Best Bank/ Best Commercial Bank
Citigroup bestrides Asia like a Colossus, and if anything its reach grows deeper with each passing year. In our country awards this summer it won Best Foreign Bank in six out of 10 countries. In many countries it is the de facto benchmark that all local banks aspire to (and often try and hire staff from).
In every field - from derivatives, forex and debt through project finance, cash management and transactional services - it offers top quality service. Its relationships are longstanding, and its approach always innovative.
What has transformed the franchise in recent years is the way the old Salomon Smith Barney business has been integrated into everything that Citi does. It is this integration into a single platform that has created a powerhouse, which in 2003 finally started to get the respect it deserves.
On the investment banking side, Citi has moved into the top tier. Its position at or near the top of the league tables in ECM, DCM and M&A has confirmed as much.
This year its led the biggest Asian (and global) IPO, for China Life, took part in Asia's biggest ever bond issue, for Hutchison Whampoa, and advised on the biggest inward investment into a Korean financial institution, the Lone Star acquisition of KEB - which incidentally was also the largest private equity investment into Korea.
This is a franchise that is only going to get stronger. For its competitors we only have one thing to say: be afraid, be very afraid.
Best Investment Bank
This has proven the toughest year to decide this award. A key reason has been the nature of the year itself, which saw a deal drought in the first half, followed by a stampede in the second.
As a result, deals have come to market all the way into mid-December, a time when the markets are traditionally quiet. This also led us to be pragmatic and we literally waited till yesterday to finalise this award. Normally we would have made our decision several weeks earlier.
Four houses were shortlisted: Citigroup, Goldman Sachs, Morgan Stanley and UBS.
In the case of UBS it has had an excellent year in the debt markets, building a diverse and profitable franchise whose performance is somewhat distorted in the league tables by its absence from the Hutchison Whampoa bond deals.
Likewise, on the equity capital markets side, UBS has had a good year on the straight equity side, reflecting how its strong secondary equity platform has turned it into a key distributor for any equity offering.
However, on the M&A side, UBS is notably absent from most of the major transactions and the Dealogic M&A league tables (January 1 to December 15) did not feature UBS on either the top 10 for completed, or announced transactions. UBS probably has good business reasons for its strategy, but in our minds we can only award Best Investment Bank to a house that demonstrates strength in M&A as well as ECM and DCM.
Indeed, when UBS won our Best Investment Bank in 2001, one of the key reasons was its M&A work for OCBC.
In the case of Morgan Stanley, it has had a strong year picking out many of the key themes that have developed and adopting its strategy to the prevailing climate. It has been very strong in M&A, dominated in equity-linked and maintained a stable footing in DCM thanks to its 'elephant' deal for Singapore Power - although its debt franchise has been so focused on 'elephant' deals that it is prone to lumpy dealflow.
But, once again, there is something of a lack of balance. In spite of its late run of straight equity offerings (PICC, China Resources Power and Bangkok Bank) the firm - according to the Dealogic league table to December 17 - ranked eighth in the league table with issuance of $1.17 billion from six deals. That compares to league table leader, Goldman Sachs, which issued $3.72 billion via 15 deals.
If you look at all ECM, Morgan Stanley's position improves to sixth thanks to its dominant year in equity-linked. But equity-linked is a far less strategic product than straight equity (and becoming increasingly commoditized), so Morgan Stanley's low position in the straight equity league table counted against it in our minds for the Best Investment Bank award.
That left Citigroup and Goldman. Both had balance across all three product groups and the decision became exceptionally tough.
First we compared them on the basis of league tables sourced from Dealogic (to December 17). In all ECM (including equity-linked), the two were neck and neck. Citigroup was top with $4.077 billion versus Goldman in second spot with $4.035 billion - ie only about $42 million apart.
However, on straight equity, Goldman was top with $3.72 billion versus Citi in fourth place with $2.68 billion. This gives Goldman the edge on the more strategic product, but also points to its absence from the equity-linked area.
On the DCM side, the surprise is that Goldman holds a higher league table position than Citi. Goldman is third with $4 billion of deals versus Citi, which is fifth with just over $3 billion.
On M&A the picture is divided depending on whether you look at completed or announced transactions. Normally more attention is paid to the completed table because deals in Asia have a nasty habit of unraveling (for example, Hutchison's acquisition of a stake in Global Crossing). However, the announced table is not ignored.
On the completed transactions side, Goldman is third with $8.4 billion worth of deals, and Citi is fourth with $8.23 billion. Not much in that, clearly. On announced transactions, Citi is fourth again with $9.6 billion and Goldman is fifth with $7.2 billion. Somewhat mitigating this situation for Goldman is the fact that a number of the deals it has announced this year did not announce specific valuations - for example, because they were forming joint ventures in China. Likewise, it is already fairly public (though not in the league table) that Goldman will get around $5 billion of credit for the China Mobile asset injection, and $1 billion for the sale of Koram Bank.
