Day 5: FinanceAsia Achievement Awards 2004 - Top Awards

We are pleased to announce the winners of the following awards: Best Bank; Best Commercial Bank; Best Investment Bank; Momentum House; Best Borrower; Best Private Bank; Best Financial Law Firm.

Best Bank, Best Commercial Bank


There is only one bank that is literally a contender for almost every single award that FinanceAsia gives out each year. It is the largest, most comprehensive banking institution in the world and one that has Asia firmly in its sights. Citigroup has even gone one further this year by winning our deal of the year for its acquisition of Koram Bank in Korea, moving away from its traditional strategy of growing organically and now becoming a major force in the ongoing consolidation of the Asian banking market.

In its traditional business of debt, Citi has been voted number one. It has one of the biggest and most balanced bond businesses of any bank this year and continues to dominate the loan markets in size, scope and appetite.

In particular, this is the year in which Citi has managed to get all its various debt businesses - G3 bonds, local currency bonds and loans - all working together. At long last the Salomon Smith Barney purchase has really begun to work.

In equities it has had a year of contending for a top five position, although it has not had as strong as last year. Its commercial banking and transaction banking franchises are as strong as ever, picking up our cash management house of the year award away from HSBC.

What makes Citi stand out is that it is the model to which other banks aspire. Strategically it is a leader, fulfilling the ideal of a universal bank. One only has to look at what Citi has done for the old Hyundai Electronics, now called Hynix and Magnacorp. Over the past five years, nearly every part of Citigroup has worked with this company, from public and private equity to M&A, to debt and restructuring. Given how much value has been created in the process, the private bank must have been involved as well.

It is this ability to be everything to a client that makes Citi so special. It is also why it generates so much interest. The bank will be the first to admit that this year has not been the easiest of years for Citi; in particular, it has notched up a series of scandals across the world, challenging its vaunted reputation as a seamless moneymaking machine. It has also had a few high profile defections in Southeast Asia, which have harmed its franchise. But, in a way, losing staff and having conversations with regulators is the price the bank pays for its dominance, a dominance that drives regulators and competitors to watch it with close scrutiny.

Citi's main competitors - HSBC, Deutsche and JPMorgan - are catching up with the bank, but it is a slow process. Citi still leads the pack from a position of unrivalled strength.

Best Investment Bank

Morgan Stanley

When we came to decide on Investment Bank of the Year in 2003, we thought the decision could not have got any tougher. How wrong we were. This year's decision has not only proven tough, but has been the toughest decision we have ever had to make in our end of year awards.

The only part that was easy was deciding early on in the process that it would come down to either Goldman Sachs or Morgan Stanley.

From that point onwards we have gone through a barrage of pitching from both firms, and heard some very clever arguments put forth by both banks.

Morgan Stanley entered the fray knowing that Goldman had won this award three years running and four times in the last five years. And by the end of a month-long pitch process, we could still see strong arguments for both houses right up until the last minute - when, inevitably, we were forced to make a decision.

What made this decision so tough was our sense that both Morgan Stanley and Goldman have had excellent years, but via slightly different approaches. Both have had successful years from the perspective of fees and profitability and Goldman will remember 2004 as the year it finally inked its joint venture in China.

But their strategies have been different - albeit equally valid. Goldman has dominated the equity capital markets and hoovered up more fees than any other firm in this business by a decent margin. It recognized the year would have a strong equity pipeline and orientated its business accordingly.

On the M&A side it focused its energies primarily on a few elephant deals that have nevertheless had a defining effect on the M&A year. On the bond side it had a very poor year - especially compared to 2003 and slid to the tail-end of the league table. Down below the radar screen its fixed income franchise was no doubt making good money in swaps and derivatives, but our award does not capture this part of the P&L.

Morgan Stanley, on the other hand, made a giant stride from where it stood when we were did our analysis in 2003. Last year it had done well in M&A, bonds and equity-linked, but was lackluster in straight equity. This time round Morgan Stanley had righted this imbalance, and in fact executed a greater number of equity transactions than Goldman (31 versus 29, although Goldman is ahead by volume).

What Morgan Stanley had achieved this year was a reasonable balance across all products. It could lay claim to a respectable second place in ECM, was top of the completed M&A league table, and on the debt side made a stronger showing than Goldman and was among the top houses by wallet share (with around $25 million of fees).

