An exceptional year in Asian capital markets showed which banks were one-trick ponies and which had a stable of ideas. Focusing on offshore financing for Chinese companies, which account for around two-thirds of capital markets issuance in Asia ex-Japan, is usually a safe strategy, but it didn’t work in 2022.
Chinese issuance still dominated, but companies turned to onshore financing to avoid market turmoil elsewhere – or simply had no need to raise capital as China’s economy stalled under strict Covid-19 restrictions. The A-share market took the spotlight, accounting for the three biggest follow-on offerings worldwide, while easy monetary policy onshore encouraged companies to raise renminbi bonds and loans.
That made for a lucrative year for arrangers in the domestic market, but caused headaches for international banks, which are largely shut out at present.
That meant investment banks either had to find creative new avenues for Chinese fundraising or reallocate resources to other parts of the region.
While the China-to-US listing route was closed for most of the year, as regulators tried to reach agreement on audit inspections, some arrangers found alternative avenues to raise offshore equity, through Switzerland and the US. Meanwhile, Hong Kong’s Bond Connect made it easier for offshore investors to access the mainland bond market and for onshore investors to participate as Dim Sum issuance boomed.
Having a pan-Asian footprint paid off, as South Korea’s LG Energy Solution brought the year’s biggest IPO, Korean issuers remained active in the US dollar bond market, and Australia and India were hubs of leveraged finance activity.
Even so, there were times when volatility was so extreme that it was impossible to launch equity or bond deals. That was when clients saw the benefit of banks that were able to offer alternative financing to tide them over until conditions improved.
As China opens up from its tight lockdown, deal flow is set to resume, but recent years have shown that unexpected policy changes – such as China implementing its “three red lines” rules on leverage for property companies or increasing its scrutiny of sectors like technology or education – can derail the best-laid plans.
Returning to business as usual in 2023 doesn’t mean banks should once again put all their focus on China as a source of deals. Layoffs across China coverage departments in the second half of 2022, even though deal volumes were higher than pre-Covid days, showed that many investment banks had not allocated their headcount wisely.
Diversification paid off in 2022, and it will do again the next time markets dislocate or China deals a surprise.
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