Citi, of course, was supporting LG/ Carlyle on the Hanaro transaction and having lost that proxy contest to AIG/Newbridge gets no league table credit for all the work it put in there. M&A is a win or lose game.
However, on balance the league table standing of both houses is strong. So we decided to layer on an analysis of which of the two had gained most exposure to the big themes in 2003.
The key themes we came up with were China life insurance flotations; Hutchison debt offerings (a third of the debt league table); the re-emergence of Indonesia; bank M&A; the China manufacturing M&A story; Korean M&A; high yield bonds; and which had done more of the big ticket ECM deals (ie over one billion).
Citi beats Goldman on China life insurers (China Life), on bank M&A (Lone Star/ KEB, Fubon/ IBA) and on Korean M&A (two deals versus one from Goldman). On high yield debt it is basically a draw with both having launched four deals (Venetian Macau, Indosat, Hyundai Motor and Napocor for Goldman; Flextronic, Koram, and two deals for the Republic of the Philippines by Citi).
That therefore puts Citi three up.
However, thanks to its work with Thomson/TCL, DaimlerChrysler's China JV, 3com/Huawei and its help with Nokia's China reorganization, Goldman clearly wins the China manufacturing category - and bear in mind this is a story that will dominate the coming decade as European and US companies seek to move manufacturing to China, and Chinese companies seek distribution and brands in Europe and the US.
These deals will take the shape of the Thomson/ TCL deal. Goldman also comes out on top vis-à-vis Hutchison Whampoa having launched two bond deals to Citi's one (as well as having sold its European water business to Nestle).
On Indonesia, neither has been that active (houses like ABN AMRO, CSFB, ING or UBS are much more so), but Goldman did work on the highly successful Indosat bond issue, so has the better case.
The casting vote therefore appears to fall with which house has done the larger number of billion dollar equity deals. Here Goldman has three - Chunghwa Telecom, Bank of China, and TSMC (as well as an earlier TSMC block of $945 million). Citi has one clearcut billion dollar deal (China Life) and one, which is on the borderline and would be petulant to ignore (China Steel).
But all in all, Goldman wins on this score.
It is very close, whichever way you cut it, but Goldman has the edge. A bit like the recent titanic Rugby World Cup final this decision went to the final whistle. Goldman's late spurt with Bank of China's record secondary offering (for a bank deal) and its successful Hyundai Motor bond (which Citi and UBS had earlier had the mandate for) helped it across the line.
In sum, Goldman is not a conclusive winner this year, but by a narrow margin retains the award that it also won last year. It remains a formidable competitor.
It continues to benefit from repeat business from clients such as Hutch, Bank of China (HK), TSMC, Infosys, as well as sovereigns such as the Peoples Republic of China and Republic of Korea (on the bond side). It can also claim involvement in industry defining deals such as Chunghwa Telecom's secondary offering (a deal that many scornfully said couldn't be done), or on the acquisition by Far EasTone of KG Telecom to create the third big mobile operator (Taiwan is now almost unique globally with three players each having 33% market shares).
Its work on the $1.5 billion merger of Hyundai Petrochemical and Honam/LG created the largest ethylene producer in Asia and one of the largest globally.
It has done deals in eight out of 10 countries in Asia (missing out on Singapore and Thailand) and can take some credit for thought leadership in the case of Thomson/ TCL.
But it can take nothing for granted, and will know that to hold this award next year marks a formidable challenge, with its competitors gaining in strength all of the time.
Momentum House of the Year
We give this award to the house that is not yet in a position to win investment bank of the year, but from whose momentum we feel it will be in a strong position to win that award in the coming year or years.
The clear winner in 2003 is JPMorgan, and all the more so for all the pain and restructuring the firm had to go through in 2002.
The firm had always been strong in debt, and had built a track record in M&A. Likewise, its financial institutions group (FIG) was long a centre of excellence within the franchise.
However, the total absence of an equity capital markets business had proven to be the firm's Achilles heel. With the arrival of Nick Andrews from CSFB last year and Andrew Cooper's arrival from London, that began to change.
Early signs of life came at the very end of last year when the firm masterminded the consortium, which acquired a chunk of Chunghwa Telecom via the Taiwanese government's biggest ever divestment. It was a trade that had stared everyone in the face but only JPMorgan spotted it.
Here you had two big financial institutions (Cathay and Fubon) that required yield, and a government that could not sell stock in a company that paid an 8% dividend yield in the public markets. JPMorgan and its astute Taiwan head Carl Chien figured out that this was a trade waiting to happen.
