Home Asia Asia Bankers Ride Southeast Asian Boom – Wall Street Journal- India (blog)

Asia Bankers Ride Southeast Asian Boom – Wall Street Journal- India (blog)


Southeast Asia has become the go-to market for investment banking in Asia, after a year of hot initial public offerings and multibillion-dollar acquisitions by Thai billionaires.

In the trading of stocks, bonds and currencies, it has been an even bigger hit than China. From Japan to Australia, 80% of the revenue investment banks make in Asia comes from trading; just 20% comes from advising on mergers, IPOs or bonds, according to data from McKinsey & Co.

After Japan—which is often seen by investment banks as a separate market than the rest of Asia—China is still the behemoth, accounting for $19 billion of the revenue investment banks had in 2011 versus Southeast Asia’s $13 billion. Those are the latest figures available, but analysts say 2012 numbers will look similar.

China, however, is a hard market for foreign banks to break into.

“China is significantly less accessible than Southeast Asia to foreigners, given the regulatory environment,” said H.V. Vinayak, a Singapore-based partner who leads investment banking and capital markets for Asia at McKinsey. “Only around 2% of the revenue from Chinese equities can be captured by foreigners.”

Foreign banks need to be in joint ventures to access much of the trading in China, while in Singapore, for instance, they dominate more than 50% of the market’s trade. Commissions from trading bonds or stocks in Southeast Asia are also between 20% and 40% higher than in the rest of the region, including China, according to McKinsey.

Southeast Asia has also been a boon for deal making in the past year, thanks to acquisitive billionaires like Thailand’s Charoen Sirivadhanabhakdi, who won a multibillion-dollar battle for Singapore conglomerate Fraser & Neave Ltd. last year, and large IPOs such as a $3.2 billion listing by Malaysia’s Felda Global Ventures Holdings Bhd.

This year, Southeast Asia has accounted for 17% of revenue in the Asia-Pacific region outside Japan in core investment banking, up from 15% for all of last year. China’s share has stayed the same at 45%, according to Dealogic.

The buzz in Southeast Asia has been driven by a growing middle class that is consuming more and more, and companies that have emerged “stronger, stable and debt-free” from the Asian economic crisis of the late 1990s, said Eric Varvel, Asia-Pacific chief executive officer at Credit Suisse Group AG . Not only are the region’s tycoons expanding beyond their home markets, “they’re getting the financing and leverage from banks like us to do multibillion-dollar deals.”

Credit Suisse and Bank of America Merrill Lynch were financing the $10.6 billion bid by Indonesia’s ­Riady family for Fraser & Neave. The winning bid, by Thailand’s Mr. Charoen, was financed by Singaporean lenders United Overseas Bank Ltd. and DBS Bank Ltd.

Southeast Asia has also continued to stand out this year for share sales, ahead of former market leader Hong Kong, which is still struggling to draw investors disillusioned by listings that have underperformed.

Mainland China, already off limits as a venue for new listings to many foreign banks, has closed the gates further with a moratorium on IPOs since October because it hopes to limit the supply of shares.

Big share sales in Southeast Asia this year include the recently completed US$1.3 billion IPO by Mapletree Greater China Commercial Trust in Singapore and an ongoing sale worth US$1.4 billion of Matahari Department Store, an Indonesian department-store chain.

Banks that have created new positions to take advantage of the Southeast Asian boom include Citigroup Inc. , which hired Will McLane from Morgan Stanley for a newly created role as Southeast Asia investment-banking head last year; Credit Suisse, which named Southeast Asia deal maker Helman Sitohang as its Asia-Pacific investment-banking head, and Nomura Holdings Inc. and J.P. Morgan Chase & Co., which created new positions in debt issuance.

“To be relevant in Asia now is not just about getting China right,” said Farhan Faruqui, head of corporate and investment banking for Citi in Asia. Still, China remains key for Asia’s investment bankers.

While Southeast Asia “will continue to be a hot spot…listing volume between Hong Kong and Southeast Asia will be more balanced this year,” said J.P. Morgan’s Asia-Pacific equity capital markets head, Jeffrey Zajkowski.

Still, China remains key for Asia’s investment bankers. Even with the distraction of China’s leadership change last year that put a damper on M&A activity, China managed to seal its biggest-ever overseas acquisition: state oil firm Cnooc Ltd.’s US$15.1 billion purchase of Canadian energy producer Nexen.

– Prudence Ho contributed to this article

Asia Bankers Ride Southeast Asian Boom – Wall Street Journal- India (blog)}

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