With questions hanging over the future of Asia’s equity capital markets, if not over investment banking globally, one bank broke with its tradition to win new business in difficult conditions. For broadening its footprint and adding to its product offering, Goldman Sachs is IFR Asia’s Bank of the Year.
A breakthrough year for bonds has left the traditional equity-focused approach to Asian investment banking looking increasingly misguided. Goldman Sachs, however, emerged looking smarter than ever, having built a more balanced platform and stayed a step ahead of the market.
Rather than pursuing the wait-and-see approach that many of its equity-dependent rivals favoured, Goldman read the winds of change and shifted its focus. After building out its debt capital markets platform over the last two years, it reaped the benefits of those efforts during IFR’s review period, while broadening its range of both clients and business to maintain a leading position in the equity capital markets.
“We’re trying to do more and broaden our footprint and I think others are trying to shrink their footprint,” said David Ryan, Goldman’s president for Asia Pacific.
Goldman has long prided itself on being the go-to firm for the biggest capital raisings, with countless major Chinese IPOs on its resume. Those deals were few and far between during the review period, but Goldman adapted to the change in market conditions. It stepped up its focus on South-East Asia and excelled at block trades – two defining themes of the year – and competed hard for mandates whether they were a US$100m convertible bond or a US$6bn share sale.
At the same time, it emerged as a real contender in Asia’s debt capital markets just as issuers in the region were embracing bonds as a fundraising tool. Goldman arranged a wide variety of bond issues across the capital structure and throughout the region, including an enviable array of lucrative sole mandates.
“You can no longer be a credible financier out here just by being strong in ECM or, for that matter, just by being strong in DCM,” said Dan Dees, co-head of investment banking for Asia, ex-Japan. “I don’t know if we’re a little lucky or a little good or a little bit of both, but the decision to invest has given us an impressively balanced portfolio on the financing side.”
Goldman’s book of business over the review period is proof of its ability to get in front of those trends. It is no accident that the firm posted its best year so far in Asian debt capital markets, or that it paid more attention to South-East Asia’s equity markets. It is also a global shift.
“The diversity of our business, both by product and by geography, is really coming through,” said Richard Gnodde, co-CEO of Goldman Sachs International. “Over the last many years, we’ve made very significant investments across the product range. We’ve moved away from being an M&A and equity underwriting house to something that’s much more diversified.”
Very different firm
At a time when investment banks are under intense pressure from both regulators and return-hungry shareholders, Goldman’s ability to reshape its business comes as welcome reassurance that it is able to meet the challenges of an evolving marketplace.
“Everything we’re doing is making sure that we’re current and that we’re dealing with the world as it is today. When we see issues coming, we move immediately,” said Gnodde. “What it enables you to do as an organisation is to focus on what you should be focused on, which is executing the business of the day, and dealing with the challenges our clients are facing.”
This year’s Bank of the Year is a very different firm from the Goldman that last picked up IFR Asia’s top honours. In other ways, however, the old hallmarks have not changed. It still featured in the big trades and nobody can accuse the firm of sacrificing quality in its quest to win more business: indeed, rivals pointed to plenty of examples where Goldman was outbid on competitive block trades.
“The story is really adapting your approach to the business to whatever the market gives you, and leading your clients in the right direction,” said Dees. “It’s been an incredibly tricky market and, as a result, the theme ends up being ‘how to get in and out fast’.”
Goldman’s Asian debt capital markets franchise has long paled in comparison to its equities business, but the firm’s efforts to develop its presence in bonds are now paying dividends. In a record year for Asian debt issues, Goldman was on many of the biggest and most impressive deals of the year. Rather than just chasing volumes, however, it also stood out for bringing a series of unusual and innovative structures to market, as well as for winning several lucrative – if at times controversial – sole mandates.
We used to see them more of an equity house, but, this year, we really saw Goldman active on the bond front. And when it came to giving us potential levels for bonds, I’d say Goldman’s market read is better than average.
Goldman was at the forefront of the growth of Asia’s hybrid market in 2012, again illustrating its skill in spotting trends early.
“This is a reflection of the sophistication of the products and the expertise of our capital markets team,” said Dominique Jooris, managing director in debt capital markets.
The said sophistication was in evidence early in the year, when Goldman took the lead in devising the first corporate perpetual of 2012.
When Li Ka-shing’s Cheung Kong Infrastructure wanted to raise money and increase its free float, Goldman helped the company devise an unusual perpetual bond backed by stock. The structure effectively allowed CKI to defer an equity raising to a time when its stock is higher, while investors will be able to take the shares instead if CKI has not redeemed the bonds after five years, thus allowing the company to price at a tighter coupon.
It was a complex deal and execution was far from straightforward, but Goldman and joint bookrunner JP Morgan underwrote the deal and stood behind their commitment, reoffering the notes at a small discount. After a shaky start, the bonds raced above par, finishing the review period above 103.
It was the first of a series of corporate hybrid securities this year, and underlined Goldman’s ability to offer bespoke solutions across the capital structure.
That expertise will only gain in significance in Asia, as Basel III guidelines continue to make bank loans scarcer and force both corporate clients and financial institutions to look for more innovative ways to maintain an efficient capital structure.
Goldman stands to profit handsomely from its recognition in that area. It is already one of the most active debt arrangers for financial institutions in Asia Pacific, having helped to sell various types of bonds for CBA, DBS, RHB Bank, Mizuho, Sumitomo-Mitsui and Standard Chartered.
