Best International Bond House
In one of the most dismal years on record for debt market practitioners in Asia, JP Morgan has been able to reassert some of the pre-crisis dominance that once saw it at the forefront of issuance for many of the region's semi-sovereign and blue chip corporate borrowers. In a year that has produced only 18 major international public deals, the bank has been able draw on a combination of innovation, luck and foresight to lead three of the most important transactions of the year.
It is particularly well entrenched in Singapore where, alongside archrival Morgan Stanley Dean Witter, it had the acumen to see that the Lion City was about to emerge from the shadows and become one of the most active and important issuance bases in the region. The bank was the sole lead manager of a $300 million debut bond for Singapore Power in late April, which marked the first real benchmark by a wholly Singapore government-owned issuer. The deal may have been small by international standards and it may have been predominantly placed in its home market, but it represented an important new milestone for the region's capital markets. Keeping the issue size down was also a clever strategy, which in combination with the five-year deal's rarity value, ensured tight pricing at 94bp over Treasuries, or 5bp over Libor.
Singapore Power's success paved the way for a second deal, this time by the Port Authority of Singapore (PSA) and in association with Morgan Stanley. Viewed by PSA as an important first step to re-balancing its capital structure ahead of listing, the deal provided the international markets with a much larger benchmark and one that significantly broadened the City State's maturity and investor profile. Indeed, distribution figures show that about 42% of paper went to the US.
Subordinated debt has been a recurring constituent of JP Morgan's skill-set. DCM head Marc Jones and his financial institutions expert Mark Follett have spent much of the year talking to regulators, particularly in Thailand and Korea, in a bid to establish functioning bank capital guidelines. They have been particularly successful in Korea, where Hanvit Bank's unprecedented $850 million upper and lower tier 2 debt issue managed to keep the bank alive until autumn. JP Morgan bankers themselves have, so far, also survived largely unscathed from the merger with Chase and Jardine Fleming. Many in the market are now watching with some trepidation to see how the three will fare in combination next year.
Best Local Currency Bond House
The regeneration of the local bond markets in Asia has been truly impressive since the end of the 1997-1998 financial crisis. In nearly every market in the region the development of a local currency, long-term, liquid bond market has been a key policy driver for officials and bankers alike. With differing levels of success, each country has developed its local market. And banks have realized that a key component of a successful Asian franchise is having a local markets capability.
Deutsche Bank's local market expertise has been outstanding this year. In each market it has completed groundbreaking transaction that have pushed the development of the markets to new levels. Rather than issuing look-alike bonds for copycat issuers, Deutsche Bank has marked itself out as being an innovator, introducing new issuers and new structures to the rapidly developing markets.
In Malaysia it has marked itself out as the clear leader, not only in terms of issuance volume but also in terms of innovation. It has structured groundbreaking bonds for issuers such as BPIMB, Bank Industri and Encorp Systembilt. In Singapore, it has acted for first time foreign issuers in the Singapore dollar market such as BMW and LVMH as well as leading issues for local corporations such as Singapore Power. In Thailand, it has won key mandates from leading Thai corporations and has pioneered new structures such as structured notes and inverse floaters for issuers such as the Industrial Finance Corporation of Thailand. The bank's Hong Kong franchise, while not as big in terms of volume as others, is still significant. It regularly brings international borrowers to the market including the first Taiwanese bank to issue Hong Kong dollar debt when United World Chinese Commercial Bank issued a HK$500million FRCD a real coup for the bank.
It is active in all the other countries in Asia - India, Indonesia, Philippines, and Korea and has a leading presence in the Chinese international bond market, which should be easily translated into domestic deals when that market opens up.
What marks Deutsche Bank's debt franchise out is its willingness to bring new deals and new structures to the domestic markets. It also realizes that every local market has its own idiosyncrasies. It this regard it does not try to impose foreign structures on deals but instead it successfully matches the local needs of clients with the applicable local structures to create bonds that local investors want to buy.
Best Fixed Income Research
In our fixed income research poll last month there was a very clear message. Merrill Lynch is tops. It was reckoned to be best at fixed income and credit strategy, best in macroeconomic research, best for research on Asian investment grade credits, and best for research on Asian sovereigns. Need we say more?
Jason Carley, the team's director, is clearly doing something right, and has managed the transition of Chris Francis's relocation to Europe with aplomb.
Best Global Custodian
Leveraging on its global experience in mutual funds and pension funds, State Street has been moving gradually up the value chain to provide pre-trade services to clients, positioning itself in key Asian markets, particularly in the North East. KK Tse, the bank's managing director in Asia, has repeatedly made the point that State Street, while continuing to provide competitive custody service, will focus more on meeting fund managers' needs in the region.
Much of the groundwork has been laid in the past year by acquiring local expertise through either acquisitions or cooperation. The most significant strategic deal it has struck up in Asia this year perhaps is its alliance with ICBC (Industrial and Commercial Bank of China), the largest bank in China, giving it a head start among competitors. Its amiable working relationship with some of the key government agencies in developing pension reform measures and open-ended funds market strategies also will benefit foreign investors in the long term. Taiwan, a market that is chaotic at the moment but with a brilliant outlook for fund managers, is also in State Street's eyes. And the company has been working hard to build bridges with local lobby groups such as the Pension Fund Association in Taiwan through organizing grass-root activities.
On maintaining its cutting edge servicing capabilities, the bank invests 20% of its operating budget in technology and regularly partners with companies that can offer advanced and integrated solutions to meet clients' needs.
Customers' satisfaction is indicated by the fact that 80% of its revenue growth comes from existing clients. For a customer-provider relationship to work, clients' understanding on how they can extract the best from the relationship is a vital element. By providing clients ongoing education and support and more customized product range, State Street has become a virtual extension of its clients' own network.
From the strategic positioning and client servicing's point of view, we feel State Street deserves this years Best Global Custodian Award.
When it comes to standard services that clients take for granted nowadays there is little to choose between the three or four top players in each market. Five years ago clients could pick out the best custodian by ticking off a list of technical requirements. Today it's the intangibles that count, things such as having skilled people on the ground, good relationship with local authorities and being able to represent the clients' interests at all times. For many clients, these intangible qualities are the reasons why HSBC remains the lead sub-custodian among the other providers that they also use in the region.
Operating in 27 markets, 18 of which are in Asia, HSBC services institutional clients worldwide, including every major global custodian and international broker-dealer. While its custody and settlement ability is the equal of any first class providers, its entrenched presence in Asia is second to none. Its sheer size, with 1000 staff globally, allows excellent career development and effective transfer of best practices. Its senior management team has been working closely together for more than seven years, making it possibly the oldest partnership in the custody business in Asia. Perhaps it's for these reasons some clients believe HSBC has far better relationship with the regulators and other market participants than many competitors in the region, and can lobby for changes on their behalf more effectively.
One self-proclaimed "demanding client" says HSBC is flexible in most markets in terms of providing customized procedures and reporting services, and aggressive on meeting deadlines.
Another area that HSBC excels is pricing. "It's more important than it used to be because foreign investors are more sophisticated now and their products have become more commoditized as we move from very risky physical market to less risky book-entry scripless market," one client says. "The differentiation between the banks and their bread-and-butter services is not so great. So HSBC's competitive pricing has become more important for us," he adds.