What we liked about Morgan Stanley's debt strategy this year was that while (like Goldman) it realized the Asian G3 bond business had been badly commoditized, it was able to redirect a key chunk of its resources to corporate high yield issuance, where fees remain strong if you pick the right issuer. And in doing so, it was still able to execute franchise deals such as its $750 million upper tier 2 bond for DBS.

All that said, we then dug a bit deeper into the numbers to compare the two. We added their accredited volume from debt and equity to their M&A advisory volume (the market practice is to give full value), and calculated that the volumes both had executed across the three product areas was roughly the same at about $20.5 billion. This only vindicated our view of how close the pair were this year - although we should clarify that when we did this we had factored Goldman's credit for the Link Reit into the assumption (which, in the light of events, was a tad premature).

Similarly when we did our own modeling of fees, it was remarkably close.

M&A credentials then became a key battleground - the Ohio of this campaign, as it were. Goldman's line of argument was that 2004 was primarily an equity year (and it had dominated), but when we looked at M&A we should consider that it had done the key $1 billion-plus deals on the M&A side such as Citigroup/Koram, and HSBC/BoComm. It had also just announced the Lenovo/IBM deal as our awards were entering their final lap.

Morgan Stanley had a longer list of completed M&A deals, and SingPower/ TXU, STATS/ ChipPAC, TMB/DBS Thai Danu/ IFCT were also strong M&A deals (with the former two being billion dollar-plus deals and the latter just shy of). Its M&A franchise had a broader look, and its announced (and near completion) pipeline was evidence of continuing momentum.

Principally it had four deals in this category that exceeded $1 billion in value, including the Doosan Heavy/ Daewoo Heavy transaction ($3.5 billion) and Telekom Malaysia/ Excelcomindo ($1.6 billion).

At this point we recognized we also needed to look a little more closely at ECM. Goldman was obviously a slamdunk in league table terms. But equally, Morgan Stanley could argue that both it and Goldman were neck-and-neck in IPO volume - and that IPO is the most difficult part of the ECM business.

Moreover, Morgan Stanley could point to its involvement in landmark IPOs for the year - such as ONGC, Ping An, TCS, and Thai Oil. Moreover to execute LG Philips LCD it had to work with Korean regulators for two years to secure changes to the listing rules that would allow for the first ever concurrent domestic and US-dual listing.

Likewise, its innovative domestic block trade for Shinhan has effectively changed the way equity blocks are done in Korea since - and hence won our Most Innovative Deal category. And its IPO for Mengniu Dairy was a textbook example of a small, but perfectly executed equity transaction defeating choppy markets.

Thus when we came to make our final decision we faced two compelling lines of argument. Morgan Stanley was able to make the case that it had a very successful year and also a very "balanced" year. Morgan Stanley could also point out that it had also executed transactions in India, Korea, Thailand, Taiwan, the Philippines, Indonesia, Singapore, Hong Kong, Malaysia (the Petronas disposal of Energy Africa) and China (11 equity transactions, plus the country's first hostile takeover).

Morgan Stanley was obviously mindful when it made its case that FinanceAsia had always stressed the importance of balance in every previous year. It was a very smart line of argument.

That's because if we were to give Goldman the award we would have had to ditch our previous core methodology - which required "balance" - and make a whole new case based on Goldman's picking its spots well, regardless of "balance".

Ditching a five-year old methodology - even in the face of a compelling argument - is tough to do. So even though we recognized that both firms have very successful years, we finally decided that this year the award goes to Morgan Stanley.

Momentum House

Merrill Lynch

Merrill Lynch left no one in any doubt of its intentions in the opening days of 2004. On January 7 it stormed the capital markets with a concurrent equity offering and exchangeable bond on behalf of Temasek - based on its stake in SingTel. Not only was the $1.37 billion deal large, but it was also well received by investors. This was no mean achievement on Merrill's part, since previous Singapore government-linked transactions in 2003 had received a barrage of criticism for aggressive terms, poor execution and aftermarket performance.

So Merrill started the year with a big, successful deal for Temasek (surely one of the most important investment banking clients in Asia today) and left the competition wondering, "Where did that come from?"

It was the first, but by no means the last, example of Merrill gustily calling the market correctly this year and being well rewarded for its instincts. Its IPO for China Power reignited the China IPO sector after a lackluster four months where deals struggled to get done after investors became gripped by hard landing fears. China Power was also the first of China's major IPOs to be sole-led (ie not include a domestic firm).