So the new ECM team, which included syndicate head, Rupert Fane and Jonathan Back (who arrived from Goldman) entered 2003 ready to prove their critics wrong. This is exactly what they did, launching equity offerings from seven Asian countries.
In Korea JPMorgan led the field, leading managing four out of six international equity offerings - GDRs for Daewoo Shipping ($240 million), INI Steel ($107 million), Webzen ($97 million) and Kumgang Korea Chemical ($28 million).
In Indonesia the firm launched accelerated placements for Bank Danamon and Indocement and the $158 million rights offering for Astra. In Thailand, it got the Thai Airways deal off the ground (finally).
In Malaysia it launched convertible bonds for Star Cruises and Genting. In India it did a GDR for Ballarpur Industries and a CB for Sterlite. In Hong Kong it launched two CBs for Citic Financial and China Travel respectively.
And in Taiwan it launched deals for Cathay Financial (a $522 million GDR), Chi Mei (a $637 million GDR and $250 million CB), CMC Magnetics (a $141 million GDR and $135 million convertible), China Development FHC (a $310 million convertible) and a $96 million convertible for Promos Technologies.
Last year JPMorgan finished the year at 14th in the equity league table. According to the Dealogic table from December 17, it will finish this year fourth overall, with 19 issues and total volume of $3.65 billion. It has done 11 straight equity issues worth $2.35 billion.
This achievement in equities has been matched with another excellent year in M&A under the passionate leadership of Todd Marin. JPMorgan has been fighting it out at the top of the M&A league table with Morgan Stanley, and according to the Dealogic table we have used, it was second in both the announced M&A table (with $18.4 billion) and completed M&A (with $10 billion) only marginally behind Morgan Stanley. JPMorgan has worked on M&A transactions in 10 countries in Asia, which testifies to the breadth of its platform.
Both of our M&A deals of the year saw JPMorgan as an advisor - Hanaro/AIG/Newbridge and Shinhan/Chohung. Likewise it worked on the Hyundai Petrochemical/ Honam/LG Chemical deal; the sale of Neptune Orient Lines crude oil tanker business, American Eagle to MISC; and the sale of Harbin Breweries to SABMiller.
On the debt side, JPMorgan has demonstrated an ability to integrate its debt platform and divert its resources towards special situations, such as M&A deals. This is obviously a sweet spot from a fee perspective, as there are no bake-offs. In this category fall its loan financing for Hanaro, the W900 billion domestic ABS to finance Shinhan's acquisition of Chohung, and the $575 million 10 year step up five lower tier two issue for Wing Hang Bank (used to acquire Chekiang First Bank).
Likewise its bank capital efforts also came into play for Woori, Hana, OCBC and IBK.
It sovereign business also continues to be strong, with participation on the high profile $1 billion issue for China, as well as dollar and euro deals for the Philippines and multiple issues in both currencies for the quasi-sovereign KDB.
Add in high yield issues for names such as SM Prime and JG Summit, and you have a very balanced debt platform, which while not top of the league tables, has the potential to be back there again next year.
All in all, JPMorgan has come a long way this year. With the hiring of Charles Li from Merrill Lynch midway through the year and the use of Henry Kissinger as a big game hunter, JPMorgan will be hoping to fix the one gap in its ECM platform - benchmark China IPOs.
Borrower of the Year
If any award is easy or well deserved, then this is it. Only the churlish would downplay Hutchison Whampoa's phenomenal achievement re-financing such a large amount of debt during 2003 and doing so before interest rates started to move upwards.
At the beginning of the year, 66% of the company's then $23.2 billion gross debt was due within three years. It has now not only significantly termed out its debt profile, but also raised enough funds to re-finance more expensive debt and maintain its $10.8 billion liquidity cushion without having to monetize other assets.
Thanks to Hutch, the Asian bond markets had a record breaking year, with the company accounting for $9.5 billion of the roughly $33 billion raised. Every single one of its five deals set a record one way or another.
The company first came to market in February with a $1.5 billion transaction and has since re-opened it twice, creating the largest single tranche bond issue in Asian history. In July, it raised Eu1 billion through Asia's largest ever euro-denominated deal and in November, topped off the year with a $5 billion three tranche issue that marked the largest bond offering in Asian history.
With a seven, 10 and 30-year tranche, this last deal paid fees of respectively 40bp, 45bp and 87.5bp. Lead managers Citigroup, Goldman Sachs, HSBC and Merrill Lynch have much to thank the group for. But treasury officials also realized that paying standard fees would ensure the leads held spreads firm before the monster deal priced and maintain a stable aftermarket.
In many ways, however, the first $1.5 billion issue of February was the most important as it is the one, which safeguarded the company's market access after a difficult end to 2002 when a failed euro deal tarnished its reputation. Lead manager Merrill Lynch was certainly well rewarded for its efforts, netting nearly $30 million in fees.
