BEST BANK
Bank of Tokyo-Mitsubishi UFJ
These are tough times for Japanese banks and they are hardly getting easier, but Bank of Tokyo-Mitsubishi UFJ, Japan’s biggest bank, remains a domestic titan and a formidable competitor. Most of Japan’s banks have anticipated new regulatory capital requirements by bulking up on new capital, and BTMU has made good progress elsewhere, such as improving operational efficiency, selling off its costly strategic equity holdings (or at least hedging them better) and improving returns to shareholders. All this has already seen profits increase across the board and one of its strategic focuses now is to pursue a regional strategy of network expansion in China, growth of its transaction banking franchise across the region and greater integration with Union Bank in the US. That kind of international focus and ambition is what sets BTMU apart from its rivals.
BEST INVESTMENT BANK
Nomura
Nomura dominates Japan’s securities houses thanks to its famed ability to turn an ordinary deal into a hot deal by leveraging its retail franchise. The Lehman acquisition has given Nomura a strong global investment-banking footprint, but the deal did not include the US operations and scaling up in the states has come at a cost. Even so, in Japan there is no doubt that Nomura’s relationships and its appetite for local risk are second to none. It is competitive across the board — indeed, it is dominant in most sectors. Its market share in IPOs, for example, is unassailable. It advised on both jumbo IPOs during 2010: Dai-ichi Life and Otsuka. In the secondary market, it advised on Inpex, as well as the ¥1.1 trillion offer from Mitsubishi UFJ and the ¥1 trillion deal from SMFG. It also advised on the biggest M&A deal in the market, the ¥12 billion Nippon Mining/Nippon Oil merger, as well as the biggest private equity deal, the biggest samurai, the biggest equity-linked deal and the biggest securitisation. And it backed up all these landmark deals with a whole book full of smaller deals.
BEST FOREIGN INVESTMENT BANK
J.P. Morgan
Last year, we felt that J.P. Morgan had benefited from the disarray among its competitors. While the big international investment banks struggled with problems at home, J.P. Morgan successfully stepped up to the plate and won market share. This year, while the others have come back strongly, J.P. Morgan has managed to maintain its momentum, though it wins this award by a much thinner margin this year. Standout deals for the bank in Japan included the Inpex follow-on in the equity market, KDDI’s ¥362 billion equity participation in J:COM and Mitsubishi Corp’s $500 million bond (a deal that Morgan Stanley didn’t get a role on despite its family ties). In the league tables, it was the leading foreign adviser on M&A, second-placed foreign adviser behind Goldman Sachs in equity and had a solid performance in the international bond tables.
BEST M&A HOUSE
Bank of America Merrill Lynch
Bank of America Merrill Lynch has a classy M&A business in Tokyo and that is reflected in the kind of clients it works for and the breadth of its practice. It is not always top of the league tables, and wasn’t quite this year, but the calibre of its work is consistently top drawer. It was the exclusive adviser to Shiseido in its $1.7 billion acquisition of Bare Escentuals, which was a rare example of a Japanese company taking the lead in seeking out a US public company rather than just reacting to an auction. It also advised Nippon Mining on its $12 billion merger with Nippon Oil, which was the biggest deal in the exploration and production sector in Japanese history, and Nipponkoa on its ¥422 billion merger with Sompo Japan. It also acted as an exclusive adviser to blue-chip Japanese companies such as Toshiba and Kirin, and even had a role on the other side of the Astellas/OSI merger, advising OSI in the US.
BEST EQUITY HOUSE
Nomura
As lead managing underwriter, Nomura managed 16 out of 22 IPOs in 2010 — to put it another way, Nomura had a lead role on three-quarters of Japan’s IPOs last year. Of the eight ¥100 billion-plus deals that came to the market, Nomura was a bookrunner on seven. With such dominance, it hardly needs to be said that Nomura tops the tables for both Japanese IPOs and secondary offers, with roles on landmark deals such as the IPO of Dai-ichi Life, the biggest IPO in Japan in more than 10 years; Inpex’s follow-on, which is the third-biggest oil-and-gas capital raising in history; and was the only bookrunner on Tokyo Electric Power Company’s $5 billion of equity capital raising. Overall, the bank continues to be the most active and consistent underwriter in the Japan market.
