As Wall Street firms struggle in SE Asia, others step into the breach

As Wall Street firms struggle in SE Asia, others step into the breach

Southeast Asia, once the playground of many a Wall Street bank, is experiencing one of the most challenging periods in terms of deal flow in 2016. This has in turn led to a shake-out of senior investment bankers in the region while opening the way for others to make a go by staying the course.

In the past six months, investment banking heads at a handful of banks have either indicated they were leaving or have headed out of investment banking. At Goldman Sachs, Michael Smith, a managing partner who also heads the Singapore office, is stepping down this year. J.P. Morgan’s head of investment banking, Yeo Hong Ping, joined Temasek-backed Fullerton Financial Holdings in October to become its chief investment officer following a career of 16 years at the bank.

“The scaling back we are seeing is really quite scary,” relates a longtime banker based in Singapore. “The low hanging fruits of the capital market have now disappeared.” Add to that is the continuing decline in the number and value of M&A advisory work.

Data from Dealogic indicate that the number of deals of 1,333 in Southeast Asia is down by 12.2% year-to-date and nearly half of the peak in 2011 of 2,596 deals. In terms of value, the US$49.1 billion year-to-date is 16% below the US$58.5 billion in 2015 and 61% below the peak of US$124.8 billion 2012.

Another banker shares that losing traction in some firms such as Goldman is self-inflicted. “They are suffering from the fallout of 1MDB,” he notes. “Not a lot of Asian companies are prepared to assume the reputational risk while the problem remains unresolved.” 

The challenge for Southeast Asia is that deals tend to be smaller when compared with North Asia and especially China. Deloitte, the audit and consulting firm, notes that Southeast Asia has actually outpaced Hong Kong and Australia in terms of the number of deals for the past three years. But the total funds raised in Southeast Asia of US$15.4 billion from 2014 to 2016 are less than a fourth of Hong Kong’s total of US$62.9 billion and under a third of China’s US$49.8 billion.

Still, for those who continue to stay the course, opportunities abound. Citi, for example, emerged as a big winner in Southeast Asia in The Asset Triple A Country Awards 2016 as it scooped the Triple A Best Bank (Global) accolades in four of the major market in the region – Indonesia, the Philippines, Singapore and Thailand.

The bank’s performance in these markets showcases the breadth and depth of its franchise across corporate and institutional banking, transaction banking and consumer banking, which demonstrates the quality of relationships that it has built with its clients in this part of the world.

It also now has built a relationship with some of the most important corporates including Temasek Holdings, which until recently tend to work with the likes of Goldman Sachs and Morgan Stanley. Citi advised Temasek on its US$5 billion sale of Neptune Orient Lines to CMA CGM, the largest completed Singapore M&A during the review period. Citi also wins the Triple A Best Corporate and Institutional Bank (Global) award in Indonesia, the Philippines, Thailand and Vietnam.

HSBC managed to snatch the Triple A Best Bank (Global) honours in Vietnam, posting impressive results in the first half of 2016 amid the heightened market competition and on the back of sluggish economic conditions. The bank has adopted a single wholesale operating model this year of which the commercial banking and global banking in Vietnam are consolidated into one unit and renamed wholesale banking to reduce the overlap in providing support to its clients.

Credit Suisse, which has historically been a strong contender for corporate and institutional banking in Southeast Asia, showed its flair especially in the frontier markets such as in Vietnam. It retains its strong presence in Singapore led by veteran investment banker Edwin Low but slipped back markedly in Indonesia, a market that has defined its success in the region for the past two decades.

Credit Suisse has also similarly broken into the Temasek account acting for the government-backed investment firm in a number of its undertakings during the year including as adviser to Temasek in its S$2.6 billion privatization of the city-state’s mass transit, SMRT and also as adviser to Singapore Technologies Telemedia, a unit of Temasek, in the sale of its portfolio company, Level 3 Communications to CenturyLink for US$34 billion with Singapore Technologies Telemedia becoming the largest shareholder of the combined entity.

As the global bulge-bracket firms rethink their Southeast Asia strategy, several local, regional banks and boutique advisers have moved ahead. Banks such as DBS and CIMB Investment Bank remain very competitive viz-a- viz their global counterparts in arranging deals in their own markets in view of their familiarity with the credit and risk. Boutique adviser, Evercore, retains its top advisory spot for M&A in Singapore scooping the Triple A Best M&A award again.

Among the domestic houses in Indonesia, the big winner was IndoPremier scooping the awards for Triple A Best Corporate and Institutional Bank (Domestic), Triple A Best Equity House and Triple A Best Bond House (Domestic). As the most active private securities company in the country, IndoPremier competes head on with a number of state-backed peers in winning prime deals in equity and fixed income. 

In the Philippines, BDO Capital continues to hold on to its title as the Triple A Best Corporate and Institutional Bank (Domestic). But it is facing increased competition from the likes of BPI Capital, which wins the Triple A Best Equity House and the surprise winner of 2016, Chinabank Capital, which scores the Triple A Best Bond House. Will it be able to repeat it again in 2017? 

In Thailand, Siam Commercial Bank is the big winner securing the Triple A Best Bank (Domestic), Triple A Best Corporate and Institutional Bank (Domestic), Triple A Best Equity House and Triple A Best Bond House. With Arthid Nanthawithaya consolidating his position at the bank as president and CEO in June this year, expect more from the bank into 2017 given his strong background in the capital markets and especially his commitment to digital banking.

This year also witnessed some significant transactions coming out of the region. The Astrea III US$510 million private equity bond is innovative and ground-breaking, representing the first listed notes in Singapore backed by cash flows from private equity funds. The first US dollar-denominated Basel III-compliant additional tier 1 (AT1) capital securities amounting to US$750 million by DBS Group Holdings secured what has been the lowest yield and tightest spread ever of any similar capital securities offering globally.

Thailand and Vietnam figured prominently in big M&A transactions in the region as the Thai tycoons are once again on an acquisition mode. In February this year, the French retailer Groupe Casino announced the disposal of its 58.6% stake in Thai-based Big C Supercenter for US$3.5 billion. Post the acquisition, Berli Jucker, a unit of TCC controlled by Thai tycoon CharoenSirivadhanabhakdi, announced its intention to make a tender offer to the remaining 41.5% in Big C. In April 2016, Groupe Casino announced the closing of the sale of Big C Vietnam to the Central Group controlled by the Chirathivat family of Thailand in the largest ever M&A deal in Vietnam.

Singapore continues to lead Asia in terms of the number of real estate investment trust IPOs. This year saw the addition of underlyings from Australia and the United States. Notable deals include Frasers Logistics & Industrial Trust, which won the Triple A Best IPO and Mapletree Commercial Trust, which was named Triple A Best Follow-on.

This year, the board of editors is pleased to have identified deals in Cambodia, Laos, Myanmar and Papua New Guinea, a testament to how The Asset Country Awards are now expanding into new markets and the growing interest to secure recognition of excellence among the participants.

For the house winners, please click here. For the winning deals, please click here.