Why Haitong International, BoC HK, won big

Two clear winners emerge among the Chinese institutions seeking a share of the Hong Kong market.

In May, FinanceAsia named the winners of its annual Country Awards for Achievement. Last month, winners were given ther awards at our annual awards dinner in Hong Kong. Today, we continue presenting the rationale for our decisions with a look at the Chinese players in the Hong Kong market.

Best Bank: Bank of China (Hong Kong

Bank of China (Hong Kong) is FinanceAsia’s best Chinese bank in Hong Kong for this year because of its reform efforts. Using funds from the HK$68 billion sale of subsidiary Nan Yang Commercial Bank to China Cinda Asset Management, BOC (HK) has been actively buying parent BOC’s branch and sub-branch network in six Asean countries since the first half of 2016. In February, for example, it agreed to buy its parent’s branches in Indonesia and Cambodia for HK$2.9 billion.

At the bank’s annual general meeting in June 2016, chief executive Yue Yi said BOC (HK) was now transforming itself into a regional player while continuing to expand in Hong Kong – a sensible move given sluggish local market conditions. The move will also enable the bank to turn its Hong Kong unit into a hub for the businesses in Southeast Asia.

In the meantime, BOC (HK) is still leveraging off its services and network connectivity to mainland China. BOC (HK) is the first offshore bank to directly participate in CIPS, China’s cross-border payment settlement system for the renminbi. And in July last year, it cleared the first renminbi, offshore cross-border transfer via the CIPS.

Best Investment Bank, Best ECM House, Best DCM House, Best Broker: Haitong International

Having won FinanceAsia’s best Chinese ECM house in Hong Kong last year, Haitong International has not only done it again this year but also stepped up its efforts in other areas, bagging awards in four categories.

In ECM in the Hong Kong all-equity category, which includes IPOs, right issues, and placements, it ranks second in the review period by number of deals and third by deal value.

IPO financing has always been a key focus for Haitong International and it paid off, when it reached the top of the IPO rankings in Hong Kong (both in terms of deal value and numbers) in the review period. Of the 120 IPOs completed last year in Hong Kong (on the Growth Enterprise Market as well as on the Main Board), Haitong participated in 23, performing better than any Chinese or foreign investment banks.

Haitong International played important roles in most of the year’s HK$1 billion-plus deals, including China Zheshang Bank in March, Orient Securities in July, Postal Savings Bank of China in September, and China Securities in December. In the case of PSBC’s HK$57.62 billion IPO, notably, Haitong acted as a joint bookrunner and joint lead manager but covered around 60% of the Hong Kong public offering and 23% of the final total subscription.

In DCM, Haitong International experienced tremendous year-on-year growth, executing 66 Asia (ex-Japan) G3 currency bond issues from April 2016 to March 2017 and raising more than $4.9 billion in the process. Within the same period, it executed 34 Asia ex-Japan high yield dollar bond issues, raising $2.8 billion, placing it first among global financial institutions by number of deals. In contrast, Haitong International executed just 20 Asia (ex-Japan) G3 currency bond issues in the previous year’s review period, raising $1.4 billion.

To be sure, it’s been a tough year for Hong Kong brokerage businesses, with trading volumes down after a bumpy ride in 2015 for mainland shares. But Haitong hasn’t been hit too badly. Its brokerage earnings for the year ended December 31 2016, were down 8.75% year-on-year at HK$2,018.9 million. By comparison, rival Guotai Junan International reported a 45.4% drop, which helps to explain why it didn’t win this category, despite its improved risk control and senior treasury hires to improve capital efficiency.

 Haitong’s resilience to the sluggish stock market can be partly explained by its growth in clients and AUM. Haitong acquired 6,000 new brokerage clients, lifting its AUM by 76.4% to HK$56.1 billion by the end of 2016.

Haitong also expanded its equity research capabilities. Its market cap coverage of major index constituents in the Asia-Pacific region increased from 49% in late 2015 to over 70% in 2016. It now covers approximately 500 listed and more than 500 small-cap shares in Hong Kong, Mainland China, Japan, Taiwan, South Korea and India.

Its retail operations were developed hand in hand with its corporate finance and equity derivatives business, creating fresh synergies.

So for the most sizable IPO of the year, Postal Savings Bank of China’s, Haitong’s sales team successfully delivered approximately HK$2 billion in subscriptions from retail clients, accounting for 60% of the public portion.

In M&A, meanwhile, Haitong International topped the Hong Kong general offering league table, according to Bloomberg, in terms of number of deals over the review period.

Overall, Haitong had a bumper 2016 with a net profit of HK$1.68 billion, its second highest on record. Aggregate assets leapt by 43.1% to HK$131.5 billion for the year. It also successfully acquired an Indian subsidiary of Haitong Securities, providing a springboard for its increased presence in India.

Best Private Bank: Bank of China (Hong Kong)

Excluding China onshore, Asia’s top-20 private banks collectively managed a record $1.554 trillion at the end of 2016, according to Asian Private Banker’s 2016 Asia ex-China AUM league table. Bank of China (Hong Kong) made its debut on this list, coming in at No 17 with an estimated $25 billion in AUM. It was also the first time a Chinese institution made it onto the list.

With an initial team of 30 bankers, Bank of China (Hong Kong) launched private banking services in 2012 for customers with at least HK$2 million to invest. In late 2015, the bank’s general manager of private banking, Wendy Tsang, said it aimed to boost AUM to $60-$70 billion and outlined plans to hire an additional 200 employees.

In August 2016, BOC (HK) outlined its regional transformation plan, singling out its private banking unit as a key strategic focus. This followed BOC (HK)’s acquisition of parent BOC’s overseas branch and sub-branch network in Singapore, Thailand, Malaysia, Cambodia, Vietnam, and the Philippines. Private banking is set to be a prime beneficiary of its Asean (Association of Southeast Asian  Nations) expansion.

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