Maybank aims to capitalise on the desire of Southeast Asian countries to give the green light to much-needed infrastructure projects and the appetite of Chinese companies to construct them, according to Feisal Zahir, group head of global banking.
“I’d like to make our mark as a key facilitator and funder of infrastructure in Southeast Asia and to capture trade financing as well,” he told FinanceAsia in an exclusive interview in Hong Kong.
China’s One Belt, One Road policy and its potential geopolitical ambitions have led more mainland Chinese companies to seek out overseas infrastructure projects within central and Southeast Asia. That dovetails well with both the overcapacity that plagues some key Chinese industrial sectors, such as steel and construction materials, and the desire among Southeast Asian governments to execute infrastructure projects to bolster flagging economic growth.
Zahir said Maybank is well placed to benefit by helping to match and fund these natural partners.
“We’re the only bank with a presence in all 10 countries [in Southeast Asia],” he said. “We grew up in Malaysia and Singapore and while we don’t have a commercial bank in Thailand we bank Thai families outside the country.”
“Other international banks don’t have as deep roots in these countries and we think that offers us a better understanding,” Zahir said.
Need for infrastructure
There is no dearth of infrastructure investment opportunities in Southeast Asia. Decades of under-investment mean the region needs to spend at least $2.5 trillion on railways, roads, power, water supply and sanitation, waste management, and telecommunications, according to the World Bank. The Asian Development Bank estimates that Asia as a whole will invest at least $730 billion per year in infrastructure in the coming decade.
Until recently many Southeast Asian economies found it easier to sell commodities to support economic growth. However, the collapse of commodity prices in 2015 has led regional governments to cast around for other means to support their economies. Infrastructure, with its vast costs, material requirements, and potential improvements in energy and efficiency, fits the bill. And Chinese companies are keen to help build it, given weakening conditions onshore.
Several examples are proceeding. In October the Indonesian government approved a joint venture between China Railway International and a local consortium for a $5.5 billion high-speed railway (although the project was reportedly suspended on January 29 due to insufficient paperwork).
In December 2014 Thailand’s military-appointed government signed an agreement with Beijing to build a railway from Nong Khai province to Rayong province, via Bangkok. Malaysia is also eyeing a Kuala Lumpur-Singapore high-speed railway and a pan-Borneo motorway, although it has yet to appoint companies to build either.
When pressed for an example of how Maybank is benefiting from the linking up of Chinese capital and know-how and Southeast Asian infrastructure projects, Zahir said most plans remained on the drawing board. But he pointed to Maybank’s support of Chinese property developer Country Garden and its residential real estate project in Johore state, in south Malaysia.
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Country Garden initially intended to build residential property on 2,000 hectares of mostly reclaimed land between Malaysia and Singapore at a cost of RM600 billion ($144.29 billion). These plans were subsequently delayed then scaled back over environmental concerns in early 2015 and the project is now projected to cost RM450 billion. Nevertheless, it remains an enormous undertaking.
Investment banking hopes
Maybank also hopes to gain market share in investment banking. The division had a tough year last year, as did most of its rivals, but Zahir believes the bank can pick up primary and secondary markets business because some international banks have retreated.
British duo Barclays and Standard Chartered, notably, have taken a hatchet to their Asian equities businesses. Others are also rumoured to have downsized their Southeast Asian banking teams, potentially leaving a gap for regional players.
“We’ve been one of the few banks not to retrench [investment banking capabilities in Southeast Asia],” Zahir said. “We’ve grown from a smaller base relative to international banks and as a group we have contracted our workforce over the past three years, which has saved us from having to do retrenchment. We are now aiming to capture market share as others leave.”
Maybank’s investment banking arm has 3,000 personnel, a large proportion of which are in equities distribution. It has spent the last three years building the institutional distribution capabilities of Kim Eng Securities, which it bought in 2011.
Zahir said Maybank’s success in 2014 is indicative of its potential. According to data provider Dealogic, Maybank ranked second for equity capital markets deal volume in Southeast Asia that year and fourth for debt capital markets.
Last year was tougher; it fell to eighth in ECM and seventh for DCM, data from Dealogic shows.
Zahir is banking on Maybank picking up market share this year, even if revenue flows remain challenging. He also believes advisory work on mergers and acquisitions will remain active: “M&A is one area of growth for us.” The bank ranked 12th for M&A in 2014 and 11th in 2015, according to Dealogic.
Maybank is optimistic that increased public spending on infrastructure will bolster equities trading volumes as investors bet on companies benefiting from this expenditure. “We hope to see an uptick in the second half,” Zahir said.
The bank is targeting more business from margin finance and some private equity funding too, much like several of the international investment banks. But nothing too aggressive, Zahir said. “We are very cautious about giving credit for pre-IPO deals but we are looking to do so with some sponsors and families we know very well.”
In a similar vein, some bankers are eyeing the possible opportunities that could accrue in Asia as some listed businesses are taken private due to poorly performing share valuations. Zahir agrees that the opportunity exist – “some families are looking at it and have approached us” – but he is cautious about committing Maybank’s support. “When you look at such opportunities you want to have a clear exit strategy in a couple of years, and the markets now are very unpredictable,” he said.
“Where China used to primarily [be] an exporter to the region, we now see a reversal of that trend, with Chinese companies investing into the region,” Zahir said.
That helps to underpin the bank’s interest in trade finance flows too, which Zahir said are shifting away from the traditional focus on commodities heading northwards.
Zahir was in Hong Kong as part of a global investor roadshow with Abdul Wahid Omar, a Malaysian minister in the prime minister's department in charge of economic planning (and former chief executive of Maybank).
Omar has been speaking with investors to explain the impact of the government’s recalibrated budget, which was announced on January 28. Its initial 2016 budget assumed an average oil price of $48 per barrel for 2016 but it revised this estimate to at least $25 a barrel. The shift meant the government dropped its predicted revenue for the year by RM8 billion-RM9 billion.
Zahir said investors had asked relatively few questions about the ongoing controversy surrounding the approximate $680 million deposited into a personal bank account of Prime Minister Najib Razak shortly before the 2013 general election.
“When you talk to investors, they are all looking at the fundamentals,” he said. “It’s easy to get caught up in the noise but this has been well discussed and priced into the market.”