big year, Goldman does too.

So it proved in 2007, when Goldman got the sole global coordinator role, and joint bookrunner status, on Philips’ sell-down of its stake in TMSC. In aggregate, these deals were worth $4.3 billion, between a $1.75 billion local accelerated bookbuild offering and a US$2.56 billion ADS issue (alongside JP Morgan, which also had a good year).

Critics say that relying on the landmark clients doesn’t constitute a full franchise, but Goldman proved itself by taking a host of Taiwanese companies overseas over the last 12 months. Among them were Want Want, which raised US$1.05 billion in Hong Kong to become the largest ever food and beverage offering in Asia; shoemaker Stella International, parented in Taiwan, in a US$387 million Hong Kong IPO; and Delta Networks, whose $208 million Hong Kong listing was the first networking company to be listed on that exchange.

Best M&A: Citi

Citi swept the board in Taiwanese M&A in 2007-8, leading on both announced and completed deals, by number and by volume. The nine deals it handled in 2007, worth US$5.4 billion between them, included some important transactions. An example was advising Acer on its US$762 million acquisition of Gateway, one of the largest PC companies in the US, a transaction that turned Acer into an unquestionably global enterprise. The many troubled institutions up for grabs in the domestic banking sector have created opportunities, and Citi has taken advantage, advising the Longreach Group-led consortium on its purchase of 51% of EnTie Commercial Bank, and SAC Private Capital Group on its acquisition and restructuring of Cosmos Bank. Other mandates included advising ASE on its purchase of 49% of ASE Test through a scheme of arrangement in Singapore, and MediaTek on its purchase of ADI’s wireless semi business. And, on top of that, Citi has been a player in its own right, with its acquisition of Bank of Overseas Chinese going through in April 2007. That acquisition brings Citi a million clients, 2200 staff and 55 branches in Taiwan; we may yet see it competing for the overall best bank award in future.

All told, Citi has advised on seven of the 10 biggest cross-border M&A deals involving Taiwan in the last five years and the franchise shows no sign of withering.