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 cotinue presenting the rationale for our decisions, to celebrate the best in banking from across the region, continuing with the massive, fast-evolving Chinese market.
Best Bank: Industrial and Commercial Bank of China
China’s banking industry had a tough year in 2016 due to regulatory pressures on asset quality and bank liquidity and to slowing economic growth. The so-called big four – ICBC, China Construction Bank, Agricultural Bank of China, and Bank of China – all saw total revenue slip in the twelve months to March 31, 2017.
Thanks to a 51.16% net income margin – the highest and the only one exceeding 47% among the big four, Capital IQ data shows – ICBC was able to achieve 0.61% net income growth. Its next-12-month EPS growth rate, as measured by Capital IQ, is at 3.32% and the highest among China’s biggest banks.
Answering Beijing’s call to serve the real economy, ICBC became the first commercial bank in China with a small and micro enterprise loan balance of more than Rmb2 trillion ($292 billion). Although the bank placed “stability as the priority in the performance results” – in the words of chairman Yi Huiman – it still managed to make reforms and investments where necessary, including changes in areas such as governance structure, management system, operating mechanisms, and information technology.
Among other things, it made a Rmb10 billion strategic investment in February in the China Internet Investment Fund and signed a cooperation agreement with the fund to develop comprehensive investment and financing services, combining on-balance-sheet and off-balance-sheet management, equity and debt product offerings, and commercial banking and investment banking integration. On top of its e-ICBC internet-based finance platform, it also ramped up efforts on building ICBC Mobile, ICBC Mall and ICBC Link, for online/mobile financing and payment.
In addition, ICBC has actively embraced some of China’s biggest strategic aims, such as the Belt and Road Initiative and the internationalisation of the renminbi currency. That includes establishing renminbi clearing services in Russia, North America, and UAE, among other places, and financing projects on the historic silk trade routes.
Best Investment Bank: China International Capital Corporation (CICC)
Last year was a record-breaking year for Chinese outbound M&A, which played strongly into the hands of CICC, the country’s first joint venture investment bank.
According to Dealogic, CICC advised Chinese clients on 46 deals worth a total of $61.6 billion, representing 9.63% by value of all the deals announced/completed in the year to March 31, 2017, ensuring CICC topped the league table and beat the leading global M&A houses.
CICC demonstrated its ability to serve a diversified range of industries on several large deals. To name just a few, Baosteel’s $9.4 billion merger with WISCO was China’s largest-ever M&A involving the metals and steel industry, while Ant Financial’s $4.5 billion Series B financing was the world’s largest private placement in 2016. CICC also advised China’s largest OTA Ctrip.com on its £1.4bn ($1.78 billion) acquisition of Skyscanner.
Its own deal, acquiring rival China Investment Securities for Rmb16.7 billion ($2.5 billion), showed its determination to keep on expanding despite tough competition in the Chinese brokerage market.
In equity capital markets, CICC ranked third as a sponsor of initial public offerings in Hong Kong by Chinese companies and fourth as coordinator. Onshore, CICC was a runner-up bookrunner for A-share IPOs. But it is really CICC’s ability to win lucrative mandates from financial institutions and then successfully bring these to market that stood out. In the case of Postal Savings Bank of China’s HK$57.62 billion IPO in Hong Kong, for example, CICC was the only Chinese bank chosen as a joint global co-ordinator.
Traditionally seen as an equity financing and M&A powerhouse, it has stepped up its debt market game in recent years. As such, CICC worked on 91 domestic bond transactions worth $58.88 billion during the awards period, up from 88 deals worth $27 billion in the previous corresponding period.
Best DCM House: ICBC
ICBC won FinanceAsia’s Best DCM House in China both because of its groundbreaking role helping to further internationalise the renminbi via the bond market and its ability to write non-renminbi deals.
As sole lead bookrunner, ICBC helped the World Bank price the first SDR-denominated bond in China’s interbank bond market on August 31, 2016, a key milestone given the country’s global agenda. It also proved its powerhouse status in Asian bond markets and as a facilitator for Chinese companies seeking to go global, especially in the case of financial institutions and state-owned enterprises. It ranked second among Chinese underwriters in terms of G3 bonds issued by Chinese financial institutions and accounted for 67% of all China central SOE offshore bond issuance, data from Dealogic shows.
ICBC also played a key role supporting another key trend – namely the astonishing growth of local government financing vehicles (LGFVs), which debuted in international offshore bond markets. During the review period the bank underwrote 11 provincial-level LGFV offshore debut issues – compared with nine by the runner-up Chinese underwriter in this category.
ICBC also used its customisation capability for clients to maximise marketing results and expand funding channels through private placements. One example is China Technology Financial Leasing’s Rmb400 million senior notes issued in July. The deal, of which ICBC was global coordinator, involved a third-party guarantee structure with both the issuer and guarantor onshore and was the first corporate dim sum bond sold under the new Singapore-Chongqing Connectivity scheme.
Best ECM House: Citic Securities
It’s not always about the league table ranking. In the case of Citic Securities, though, such is its dominance of onshore equity deals that it just cannot be ignored.
During our awards judging period (April 1, 2016 to March 31, 2017), Citic Securities was first overall in the China ECM league table by volume (Bloomberg), snapping up 9.98% of the market share with total issuance of more than Rmb129.5 billion ($19 billion).
This is the third time in a row Citic Securities has come out on top, having secured 10.03% and 9.48% shares in the previous two corresponding periods.