BEST EQUITY BROKERAGE HOUSE
Nomura
Nomura’s dominance in Japan’s equity market is closely connected to its phenomenal brokerage capabilities. It has a roughly 15% market share on the Tokyo stock exchange and is by far the leading research house, selling research on Japan to clients and investors around the world. The addition of the Lehman staff has given Nomura’s equities team a truly global execution platform, with structured and flow derivatives capability, and a market-leading quant prime broking business. Nomura’s scope and scale in equity brokerage is huge. Its research covers more than 1,000 stocks across Japan and Asia, and its electronic platform is quickly rivalling the leading international players.
BEST ELECTRONIC EQUITY BROKERAGE HOUSE
UBS
Competition for this award was higher than ever this year. After a full year of operation for the stock exchange’s new Arrowhead trading system, every broker in Tokyo was keen to pitch their suite of algorithms, their unique pool of liquidity and countless fancy-sounding bits of technology. To be honest, it is difficult to assess, just as it is for clients — though they are in the fortunate position of not having to choose; they can (and do) use more than one provider. As electronic systems become more commonplace, it is hoped that a bit more transparency arises to help clients make better decisions. With such a confusing marketplace, UBS’s globally integrated pool of liquidity is an easy choice. It was a pioneer in direct market access and algorithms, and is the only bank in Japan to have the darkness of its dark pool audited by an outside firm. Success in electronic trading is largely about committing the money and resources, but the challenge is to spend that wisely and in a way that increases liquidity in the pool and the functionality of algorithms, for the benefit of clients rather than internal prop desks. This is where UBS really stands out — its focus on clients and responsiveness to client needs.
BEST BOND HOUSE
Daiwa
In Japan’s bond market, Daiwa edged its rivals this year and was the only bank to manage two ¥100 billion-plus deals for Japanese companies — one for Daiwa House, an unrelated company that is Japan’s largest homebuilder, and also a ¥130 billion deal for SoftBank. In 2010, the bond market started to recover some of the traction that had been lost after the Lehman collapse and Daiwa took the lead in reopening the primary market for consumer finance with its deal for Acom, as well as market-reopening trades in construction, for Kajima, and in the Reit sector, for Nippon Building Fund. Daiwa was also ranked first in the domestic Reit league table and was the first arranger of Reit bonds targeting Japanese individual investors.
BEST SAMURAI HOUSE
Mizuho
It was a strong year for Mizuho in the samurai market, having advised on most of the big deals, as well as topping the league tables overall. It advised on the ¥150 billion deal for Mexico, as well as on a raft of jumbo deals for financial issuers such as Barclays, Credit Suisse, Westpac, National Australia Bank and Rabobank. It also advised on the ¥100 billion corporate issue from Wal-Mart. All in all, those deals more or less make up the top-10 samurai deals of 2010, which helps to explain how Mizuho topped the league tables for the year with a 20% market share.
BEST FX HOUSE
Deutsche Bank
Deutsche Bank is a formidable player in foreign exchange globally, and one that other banks try to emulate. The bank increased its headcount in 2010 by almost 10%, while some foreign competitors in Tokyo have been forced to cut back to focus on home markets. Deutsche also continues to expand its first-class electronic trading platform, Autobahn, with a reported 20% increase on its tech spend. That investment has allowed the bank to add functionality, such as electronic trading of options and a streaming volatility product that has seen interest explode recently. Most important, Deutsche strings its FX business together in a coherent way, offering service across the spectrum, from the electronic platform for flow business, through to highly tailored deal-contingent solutions for the bank’s M&A clients. It is also the market leader in building the asset side of the FX business, allowing clients to invest in foreign exchange as an asset class. All round, Deutsche is a strong leader.