The ability to win sole books is a very good reflection of competency, confidence and trust. Merrill Lynch led five of its 14 equity deals this year, and did not get stuck with any struggling transactions, which is a remarkable achievement given how bad the middle part of the year was.

In fact, during the height of August - traditionally the toughest month to execute large IPOs - Merrill participated in the successful IPO of TCS from India.

Merrill's roster of landmark deals this year include the privatizations of ONGC ($2.36 billion), and Thai Oil ($788 million), the KT&G block ($346 million), the massively oversubscribed $1 billion offer for Air China (a mandate that many thought would trip Merrill up), the successful selling of the Airport of Thailand Authority's story (another deal that could have gone horribly awry) and the highly successful small-cap IPO for Biocon ($70 million).

On the debt side, Merrill has re-affirmed its seriousness about being a major player with the hire of Rod Sykes, who joined as an MD. The direction he is taking the firm in can be seen via Merrill's successful participation in the corporate high yield bond for Panvas Gas ($200 million). Likewise, Merrill has managed to win key prestige lead management roles in the China MOF's global bond and the Hong Kong SAR's inaugural $1.2 billion sovereign bond.

And as the year closes, Merrill has shown its continued momentum with M&A roles on the Lenovo IBM deal and on the sale of Jinro, which is likely to be one of the hottest M&A deals of next year's first half.

Bearing all this in mind, Merrill was a natural candidate for Momentum House of the Year. And it seems all the more appropriate given that the firm's new Asian head of debt and equities, Ian Carton is known as the 'Momentum Man' thanks to his obsession with building momentum in deals. As such, we believe Merrill enters 2005 as a house to watch.

Borrower of the Year


Kexim was the bankers' choice for this award in 2004. Not one market professional had a bad word to say about Kexim and even those houses, which didn't work on any of its deals thought it deserved the award.

Much of this credit can attributed to the bank's self-effacing funding head Sung-Uk Hong. Bankers consider him one of the most rewarding clients to work with, though clearly not in terms of fee renumeration. Hong and his team are credited with being able to listen to advice, judge market conditions and not subject lead managers to interminable pricing meetings just for the sake of it.

As such the team has used best advice and its own accumulated market expertise to devise and an extremely astute funding strategy that has paid off spectacularly in 2004. At its heart this strategy has been about positioning Kexim as Korea's proxy sovereign borrower in place of KDB.

This was not that easy in the context of its asset size, which is far smaller than KDB and its shorter trackrecord in the international bond markets. In the years following the financial crisis Kexim was completely absent from the market and only returned in November 2002 with a $500 million five-year transaction that priced about 3bp to 5bp wide of KDB.

Throughout 2003, Kexim traded on average about 10bp wide of KDB but had ambitions to reverse this in 2004. It bought its first deal 0f 2004 in early February just before markets became very difficult to access.

It raised $1 billion from its first US-targeted 144a deal led by Barclays, Citigroup and UBS. The deal had a five and a 10-year tranche, both of which saw more than 50% of paper placed in the US.

Then in mid-April it really showed its mettle with a $300 million tap that achieved the bank's cherished aim of pricing through its rival. A $150 million tap of its 2009 bond came about 1bp through KDB on a like-for-like basis and a $200 million tap of its 2014 bond came about 3bp inside. Lead manager was UBS, with whom it has always had a close and fruitful relationship.

At the time Hong said that he had spent two months monitoring the relative spread levels of KDB and Kexim, watching the differential get ever tighter. At the point he saw Kexim trade through KDB, he knew it was time to launch a deal and chose a tap because the pricing points were out in the market. Had he opted for a new bond Kexim might have ended up in a lot of unwanted discussions with investors about where Kexim should price relative to the KDB curve.

Aside from Kexim's strategic aims with the trade, it was also well executed. Treasury yields had spiked and investors were keen to lock in higher yields while they could. Swap spreads, however, had been quite stable meaning that Kexim was able to lock-in very attractive Libor funding on a post swap basis.

Kexim was back in the market again in August with a $500 million five-year via Barclays, Citigroup and UBS. Again the bank was able to price through KDB, re-affirming its new status and showing that the April trade was not a one-off.

Finally in late October, Kexim topped off the year in some style with a Eu300 million FRN via ABN AMRO and Deutsche Bank. It saw that a euro-denominated deal with an FRN structure and a five-year maturity represented the sweet spot of the market.

An FRN made sense at a time when investors were increasingly looking for more defensive instruments in a rising interest rate environment, while the five-year part of the curve was attracting buying interest as it caught up with the long end.

