The last year has been a challenging one for debt capital markets teams in the Asian markets and 2002 promises to be even more challenging. Some banks are at a crossroads, deciding whether to scale back their activities in the region, but European investment bank BNP Paribas is in it for the long haul and will continue to seek out new opportunities.
Already established as a key player in the Hong Kong dollar bond market and committing itself to dedicating resources in both the Singaporean and Australian capital markets, the bank is currently working hard to build relationships with clients in other countries.
The Asian DCM team is split into two teams: Ron Ross is based in Hong Kong and heads the high-grade group covering China, Hong Kong, Korea, Malaysia, Singapore, South Korea and Australia, while Patricia McKean is based in Singapore and heads emerging markets with responsibility for Cambodia, India, Indonesia, the Philippines, Thailand and Vietnam.
BNP ParibasÆ strength lies in its distribution network and arranging expertise and both these are backed up by highly-skilled trading and credit research teams. The bank's expertise goes across the board.
"We try with our clients to use an approach where we can give them a myriad of financing alternatives ù through local bonds, loans, international bonds and other methods such as Capital Market Structured Financing and securitisation," explains Ross. "We try very hard to establish ourselves as a one-stop solution to fulfilling the debt and equity needs of our customers."
The Hong Kong dollar market provides tangible evidence of BNP Paribas' capabilities, and, when the market conditions allow, the bank will be well positioned to demonstrate its strength for dollar and Euro issuance.
"In the Asian capital markets, the competition for mandates for international deals is very intense because there has not been that many true international mandates in the last couple of years," says Ross. "If you take Hong Kong as an example, there is competition with the loan market and the local bond market, both of which we have been very active in and we are always looking to increase our presence.
"Clearly we have distribution capability with dollar product in Europe as well as Asia and we have worked hard to build up our business in Hong Kong and Singapore over the last few years," Ross adds. Take for example the $16 billion deal for France Telecom, where we were the only European lead manager. Our contribution was not insignificant for the dollar bonds." We are currently in the market with a USD 1 billion global bond for Rentenbank and earlier this year out of Asia we completed a similar sized transaction for JFM (Japan Finance Corp for Municipal Enterprises).
Asian issuers have so far been slow to launch Euro transactions, but BNP Paribas has been involved on two significant deals and is well-positioned to help clients should they need to do Euro-denominated transactions.
"Out of Australia, we led-managed TelstraÆs EUR 1.5 billion 10-year issue, which is the largest-ever EUR issue by an Asian issuer to date. This is following TelstraÆs inaugural EUR 1 billion issue last year, also setting the same record at the time, also led-managed by us.
"Out of the PeopleÆs Republic of China, we launched the sovereign's first ever and very successful E550 million deal in May this year, which was over four times subscribed.
With the cost of Euro financing becoming close to dollar financing, Ross believes more Asian companies will consider doing Euro deals. "Originally issuers felt that they could get better pricing and execution with US dollars," he explains. "That has changed and the Euro stands toe-to-toe with dollars. Worldwide there has been E160 billion of corporate issuance in the first eight months of 2001, which is more than the E155 billion in the whole of 2000. Asian borrowers will certainly start to look at doing Euro deals when the cost comparison is right and there are a number of corporate borrowers who are interested."
The emerging markets are by nature more volatile than high-grade markets, but while others are cutting DCM teams in these areas, BNP Paribas is focusing a great lot of effort in attracting business from emerging market clients.
"Some of our competitors may be pulling back in Asia but BNP Paribas continues to invest," says McKean. "We have recently taken on another Singapore-based marketer and could look at expanding headcount further depending on the level of business. I think this highlights the real potential we see across the region."
The bank has already arranged an innovative peso deal for the Philippine government in 2000 and also expects to make better use of its bond underwriting license in Thailand. "Our Emerging Market DCM activity is in a business development phase - we realize that this can be a lengthy process but again, this underscores the bank's commitment to its clients".
"Banks that commit resources to the DCM business in Asia, only to shut up shop after one or two bad years do not understand the business, particularly in the emerging markets" asserts McKean. "It takes time to build long term relationships and trust with clients.
"Business development has involved identifying the key accounts that we want to work with and leveraging on our corporate banking colleagues in order to develop relationships to the point where we can expect to win mandates" adds McKean. "The way we operate is that we have a core team of product specialists in Singapore with local people on the ground in Thailand, India and the Philippines. We have at least one person in each country who is available to market clients on a day-to-day basis. Simultaneously, the Singapore team provides product expertise and support, travelling regularly to meet clients. In addition, we know that we can count on support from our international colleagues when needed."
BNP Paribas realizes that the ability to win important mandates comes only after two or three years spent building relationships, but the bank's product expertise and use of innovative solutions may allow it to reach targets ahead of schedule. In fact, the bank will be adding staff to its securitisation team in Hong Kong, to better serve clients in the region, particularly China and Korea.
"As a business opportunity, we believe that securitisation products provide interesting, economic solutions for both corporates and financial institutions, enabling borrowers to extract better value from their balance sheets" says McKean. "There are difficulties ahead for Asia but of course that creates opportunities as well. If you can propose a structured solution making use of the bankÆs experience in derivatives, it is possible to help borrowers achieve more cost efficient funding than would otherwise be available from plain vanilla deals."
BNP Paribas is already making inroads in bond markets throughout Asia. With its customer focus, innovative solutions and excellent distribution network, the bank is sure to be one of the major players in Asia for many years to come.