BEST SECURITISATION HOUSE
Nomura
Securitisation is another business that Nomura dominated in 2010. It was the leading bookrunner on Japanese asset- and mortgage-backed deals, as well as the leading bookrunner on the Japan Housing Finance Agency’s residential mortgage securitisation programme. Despite the slow securitisation market since the financial crisis, Nomura closed some significant deals during 2010, including a privately placed ¥5.45 billion commercial mortgage deal, and still managed to innovate. The ¥70 billion kikin-funding securitisation for Sumitomo Life was a Japan-first for publicly offered bonds, while the ¥30 billion securitisation programme for Aeon Credit Service was the first time a Japanese securitisation deal had been rated based on a self-entrustment scheme.
BEST STRUCTURED PRODUCTS HOUSE
Deutsche Bank
Deutsche’s derivatives platform is outstanding, both in Tokyo and around the world. Unlike a great many of its peers, Deutsche’s management remained relatively stable through the financial crisis and that has helped it to come back even stronger. It has successfully built its equities business and, towards the end of last year, it combined the corporate and investment bank, bringing together global markets and global banking, across Japan and Asia. It has also improved risk management and controls. As for most derivatives houses, 2008 was a nightmare, 2009 saw re-building and 2010 saw that restructuring put to the test. Deutsche passed that test, while some of its competitors fell apart. When others quit Tokyo, Deutsche kept a full team on the ground and has resisted the temptation to regionalise its derivatives and structured products business out of Hong Kong.
BEST ISSUER
JBIC
Japan Bank for International Cooperation and Development is the international arm of Japan Finance Corporation, set up in October 2008 after the merger of four policy-based financing institutions. JBIC is the most frequent government issuer and raised $5 billion from three transactions in 2010. More significant, JBIC has changed the way that it issues bonds to be more responsive to investors and more opportunistic in its funding. In the past, it had never issued a benchmark deal at less than five years, but in 2010 it raised $2.25 billion of two-year money. Clearly, the need to go for short-dated issues stemmed from market conditions, which made it challenging to launch benchmark-sized deals at long tenors. Even so, JBIC also managed to raise $1.5 billion of five-year money in 2010 in the biggest-ever Japanese government-guaranteed deal at that tenor. It plans even more issuance for 2011 so should be a strong candidate for this award again next year.
BEST CASH MANAGEMENT HOUSE
J.P. Morgan
Already firmly established as the dominant cash management player in the financial institutions (FI) segment in Japan, 2010 was the year in which J.P. Morgan started repositioning its global corporate bank to focus on corporate clients. In Japan, this has resulted in business wins for cash management services from local subsidiaries of non-Japanese multinational corporations (MNCs), despite intensive competition from some other international banks. Leveraging off existing relationships with MNCs at headquarters level, the bank is rolling out local capabilities and playing off client requirements to simplify banking relationships. Well capitalised and boasting a global footprint, the bank was awarded a foreign bank agency licence from the Financial Services Agency in January 2010. It has also added new staff across Asia and the globe, including Japanese speaking specialists in key hubs in Europe, the US and Asia-Pacific. J.P. Morgan remains the top US dollar clearer in Japan with a 38% market share. It is also one of the largest payments processors in the world and is a leading provider of FX services in the market. Additionally, it also has significant relationships with most Japanese banks including the megabanks for advanced cash management services.
BEST TRADE FINANCE HOUSE
HSBC
The sharp growth of HSBC's trade-related assets in 2010 has helped its trade finance business bounce back to almost pre-global financial crisis levels, despite an increasingly competitively priced market in Japan. The number of forfaiting contracts registered by the bank spiked in 2010, while the number of letters of credit (LC) confirmations also rebounded during the same period. On the product front, the bank has responded to increasing demand from customers trading with emerging countries with competitively priced risk-hedging products, and is prepared to take more risk than most other banks on cross-border transferable LCs issued outside of Japan. It is also able to tailor forfaiting services for irregular LCs to suit customer requirements. Extensive marketing and intensive sales of risk-hedging products have netted the bank new customers which HSBC services from a global network of about 8,000 group sites spread across 87 markets. Thanks to this international presence, the bank is able to service both domestic export clients and their overseas trade counterparts.
