Daiwa Capital Markets, the investment banking arm of Japanese brokerage and financial services company Daiwa Securities Group, is buying the global convertible bonds and Asian equity derivatives businesses of KBC Group for approximately $1 billion, according to a press release.
The acquisition, which is subject to regulatory approval, will form a major part of Daiwa's strategy to build a leading global derivatives business centred in Asia and will represent an "excellent strategic fit" with its desire to diversify its earnings streams across regions and products, Daiwa said. It will also give Daiwa Securities a boost towards its goal to "double" its headcount in Asia, as announced in November last year.
The KBC businesses employ about 150 professionals and Daiwa said it will pay about $200 million to take over the staff, the IT infrastructure and other assets, while KBC's trading position will set it back about $800 million. The latter portion of the acquisition cost will be finalised at completion when the assets will be transferred at market value.
Belgium-based KBC's convertible bonds business offers a complete range of secondary market services for issuers and investors out of its three offices in Hong Kong, London and New York, including competitive pricing and consistent liquidity. It makes markets in more than 1,200 global CB issues and has some 350 clients across 25 countries. Its research team also produces research on issuer credit quality targeted at sales and trading teams and their clients, and has a strong reputation for its speedy analysis on new issues. The convertible bonds business isn't currently involved in the primary CB market, but a Daiwa spokesman said the bank plans to use the KBC platform to move into CB origination in Asia.
"Daiwa has a strong presence in primary activities in Japan, including CBs, and we intend to expand our activity into ex-Japan Asia in the future. We believe, the acquired business with [its] strong presence in the secondary market, can also bring synergies to our expanding primary activities in Asia," said Kenichi Kanda, head of Tokyo PR.
Meanwhile, the Asian derivatives business, which operates out of Hong Kong, provides market-making services in listed Hong Kong warrants and generates customer flow business from the issuance of equity-linked notes and over-the-counter derivatives based on Asian equities. According to Hong Kong stock exchange data cited in the release, the unit is a consistent top three issuer of Hong Kong warrants and in the top five in terms of trading volume.
"This targeted business acquisition accelerates our development in product lines that we had planned to build up over the coming years, making these businesses an excellent strategic fit," said Dominique Blanchard, Daiwa's Hong Kong-based global head of derivatives. "Daiwa will now be home to a highly regarded convertible bonds trading platform that will enjoy synergies with the firm's primary origination business. Our newly acquired derivatives business, meanwhile, will significantly boost our equity capabilities as we build a high quality Asian derivatives platform across rates, fixed income, FX, and equity markets."
The new CB and equity derivatives businesses will both sit within Daiwa's global derivatives product line, which is headed by Blanchard. The businesses, which are profitable, have invested heavily in market leading analytics and will continue to do so under their new parent, Daiwa said.
According to Kanda, Daiwa Securities has hired about 100 people in Asia since it announced its plans to expand the headcount in the region to more than 1,100 from 650 at the time. Most of the new people have joined the global markets division. Daiwa said at a press briefing in November last year that it planned to make about 200 hires for its Asian brokerage business and 100 for the Asian capital markets side, as part of its headcount expansion.
The second largest brokerage in Japan, Daiwa is aiming to become one of the top five brokers in Asia ex-Japan by 2012 and seeks a top-10 league table ranking for Asia ex-Japan investment banks by March 2013, it said at the same briefing.
Daiwa Capital Markets was advised by London-based Grisons Peak on the KBC acquisition.