Andrew Low is head of corporate finance for Macquarie in Asia. He assumed this role having been the point man on the ground for the bank's A$145 million ($115 million) purchase of ING's cash equity business last year (a figure reported in the bank's annual report). He has been with the bank for five years in Australia before moving up to Hong Kong last year.
He now oversees a regional corporate finance team of 100. At the time of the acquisition, many were wondering why Macquarie would want to buy an Asian broking business. Observers were expecting to see the bank use the distribution platform to swiftly launch its suite of funds and trusts. So far that has not happened as the bank has concentrated on more traditional ECM business. Here Low explains his strategy.
How have things gone in the six months since Macquarie bought ING's cash equities business. How have things changed for you on the corporate finance side?
It's gone a bit better than we expected. It's early days yet, but I think the equity capital markets business has got traction more quickly than we anticipated. We've also seen good benefits for our broader advisory business from having the distribution platform and the higher level of brand visibility. [Without the acquisition] we wouldn't have been able to do deals such as the Semirara Mining IPO, the SM Invesments IPO, the Banco de Oro deal, the A Reit follow on. They're all incremental and show the benefits of having this distribution platform.
You now have an equity distribution platform, but you don't have access to the debt markets or that large a balance sheet yourself. Can a corporate advisory business in Asia get away with not having access to in house debt?
The ability to provide capital is certainly important. That was one of the drivers in making the acquisition. But we tend to find that debt is relatively easy to get from a variety of different sources. The margins on providing vanilla debt are not that exciting anyway. We've found that where we add the most value and where we get the most returns is at the equity level.
Do you have any formal plans to set up more JVs in Asia, for instance in the debt side?
We already have a successful investment banking partnership in Korea with Shinhan, which has been helpful in building our infrastructure business there. We are open to JVs and partnerships in other parts of the region as well. The driver is not so much balance sheet, but rather getting deeper relationships and localizing the business in particular places more rapidly than we would be able to do purely through organically-grown business.
Strategically, where are you focusing now in terms of countries, sectors and products?
The sector focus is where we have a global comparative advantage and point of differentiation from the Wall Street and European banks. So we've focused on the property and reit sector; we have a couple of things coming up in the Singapore reit sector.
We focus on infrastructure and utilities. We've done quite a few deals in Korea such as the Kwangju Beltway deal and the Yongin LRT railway. We also advised China Merchants on the restructuring of its port and road interests.
The resources sector is the third sector. We have done Semirara and we are working on a number of transactions with some Chinese companies now as well. The next tier down in terms of focus are sectors such as media, gaming, food and beverage.
In terms of countries, the business in Korea is probably the most mature. We have been doing a lot in the Philippines and Singapore. We are seeing the greater China business growing quite rapidly. I also think Indonesia will be a big market for us, partly because of the natural focus on infrastructure and resources there.
How do you define what's driving your corporate finance strategy? Is it to serve existing clients, find new ones, strike out into new countries or develop new product niches?
It's focused on building a long-term franchise through initially focusing on sectors and products where we can provide something differentiated from the competitors. Then we want to build that out. We realize a reputation is built country by country, sector by sector and client by client. The early signs are quite encouraging and the revenues have been following the deals.
Does this market require more specialization than elsewhere in the world?
Each firm has a different strategy depending on their strengths and the nature of their franchise. For Macquarie, outside of the Australia and New Zealand markets, where we have a full service offering, the reason why we have been consistently profitable and been able to grow quickly has been by being very focused. So focus and being clear about what we want to be good at is an important part of our strategy. It may not be for other people.
How does that marry with the ING acquisition? It more than doubled your headcount in the region and could be seen as a move away from specialization.
I am talking from the perspective of the corporate finance business. The broking business is, by its nature, a broader business. The corporate finance business is going to move towards that over time. But in corporate finance now we have particular focus on areas where we have strength. We also have a platform through ING to be able to deals in all of the sectors as and when those deals arise.
We had a business in Asia that up to six months ago was a boutique M&A advisory and project finance franchise. The ING acquisition brings the ability to bring capital and gives us the critical mass to deploy our own balance sheet and do more in the fund area as well.
Do the developments of new funds and trusts come under your watch?
It is of interest to us. We're seeing the same sorts of dynamics come into play in Asia that we've seen in other parts of the world. There is increasing liquidity, the rise of pension savings, which is driving a desire for yield product and assets that have long term stable cash flow profiles. At the same time, a lot of the governments in Asia are looking at ways of financing infrastructure in Asia through more private sector involvement. That plays to Macquarie's particular strength in infrastructure funds and property reits.
Are there any concrete plans to launch more specific funds? You have the Korea Road Infrastructure Fund. Are there any more in the works?
I can't be specific about individual things we are looking at. But the Korea fund has been very successful and has grown rapidly. The paradigm shift in Asia capital markets is away from a capital gain/capital loss market to one that's more mature, with demand for yield product. We'll see what opportunities there are.
You have existing funds that are global in their scope, in roads and airports for instance. If you found assets in Asia would they go into the global funds or would you set up new Asia-specific ones?
It depends on the asset. The mandate of some of the existing funds is OECD so they cant invest in the assets we are talking about. It depends what is right for the specific assets.