BEST DOMESTIC FINANCIAL LAW FIRM
Nagashima Ohno & Tsunematsu
In Japan’s capital markets, Nagashima has long been a stand-out legal adviser. In 2010, looking at the firms that advised on the key deals of the year, it once again edges the competition as the most trusted adviser to Japan’s financial industry. Mori Hamada & Matsumoto runs a close second, by our reckoning, but Nagashima wins out for its role on some of the most complex transactions of the year. Deals it advised on included jumbo equity and debt deals for SMFG, the highly tailored Kenedix global offer (which won our most innovative deal award), the Sumitomo Life kikin-funding securitisation, as well as advice on the restructuring at both Japan Airlines and Aiful.
BEST FOREIGN FINANCIAL LAW FIRM
Linklaters
This is always a difficult award to give. Linklaters has a rounded practice in Tokyo that offers a full-service to both Japanese and international clients, which makes it difficult to compare to the more niche Wall Street firms that make a specialisation of advising on landmark securities and M&A transactions. Simpson Thacher & Bartlett had an outstanding year in 2010, winning some of the most prized mandates in the market, but it is difficult to ignore the huge amount of deals that Linklaters takes on below that landmark level, though it too is no slouch in winning big deals. It advised on Mitsubishi’s eurobond, the Kenedix offer, SMFG’s global equity offer and the £2.1 billion NTT-Dimension Data merger. However, it also worked on a plethora of smaller deals across all asset classes and industry sectors, showing a commitment to service in Japan that marks it out as the country’s best foreign firm.
Turnaround of Japan Airlines by ETIC
Advisers to ETIC: Deutsche Bank, Nomura
Just before Japan Airlines became the country’s biggest-ever corporate bankruptcy, many feared yet another failed intervention by the Japanese government. Four separate bailouts in the previous decade fooled few people into believing that JAL had miraculously become profitable. By the time of its bankruptcy, it owed ¥2.3 trillion ($27 billion) and was losing more by the day thanks to a bloated staff, a tangled web of unprofitable routes and an ageing fleet of aircraft. But, with the creation of the Enterprise Turnaround Initiative Corporation of Japan, in October 2009, JAL became the first company to get its support. The turnaround plan involved ETIC taking out all of the existing shares and gaining complete control of JAL, accompanied by a ¥350 billion capital injection. During the complex negotiations with equity holders, debt holders and the government, ETIC and its advisers secured a debt waiver on 87.5% of JAL’s unsecured capital (around ¥522 billion) and proposed a business reorganisation that involved rejuvenating its fleet with more modern and fuel-efficient planes, closing 45 unprofitable routes and cutting a third of its 50,000 staff — and, all the while, managing to keep JAL flying. It was a long but extremely successful journey. Before ETIC got involved, JAL had considered asset sales, discussed capital alliances with other global airlines and won loans of ¥100 billion from the government and the big Japanese banks, but all to little avail. Only when ETIC came in did JAL start to turn the corner. The decision to take JAL to bankruptcy court and to successfully negotiate a wholesale reorganisation plan represented a landmark moment in Japan Inc’s history. Meddling government officials have seen that even the biggest companies can be saved without their help and, for managers, some of the stigma associated with bankruptcy has been erased. In light of the continuing nuclear disaster, it might also provide a roadmap for saving Tepco.
