CLSA returns to Pakistan and eyes Indian debt

Pushing out its Asian footprint and looking at new debt products, CLSA is chasing new opportunities along the Belt and Road and in India.

Moving into new markets and seizing new opportunities has been a hallmark of CLSA’s rise from humble beginnings as a broker in Hong Kong in 1986 to 1,800 employees in 20 cities worldwide. 

So it's in keeping with that tradition that Jonathan Slone, chief executive officer for the brokerage and investment group and long-term Asian banker, is keen to grab the opportunities that the Belt and Road offer the group.

“There’s a lot of opportunity out there, there’s a lot of government-to-government stuff, and we would like to see more private money going out there as well,” Slone told FinanceAsia during a wide-ranging interview last week.

Belt and Road Initiative (BRI) was launched in 2013 by Chinese President Xi Jinping and is a $900 billion infrastructure development programme with China as its focal point.

Looking to link East and West via the historical silk road and maritime route connecting China to Africa and Europe via South, Southeast and Central Asia, the BRI will affect more than 60% of the world’s population across more than 60 countries, according to the Hong Kong Trade and Development Council’s “Belt and Road Portal”.

CLSA, which was bought by Citic Securities in 2013, was quick out of the blocks to see the potential for its clients with its One Belt One Road fund launched in 2015, which has so far provided "good" returns, according to Slone. The group declined to reveal the size of the fund.

“We have one fund fully invested at the moment and are looking to open another one in the near future, where we are looking at a return of small double digits” Sloane told FinanceAsia.

In March CLSA chairman Tang Zhengyi revealed the group had held preliminary talks with potential Chinese investors into the proposed $10 billion new airport in Manila, under President Duterte's "Build. Build, Build programme. 

The airport proposals are currently under consideration by the Philippines government, with a decision on the winning submission expected byt eh end of the year.

And there certainly is a huge potential along the Belt and Road, which is why CLSA has jumped back into Pakistan on August 30 after pulling out 17 years ago.

Linking Pakistan to the 13 other markets in Asia that the group has a presence in, Slone is confident that its new partnership with Alfalah Securities will help to broaden the firm’s footprint across BRI countries.

“This investment will provide our clients the access to a dynamic market with exciting opportunities and also expand our research coverage and distribution network,” Slone said of the partnership.

CLSA has taken a 24.9% stake in Alfalah Securities, and in an interesting twist have re-hired Aliudidin Ansari as the Chairman, 17 years after he left CLSA to pursue other ventures.

And Ansari is bullish on the importance of Pakistan in CLSA's plans along the Belt and Road.

“Pakistan is a small but vital, strategic trading partner for China and we will provide a gateway to Pakistan for international investors and corporates, especially from China,” Ansari said on Tuesday, in an interview on the sidelines of the 25th CLSA Investors Forum in Hong Kong.

The group have also announced plans to forge partnerships in Vietnam, Bangladesh and Dubai to further expand their presence along the Belt and Road this week at the forum..

Conservative estimates by the ADB put Asia’s infrastructure development costs at $1.7 trillion annually until 2030, which will have to be funded by a mixture of private and public money.

And according to the recent ADB report entitled “Meeting Asia’s Infrastructure Needs”, government-sponsored projects will account for only 40% of that $1.7 trillion annually – the rest will have to come from the private sector.

Which is where Slone sees the move back into Pakistan as one more step as the group continues to grow its franchise in new markets.


Evolving from a traditional brokerage to a full-service financial institution, Slone is quick to point out that opportunities in new markets will need new commitments.

Pointing at the ever-increasing levels of debt in China and India, Slone highlighted the firm’s shift in focus towards debt capital markets.

“Yes, we are hiring more people for the DCM team,” Slone told FinanceAsia, in response to a question of where the firm sees opportunity as the emerging market crisis unfolds.

“Our debt team is seeing (a) huge expansion, especially in specialist situations like distressed debt, in places like India," Slone said. 

Preferring India over China may seem like an odd choice for a financial group with the full support of China’s Citic Group, but Slone made clear the reasoning for the increased attention on India’s distressed debt mountain.

“Both China and India have rising levels of distressed debt, but we are very focused on India right now,” he said. “The recent changes in insolvency law in India make this a very important market for us going forward.”

Under Prime Minister Narendra Modi, cleaning up India's bad loans has been a critical policy in order to attract investment to the country.

A new insolvency law introduced in 2016 streamlined the bankruptcy process, prompting more loans to turn sour; instead of ending up in a never-ending legal morass, the stipulated timelines for reaching a resolution at least provide creditors with some glimmer of hope. 

Indian state banks in particular have it bad with an average non-performing loan (NPL) ratio of 15.6%, more than double that of private banks, according to an August 12 report by credit ratings agency Fitch. 

The overhaul of India’s bankruptcy code in India is a “game changer”, Vivek Kathpalia, head of Singapore and the Far East at law firm Nishith Desai Associates, said at the Asia PE-VC Summit in Singapore on Tuesday. “Prior to this entering India was easy – but winding up or liquidating a company was a big problem – that’s changed completely.”

Andy Ferris, Partner at Hogan Lovells Lee & Lee in Singapore concurred via email from Singapore. 

“It is also reasonable to assume that the supply of distressed Indian debt for potential investors may well increase as more creditors take debtors into the new process,” Ferris said.

Which is why CLSA is making moves into the market.

“We are restructuring our capital markets team to take advantage of that opportunity and set up a dedicated India debt fund,” Slone said.

So as the current emerging market crisis slowly unfolds, at least one financial group is looking towards new frontiers in search of returns.

Additional reporting by Alison Tudor-Ackroyd

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