After this deal, Hutch employed the clever tactic of getting banks desperate to win its business to buy deals outright, but at much tighter bid levels to secondary spreads. And in the case of Goldman's $1 billion issue, there were no fees at all.
Three deals on from its first transaction, Hutch was then astute enough to realize that appetite for bought deals was wearing a bit thin. It also saw interest rates starting to move upwards and knew that slow take-up for 3G services would have a negative impact on its spreads come year-end.
So in a clever end stroke, it decided to go for what one banker referred to as its silver bullet trade. In one swoop, the company raised $5 billion and re-financed the rest of its outstanding debt out to 2006. It did so by bringing all of its main relationship banks into the deal and being willing to pay a market clearing spread.
Best international financial law firm
Allen & Overy
Once again 2003 was a tough year for lawyers, with legal fees under continuing pressure as banks' margins got squeezed further. In such an environment law firms survive on their ability to work across the region and at the top end of the fee scale. Allen & Overy proved its resilience this year to out-perform stiff competition.
The bedrock of the firm is its expertise in banking and finance, and in 2003 the firm once again proved its mettle in this area, appearing on the team sheets of all the region's biggest project financings: it acted for CNOOC and Shell on the $4.3 billion Nanhai petrochemical project, the largest private sector project financing in Asia; it advised the project company on the Pusan Newport project, the first large-scale container terminal project in Korea; and it is working on the BLCP Ma Ta Phut project in Thailand.
The capital markets team struck several notable successes in the year. The team advised Merrill Lynch, Goldman Sachs and HSBC on three separate bond offers from Hutchison, and acted for joint leads Merrill and Deutsche Bank on the $300 million ICICI bond, India's first overseas offer for six years.
On the equity front the firm helped bring several new issuers to the market, including Hopewell Highway in Hong Kong and 7-Eleven in Thailand, and is working on the IPO of China Life. The capital markets team also advised the Thai minstry of finance on the Vayupak fund, a government scheme to invigorate the economy.
Structured finance has been a growth area for the firm's Asian practice since the hire of Ken Aboud in Singapore. Despite the downturn in securitization volumes in 2003 the firm nevertheless acted on some impressive deals, including DBS's $125 million Merlion CDO and Cheung Kong's HK$110 million Fortune real estate investment trust, both in Singapore. It also advised on Agricultural Bank of China's $57.5 million Golden Jade CDO, representing Lehman Brothers.
Ian Johnson, who joined A&O this year from Milbank Tweed Hadley & McCloy, has ramped up the firm's distressed debt practice, including a raft of work from Merrill Lynch on portfolio acquisitions from Huarong, Kookmin Bank, Hana Bank and KB Investment Corporation.
Best Private Bank
There are few individual awards that we devote as many manhours to as the Best Private Bank award. Our private banking award sees us visit five private banks and spend around three hours with each, first in a "get to know the client" meeting and then to present the investment proposal. This year we also sought independent advice on the quality of the estate planning that was offered by the banks.
As with last year, all of the shortlisted private banks made this a tough choice. But UBS again came out as winner.
The hypothetical client we created this year was a mainland Chinese entrepreneur of 40 from Chengdu who had just listed his company on the GEM market in Hong Kong. He wanted to create a safe nest-egg portfolio from the $8 million raised in the IPO, and use $1 million of it to buy Hong Kong property. He also needed advice on how to structure his assets - which included his 40% stake in the listed entity - and get help with repatriating dividends back to China for domestic investments.
While several of the banks came up with ideal structures that would help a local Hong Kong entrepreneur to deal with estate planning issues, what distinguished UBS was its deep knowledge of the local tax situation in China. Its concern was with the potential 45% worldwide (Chinese) income and capital gains tax the entrepreneur would face on future dividends and asset sales, and less with the problem of 15% Hong Kong estate duty.
It saw the former as the greater and more pressing concern and created appropriate structures that addressed both, using offshore companies and life insurance. It also addressed the dividend repatriation issue.
In line with the second objective, UBS also helped identify Hong Kong properties that might make good purchases in the current climate (as well as offering finance), and explained how this could also be structured within the overall estate.
The client's investment criteria for the remaining $7 million was dealt with in an intelligent way too. The roleplay client was designed to be of limited sophistication and had specified to all the banks that he wished to keep $4 million in very liquid, safe instruments, and put $3 million into a higher risk portfolio that aimed for 20% returns. UBS demonstrated how a better approach would be to create a lower-risk, blended portfolio of $7 million that would earn returns of around 9.15%. The client had it demonstrated to him that this was a similar overall return as to the split portfolio but with much lower risk incurred overall.
UBS's overall approach - including the many soft touches we expect from private bankers - was commendable. Plaudits particularly go to Frances Tsang for her knowledge of the China market and planning expertise.