China’s Banks Taking on the Old Guard Win in Asia Debt Sales
Chinese banks, encouraged by Premier Li Keqiang’s “going-out” strategy, are rocketing up the international bond arranging league tables in Asia, leaving investment banking stalwarts in their wake.
Industrial & Commercial Bank of China Ltd., the world’s biggest lender by assets, jumped four spots from the end of last year to no. 11, its all-time best among arrangers of sales in either dollars, euro or yen, data compiled by Bloomberg show. Bank of China Ltd. advanced five places to no. 6 in the first six months of the year, as Barclays Plc and UBS Group AG dropped out of the top 10 entirely.
Companies in the world’s second-biggest economy, faced with growth last year that was the slowest in more than two decades, are looking overseas to expand, and they’re taking the nation’s banks with them. China Three Gorges Corp., the operator of one of the world’s largest hydro power dams, raised $1.5 billion selling bonds in dollars and euros in June, using the proceeds to pay for offshore projects. Four Chinese were among the eight institutions on the debut international offering.
“We’re seeing a big pickup in Chinese issuance and the trend is likely to continue,” said Jason Ho, the co-head of debt capital markets at ICBC International Holdings Ltd. in Hong Kong. “There have also been many mega deals from China so Chinese banks have benefited from that.”
Mergers & Acquisitions
Chinese companies announced some $326 billion of acquisitions last year, making the country the world’s most acquisitive after the U.S. They also comprised six out of the 10 biggest borrowers in Asia ex-Japan last half, up from half the same period a year ago and compared with seven for all of 2014 and four of 10 in 2013, Bloomberg-compiled data show.
It’s a trend not confined to the region’s bond markets. The participation of Chinese banks in the syndicated loan market is also on the rise. Bank of China advanced to No. 19 year-to-date on Bloomberg’s global loans mandated lead arranger table, from a ranking of 35 or below in 2011, 2010 and 2009. In Asia, it’s placed second, having held that spot for the full year in 2014, improving from seventh in 2013.
When Chinese companies do look to borrow a bank loan or sell bonds offshore, it’s the banks they’re familiar with they naturally reach out to, said Samson Lee, the head of debt capital markets at Bank of China International Holdings Ltd.
“It’s our home market. We understand the issuers and are close to them,” Lee said.
China Cinda Asset Management Co. hired 17 financial institutions to manage its $3 billion sale in April, nine of which were Chinese. China Huarong Asset Management Co. appointed 15 lenders, six Chinese, for its $3.2 billion January offering.
China will have an even more significant share of the dollar bond market in Asia by the end of the year, according to Arthur Lau, Pinebridge Investments Asia Ltd.’s co-head of emerging markets. Chinese companies already account for about 40 percent of JPMorgan Chase & Co.’s benchmark Asian credit index and will probably increase that a couple of percentage points by December, he said.
Being among one of the banks selected to help take a Chinese issuer to market is lucrative business. Deal sizes often stretch into billions of dollars, meaning fatter arranging fees. China Petroleum & Chemical Corp., or Sinopec, raised $4.8 billion in a three-part transaction in April while China National Offshore Oil Corp. net $3.8 billion in its sale the same month. The two were among the biggest deals in the first six months.
“We’re facing increased competition from Chinese banks,” Patrick Liu, the co-head of debt capital markets for Asia at UBS, said. “They provide a competitive edge” by buying some of the bonds in question themselves, helping to ensure a sale is successful, he said.
Despite their growing dominance, international players still rule the top five league table spots. HSBC Holdings Plc and Citigroup Inc., which this half are no. 1 and no. 2, have a combined 21.8 percent market share and have ranked among the top three for the past five years. Bank of China and ICBC have a combined 7.8 percent share this half.
“We expect a continued regionalization of Chinese state-owned enterprise supply in the second half,” Mark Follett, the Hong Kong-based head of north Asia debt capital markets at JPMorgan, said. JPMorgan ranks no. 5 this half with a 6 percent market share.
Several European banks are shrinking their presence in Asia as they struggle to make money from the region.
Barclays dropped four spots to no. 14 while Royal Bank of Scotland Group Plc sank 11 places to 29th. RBS hasn’t participated in a public bond offering in Asia since the bank outlined its strategy for the region in its annual report released on in February. UBS fell to 15th, from eighth.
“As the business mix shifts toward China, we will continue to invest and grow our business,” said Avinash Thakur, a managing director of debt capital markets at Barclays.
RBS’s Singapore-based spokesman Ronald Wong didn’t immediately reply to two telephone calls and an e-mail seeking comment.
Barclays has been restructuring its investment bank as part of a global revamp unveiled a year ago. The U.K.’s second-largest lender by assets has curtailed plans to expand into new markets in Asia amid slumping trading volumes. The corporate and institutional banking division of RBS is also reducing its global footprint, including either selling or winding down its corporate banking unit in Asia as it tries to return to profit.
“Looking at the size of the Chinese economy, it’s not unusual that going forward this country will dominate issuance,” said Raymond Chia, the Singapore-based head of credit research for Asia ex-Japan at Schroder Investment Management Ltd., which oversaw $474 billion as of March 31. “A lot of the Chinese companies have relationships with the local banks for funding, be it working capital or construction loans, which explains why Chinese banks are on most of their international bond deals.”