BEST IPO
Dai-ichi Life’s ¥1 trillion IPO
Bookrunners: Nomura, Mizuho, Bank of America Merrill Lynch, Goldman Sachs
On the face of it, this was an easy decision. There were only two jumbo IPOs during the year and the Dai-ichi Life Insurance offer was around five times bigger than Otsuka’s — indeed, at ¥1 trillion ($11 billion) it was Japan’s biggest IPO since NTT DoCoMo in 1998. But there was plenty of criticism of Dai-ichi’s deal. It was big, to be sure, but demutualising a life insurer is not exactly ground-breaking and the deal traded down 35% in the aftermarket. Otsuka, on the other hand, was a challenging deal that involved selling a difficult patent story that, although dwarfed by Dai-ichi’s, was nevertheless the biggest corporate IPO in Japan for a decade. Getting the deal done was certainly an achievement given the confusing corporate story, but that also hurt its chances of being rated the year’s best IPO — Otsuka was a hard sell because its long-term direction is so unclear. Dai-ichi’s IPO, while it might not have broken the mould, introduced a solid new stock to the market. The deal did perform poorly in the aftermarket, but it had recovered and was trading above its IPO price by the time the tsunami struck. With so many policyholders looking to cash in, the deal was always likely to face huge selling pressure in the wake of the IPO. Size isn’t the only or even the most important consideration in judging this award, but when deals are this big they are hard to ignore. The leads took the deal on a marathon 11-day global roadshow, meeting 170 institutional investors and eventually placing the shares to more than 400 accounts. Total demand reached ¥2.5 trillion. All in all, Dai-ichi’s landmark deal is the one that will be remembered.
BEST SECONDARY EQUITY OFFERING
Inpex’s ¥542 billion follow-on
Bookrunners: Goldman Sachs, J.P. Morgan, Mizuho, Nomura
In a year when yet more financial institutions raised ever more capital, Inpex’s ¥542 billion ($6.2 billion) secondary offer stood out as a landmark deal from Japan’s industrial sector. It was the first time Inpex has raised primary capital since listing in 2004 and was the second-biggest follow-on since DoCoMo in 2001. The jumbo bank deals from SMFG and Mizuho were bigger, but Inpex was huge in its own right — the biggest follow-on ever in the global oil-and-gas industry. It was by no means a straightforward offer, as the deal priced in the wake of BP’s oil spill in the Gulf of Mexico and against the backdrop of a strengthening yen, which poses a threat to Inpex’s predominantly overseas earnings. The leads took the company’s equity story on a six-team global roadshow, meeting with 137 investors in one-on-ones, plus nine group meetings. That work paid off, letting Inpex price at the top of its indicated range for a 3% discount. The company is using the capital it raised to fund a ¥4 trillion spending plan, in particular for its Ichthys offshore liquefied natural gas project in Australia.
BEST M&A DEAL
Astellas Pharma’s $4 billion unsolicited acquisition of OSI Pharmaceuticals
Advisers to Astellas: Citi
Advisers to OSI: Bank of America Merrill Lynch, Lazard, Centerview Partners
Astellas Pharma’s acquisition of OSI Pharmaceuticals was the first successful unsolicited offer by a Japanese company for an overseas firm. But this deal was most unusual for the surprisingly good sense it made — not an overly common trait in Japan’s history of overseas M&A. Astellas is Japan’s second-biggest pharmaceuticals company by revenue with strong platforms in urology and immunology. Its clear goal before the deal was to move into the oncology industry to expand its product portfolio and pipeline. OSI fit the bill neatly with its top-tier oncology business in the US, led by Tarceva, a leading cancer medication, and bolstered by several promising products in its pipeline. OSI’s board rejected Astellas’s initial unsolicited tender of $52 a share, but after negotiations Astellas secured the deal at $57.50 a share, representing a 55% premium to the share price before the announcement. The market has reacted well to the deal and it seems to have helped create real value for shareholders, which is testament to a well thought-out and well executed acquisition.
BEST PRIVATE EQUITY DEAL
Coca-Cola West's $751 million acquisition of Q'sai
Adviser to Coca-Cola West: Nomura
Adviser to the sellers: Daiwa Securities Capital Markets
This deal, which was the largest private equity trade in 2010, captured a trend of regional acquisitions in Japan, as part of the economy’s perceived need for consolidation to counteract slower domestic growth. Both Coca-Cola West and Q’sai are based in Fukuoka, in western Japan, and have many customers and consumers in common — Q’sai is well-known by Japanese consumers for its "green juice" — a supposedly healthy beverage made from kale, which is less delicious than oranges but high in nutrients. It is sold in powder form to TV and online shoppers. Selling to Coca-Cola West, Japan’s biggest Coke bottler, provided an attractive exit for Daiwa Corporate Investment, Polaris Capital Group and Japan Investment Partners, which bought the company in 2006 for around ¥60 billion. Coca-Cola West paid ¥36 billion for 100% of the equity and a total of ¥64 billion, including debts.