Its list of sole mandates extended to a US$800m deal for Malaysia’s State of Sarawak, as well as a structured – and controversial – US$1.75bn 10-year bond linked to state-run 1Malaysia Development’s acquisition of Tanjong Energy.
On the investment-grade front, too, Goldman stood out, winning numerous mandates from Asia’s top issuers. It was a bookrunner on a landmark financing for Samsung Electronics that repriced the investment-grade sector in South Korea. (See South Korean Capital Markets Deal).
Hutchison Whampoa, one of Asia’s top borrowers, hired Goldman for all four of its US-dollar bonds during the period under review. Goldman was the only one of the seven bookrunners on Sinopec’s US$3bn jumbo to win top billing on the US$500m reopening, while Singapore’s Temasek Holdings named it on a US$1.7bn 10- and 30-year landmark. (See Investment-Grade Bond.)
“If you are an issuer and you have a mission-critical transaction, we hope that, more often than not, you will turn back to us,” said Jooris.
This diversification effort has not gone unnoticed among Asian clients.
“We used to see them more of an equity house, but, this year, we really saw Goldman active on the bond front,” said the head of funding at a Hong Kong blue-chip company. “And when it came to giving us potential levels for bonds, I’d say Goldman’s market read is better than average.”
Refining the focus
Goldman has been consistently one of the top performers in Asia’s equity capital markets and it has lost none of that focus.
In a challenging year for IPOs, especially in Greater China, Goldman targeted block trades and broadened its reach across the region. The firm priced at least one block every month during IFR’s review period, and booked business in 12 countries.
“This has clearly been a different year. We had to be particularly careful about where to choose our spots because, clearly, the IPO market in Hong Kong and, to some extent, the region is broken,” said Jonathan Penkin, co-head of ECM for Asia Pacific ex-Japan.
“In years gone by, we have been criticised – certainly in 06 and 07 – for having cherry-picked only the largest deals. We’ve certainly tried to change that by not only doing the largest deals but, equally, more deals than anyone else.”
Among the highlights, Goldman was one of only two active bookrunners on the blockbuster US$6bn and US$2bn block trades in AIA, the second of which priced, remarkably, at a premium to the last market price. Those trades were just two of the highlights in a year in which Goldman showed its excellence in the block business – an increasingly important part of the Asian equity capital markets.
Other important selldowns included a US$2.5bn self-led trade in ICBC and a US$398m offering in Longfor Properties, but Goldman managed to complete blocks every month during IFR’s review period and was on the three largest trades of the year in Asia ex-Japan. It also had a wide geographical coverage, printing deals in a dozen countries.
Each deal was characterised by flawless execution and its ability to manage risk, never taking on more than it could handle. Unlike some other banks that lost money after making overaggressive bids to win hotly contested trades, Goldman did not forget about profitability in the chase for league-table credit. The aftermarket performance of its deals was also impressive.
As a joint sponsor and global co-ordinator on the US$1.2bn IPO of HKT Trust, it brought to market Hong Kong’s first offering to use the city’s new business trust framework, achieving a high valuation for the issuer in the process.
There was another first in Malaysia in July, when Goldman, as joint bookrunner, managed the first two-country simultaneous IPO in the ASEAN region. IHH Healthcare completed a US$2.1bn offering in Malaysia and Singapore, denominated in Malaysian ringgit and Singapore dollars with shares fungible between the currencies.
It booked another chunky transaction in Malaysia with a bookrunner role on the US$1.5bn IPO of subscription TV provider Astro Malaysia Holdings, and then crossed the straits to Singapore to lead the largest listing of the year there. The IPO of Far East Hospitality Trust was a roaring success, netting US$526m and reversing a poor run for Singapore IPOs.
Goldman was present in some of the region’s biggest listings, in a year in which many IPOs struggled to cross the line. Jeweller Chow Tai Fook’s US$2.1bn Hong Kong IPO and Chinese insurer New China Life’s US$1.9bn trade were other notable achievements.
Rather than push ahead with offerings that had a slim chance of success, the bank focused on launching deals that were anchored strongly, avoiding damage to its reputation from pulled trades. A US$287m block trade in Samsonite was structured as a private placement transaction in response to reverse enquiries from high-quality investors over the weekend, achieving a tight 3.3% discount. Goldman also used a private placement to help China Pacific Insurance raise US$1.3bn, with another slim discount to the market price and another sole bookrunner mandate.
In the equity-linked universe, it managed offerings from Australia, China and Hong Kong, for Beach Energy, Chaowei and Pacific Basin Shipping, respectively. In the case of Chaowei, Goldman provided a solution for the issuer after another bank had led a failed attempt at a Dim Sum bond earlier in the year. Notably, it managed to complete all of its CB issues without needing to offer credit enhancement to draw in investors.
Ultimately, the greater balance across Goldman’s Asian investment banking platform leaves the bank in a stronger position to cope with whatever the markets may throw at it. With a rebound in Chinese IPOs far from guaranteed, that may be key to building a sustainable platform.
“If something’s important to a client, it’s important to us. So, when someone’s doing a big euro deal, a dollar deal, investment-grade, whatever it is, if it’s important to them, we’re very focused on being there,” said Gnodde.
“The solutions that we’re bringing are so broad and so diverse. We’re not dependent on a single stream here.”
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