But the true skill was choosing euros and making an opportunistic decision to benefit from the momentum created by China's large market-defining euro deal with a transaction of its own. Its deal built up a large order book and enabled Kexim to price through its dollar curve as well as KDB.

So it ends 2004 with the satisfaction of never having put a foot wrong and achieving all its strategic and pricing ambitions. Throughout the year it has shown versatility and skill, with a series of well priced, well timed deals that make this award a given.

Best Private Bank


As in previous years, shortlisted private banks were asked to prepare a portfolio and wealth structuring solution for a hypothetical client.

This year the hypothetical client was a Korean investment banker, with a sophisticated understanding of financial products. The individual in question would receive three $3 million tranches of a guaranteed bonus after a recent career move, and wishes to retire in 2013 on W560 million per annum.

He wished to receive all pitches electronically as he had no time to visit the various private banks. He owns his own house, has life insurance for his spouse, and would not touch the bonus money before 2013 ie this was a purely discretionary mandate.

As ever, UBS came back with excellent advice on the range of possibilities. The bonus payments would be subject to income tax of 38% so, two scenarios were prepared - one where the income tax is paid from the sum in question, and one from the banker's other funds.

UBS suggested the use of a variable annuity insurance policy. This would mean that the income generated from the funds would be free of Korean tax, provided there were no withdrawals for 10 years. Since that would mean the first withdrawal in 2015, and the mandate was for income to start in 2013, UBS proposed a loan structure to pay the W560 million in those two years, with the portfolio as collateral.

UBS's portfolio assumed the Korean client would live to 85 (the average Korean man's lifespan is 75.55 years) and since the client intended to spend at least nine months a year in Korea, implemented a currency hedge to guard against a strengthening Korean won versus the dollar.

The presentation of the portfolio and the philosophy behind it was excellent, and allowed the client - who was designed to be sophisticated - to analyse the portfolio's future cashflows for the next 35 years and see how the portfolio would have performed in various "disaster" years we have experience (ie percentage of loss or gain).

Another swing factor for the client in choosing UBS was the demo the Swiss bank created to house the client's portfolio on its client website. This website allows the client to remotely monitor the portfolio's performance and analyse all of UBS's research and ask questions of relationship managers via an encrypted email system.

The client thought this would be a very useful tool since he was too busy to talk to his RM all the time and would only be in Hong Kong rarely, making this option a good way to monitor the portfolio remotely from Seoul. The client liked the website's ease of use, as well as its security.

Apart from the standard username and password, the client gets a digital encryption key that produces a unique login number every 30 seconds. Besides he felt comfortable that the website was a monitoring and research tool and that money could not be transferred using it, which was his prime concern.

Best Financial Law Firm

Freshfields Bruckhaus Deringer

These past few years have been tough for international law firms in Asia. Banks can always turn a buck one way or another, but law firms totally depend on market activity to fill their partners' pockets. So the steady flow of deals from China in 2004 came as blessed relief.

Freshfields Bruckhaus Deringer, known back in London as a corporate powerhouse, surged into China on the back of numerous bank roles. But China wasn't the only string to its bow. The firm worked on a fair spread of deals across the region, and across the practice areas we focus on: capital markets, M&A, structured finance and project finance.

It picked up the coveted underwriter mandate on equity offers from China Mengniu Dairy, China Power, Tencent, SMIC and Sinotrans, and on the bond offers from Techtronic and Excelcomindo. Only Allen & Overy had a comparable run of securities deals in 2004, with roles on the IPOs from Gail in India, Thai Oil and Air Asia, and a number of impressive bond mandates: the Pakistan sovereign, ICICI's cross-border offer and Kogas.

The firm's M&A team also advised on some headline-grabbing deals that closed in 2004. It represented Anheuser Busch on its successful takeover of Harbin Brewery (fittingly, perhaps, Allen & Overy advised the failed bidder, SAB Miller).

The team advised HSBC on its acquisition of a stake in Bank of Communications and worked on the reorganizations of China Telecom and China Unicom. It is also working on a high-profile merger in Hong Kong.

The securitization team advised on the structuring of HKMC's ground-breaking deal, which included a rare retail offer, the Samsung Card deal in Korea, Aeon in Thailand and it advised a monoline insurer on several other credit card deals in Korea.

The project finance practice was involved in the acquisition of Meiya Power by BTU Power, IFC's acquisition of six China Green power projects and advised the export-credit agencies on the Nanhai Petrochemicals project.

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