BEST INTERNATIONAL BOND
Mitsubishi Corp’s $500 million five-year bond
Bookrunners: Citi, J.P. Morgan
International bond issues from Japanese corporates are few and far between, so this deal was a rare highlight for a market that is typically dominated by financial institutions and agency borrowers. Indeed, it is Mitsubishi’s first US dollar-denominated bond in 25 years. More significant, the company is keen to become a frequent dollar issuer — and it has since returned with an even bigger and tighter deal than this five-year $500 million offer. But the success of that issue rested on the execution of this first one. Certainly, there was no shortage of demand. The mandate was announced in Hong Kong on the morning of September 8 with guidance of 150bp. By the time London opened, the guidance level had tightened to 135bp to 140bp and, even so, still generated an order book of $4 billion, allowing Mitsubishi to price at 135bp at the end of the day. With such strong demand, the biggest challenge for the leads was allocation — it had orders from 180 accounts and Mitsubishi was not interested in upsizing the deal. Instead, it looked after Asian investors first, with 80% of the deal staying in the region. As the deal that re-established Mitsubishi’s credentials in the global debt market and showed the way for other Japanese corporates, this transaction stood out.
BEST EQUITY-LINKED DEAL
UniCharm’s ¥80.5 billion dual-tranche CB
Bookrunners: Morgan Stanley, Nomura
The success of this deal lay mainly in UniCharm’s strong equity story. On the back of strong business growth in emerging markets, the company — which makes feminine products, infant and adult diapers, and also has a strong pet care business — posted record earnings for financial year 2009 and used the proceeds to finance its ¥66 billion buyout of subsidiary UniCharm Petcare. Thanks to the market conditions and its record-high share price, the company was able to use convertible bonds to get low-cost funding at zero coupon, with minimal dilution of around 5% thanks to a conversion price set at a level above the company’s highest-ever share price since listing. Although the company enjoys a good reputation and a solid equity story, markets were slightly nervous at the time of the deal. In the end, with almost 100 accounts taking part in the deal, both tranches priced at a premium of 19.12%, after guidance of 18% to 28%, and traded up slightly in the aftermarket, suggesting a deal that was priced at just the right level.
BEST SECURITISATION
Sumitomo Life's ¥70 billion five-year kikin funding
Arrangers: Nomura
With investors looking closely at Sumitomo Life’s regulatory capital, Nomura structured an early redemption mechanism into this deal — a Japan-first for publicly offered bonds, with an arrangement to adopt a discounted present value-based make-whole clause in the event that the insurer decided to demutualise into a joint-stock company. Such a mechanism was considered necessary after the Dai-ichi Life IPO made investors worry about how and at what price these kikin-backed notes will be redeemed after demutualisation. The deal is the largest single-tranche kikin issuance to date for a life insurer in Japan.
MOST INNOVATIVE DEAL
Kenedix-led consortium's ¥33.2 billion acquisition of office and residential property assets
Bookrunners: Barclays Capital
After winning last year’s most innovative deal for the rescue package that saved Kenedix from bankruptcy, the company is back again this year with another innovative transaction — the largest mortgage securitisation financing package in 2010. At the heart of this deal is the acquisition of 18 office and residential real estate assets by Kenedix from the Japan Retail Fund Investment Corporation. The assets represented a non-retail portfolio of properties acquired by JRF through its merger with LaSalle Japan Reit. The novel aspect of the transaction was to find a way to protect the mezzanine lenders in a market where the dominant banks have used their market position to take care of themselves at the expense of mezzanine lenders, many of which got burned after Lehman’s bankruptcy thanks to CMBS deals that were not structured to cope with default. On this deal, Barclays struck on a structure that would give the mezzanine some post-default security and allowed them to choose the asset manager of the portfolio. A novel solution, as well as the largest portfolio asset sale by a J-Reit in 2010.