The five-largest deals it worked on during this period were China Everbright Bank’s Rmb30 billion convertible bond issue and additional equity offerings by Suning Commerce Group (Rmb29.23 billion), CNPC Capital Co Ltd (Rmb19 billion), SAIC Motor Corp (Rmb15 billion), and China Shipbuilding Industry Group Power Co Ltd (Rmb13.48 billion).
Closing the China Shipbuilding Industry deal, in particular, was a challenge. The company planned to use the equity funds raised to help overhaul itself from being a supplier of just car engine batteries into a comprehensive producer of diversified power products. But it wanted to do so against a backdrop of SOE reform, industry consolidation, and overcapacity cuts, so convincing investors was not easy.
Also not helping was the turbulence in the Chinese shipping sector, to which its parent company belongs, and volatile A-share market conditions, with the Shanghai Composite Index dropping more than 35% in July. In the end the offering, which Citic Securities solely managed, overcame all these challenges and on July 6 it was priced at Rmb29.8 per share, 15% higher than the initially expected Rmb25.9.
Best Private Bank: China Merchants Bank
CMB Private Banking is China’s largest private bank by client assets, having achieved consistent and significant growth since it started out in 2007.
The bank had more than 53 private banking centres all over the country at the end of 2016, with around 1,000 service providers. It served 58,300 private banking clients (onshore) with total assets under management of around Rmb1.5 trillion, up from 49,000 clients and Rmb1.2 trillion AUM as of the end of 2015. To better serve the expanded clientele, it grew the number of its relationship managers by more than 100.
Its diversified product offering and ability to secure returns despite volatile markets for the high net worth individuals (HNWI) it serves, which it defines as those clients with assets of more than Rmb10 million placed at CMB, is another reason for winning the award. As of the end of September 2016, the return on the private equity funds selected and commissioned by CMB exceeded that of the CSI 300 onshore benchmark equity index for the corresponding period. It achieved average weighted return of 16.8% while the market performance was -10%.
CMB also sold a wide range of fixed-income products worth more than Rmb300 billion, which experienced no credit defaults, and issued hedge fund products totalling Rmb30 billion as of the end of September, all of which had received positive returns with weighted average annual return exceeding 20% and the record performance exceeding 40%.
Best International Bank: HSBC
HSBC has stayed top in the last 12 months thanks to its leading franchise in China, product/service development efforts to connect the Chinese market with overseas, and continuous plans in the Pearl River Delta region.
It now maintains the largest network among foreign banks in mainland China, with a total of 178 outlets, including 34 branches and 144 sub-branches, covering 57 cities nationwide. That has enabled the bank to serve a wide range of clients and to roll out premium services across commercial, retail and private banking and in capital markets.
Its status as a top bank connecting renminbi transactions with overseas markets is another reason why it won. It continued to be the No 1 foreign bank for international panda bond issues and
also regained the No 1 RMB Internationalisation foreign bank ranking from the People’s Bank of China.
As of December, HSBC China ranked first among foreign banks by volume for outbound renminbi payments through China’s Cross-border Interbank Payment System, or CIPS. And it was among the first batch of market makers approved in 2016 for direct onshore trading of the renminbi against 11 more currencies including from the Middle East, Europe, and Africa.
In terms of securities services, it is the only sub-custodian bank that now services 13 of the 18 markets globally with live RQFII, or renminbi qualified foreign institutional investors, namely: Hong Kong, UK, Singapore, France, South Korea, Germany, Australia, Switzerland, Canada, Luxembourg, Thailand, USA and Malaysia.
HSBC launched an innovation fund for the Pearl River Delta in December to lend money to small- and medium-sized enterprises to help them expand. And with income rising sharply locally, it also boosted the client base of its Retail Banking and Wealth Management (RBWM) business in the PRD region by 51% in 2016 compared with 2015.
On top of that, HSBC ranked second both in the China syndicated loans league table (after China Merchants Bank) and in the China offshore DCM league table (after Bank of China).
Best International Investment Bank: Morgan Stanley
This award was hotly contested and several banks made strong pitches. In the end, its overall performance and the large and/or interesting M&A, ECM, and DCM deals that it sealed during the review period ensured Morgan Stanley took the crown this year.
For M&A, Morgan Stanley ranked second overall by volume for deals above $100 million but it was number one in China cross-border M&A, according to Thomson Reuters data.
What impressed us was the quality of the deals Morgan Stanley worked on, which underlined its credentials as a trusted advisor on Chinese landmark cross-border deals and on corporate restructurings, both for Chinese companies and multinationals with Chinese businesses.
Among its significant deals during this review period are a Tencent-led consortium’s $8.6 billion acquisition of Supercell – FinanceAsia’s deal of the year; Midea’s $5.1 billion deal to buy KUKA, the largest-ever Sino-German M&A deal and a key milestone in China’s Industry 4.0 drive; HNA Group’s $6.3 billion purchase of Ingram Micro, the largest-ever Chinese outbound investment in the technology sector; and the sale of McDonald’s Chinese operations, the biggest restaurant M&A deal in Asia Pacific so far.
Morgan Stanley managed some prominent China DCM deals too, executing four out of the top-five transactions by size during the period under review. It is the third-placed bookrunner overall among foreign banks (behind HSBC and UBS), according to Dealogic. And it was a consistent leader across equity and equity-linked offerings, ranking among the top-three foreign banks in the Bloomberg China ECM league table and No 1 if excluding A-share and self-led deals, which are largely dominated by Chinese banks. It executed seven of the top-10 China deals, including SoftBank Group’s $10 billion mandatory exchangeable securities and sell-down in Alibaba Group, Postal Savings Bank of China’s $7.4 billion listing in Hong Kong, and Guotai Junan Securities’ $1.9 billion IPO.