Eric Ang, co-head of investment banking at DBS and a member of Singapore's Appeal Advisory Panel, discusses the prospects for investment banking in the Lion City.
I believe you've been at DBS for quite some time?
Ang: Yes, this is now my 25th year at DBS, with 20 years in investment banking. It's still my first job.
The bank must have changed a lot since you first started?
Well when I first joined DBS, it was a development bank and now it's a fully-fledged commercial bank. In fact we are striving towards a pan-Asian universal banking group, with a focus that extends beyond Singapore.
In our home market we're the market leader across debt capital markets, equity capital markets, M&A, and even stock broking. Some say we get all the business because of our government connections and indeed the government remains a major and supportive shareholder through Temasek Holdings. But interestingly every mandate is won through a bidding process. In other words, all the international and local houses have to compete against each other. Whilst I would like to believe that government has a preference for us, we've won every mandate based on our own merits.
Do you find that some of your local competitors try to eat into your market share by bidding lower fees?
No, we don't compete solely on fees because fees in Singapore are already among the lowest in the region. I don't see them coming lower. In many instances, clients don't mind paying slightly higher fees if they can be assured of a successful transaction. And DBS is one house that isn't averse to working with another house especially for clients that want a global reach. International houses have a different clientele in the international markets. There'll be some overlap, but not significant. So on that basis, by teaming us with another house, the client gets better coverage. Depending on the issue size some clients prefer this approach as they get maximum coverage from the transaction without having to pay more.
How have you been able to build up such a dominant position in investment banking?
We differentiate ourselves is through product specialization. We don't have a single corporate finance department that looks after all aspects of capital markets from debt to equity and advisory. What we have are committed, dedicated product teams. We get our people to specialize so we can offer clients a complete and total service.
You've also diversified overseas.
Yes. Our investment banking franchise is now replicated in Hong Kong, which is our second hub or base for North Asia. Our HK team is about one-third the size of the Singapore team. If you just include our fee-based specialists in ECM, DCM, advisory and loan syndication, we have about 120 to 150 people in the whole region. The whole investment banking group including our corporate bankers is about 500.
We restructured about three years back by putting investment and corporate banking together. We now have a structure where there's a whole group of relationship managers who own the customers and a group of specialists who own the products. The former finds out what the client needs and the latter provides the solution.
Have you moved any of your businesses up to Hong Kong, or back to Singapore?
Loan syndication under Peter Chan is based in Hong Kong and he has a separate team, albeit a smaller group in Singapore, to support him. We have made quantum leaps in this area. We are now the lead arranger rather than the participant and our league table position has improved from 15th or 16th to the top five.
We have also relocated our private equity team to Hong Kong as we see more opportunities in North Asia.
What sort of opportunities do you see in North Asia?
Oh lots and we definitely see ourselves playing a bigger role. In Hong Kong, our position is like most of the foreign banks competing in Singapore. We are the dominant player in Singapore, but in Hong Kong we have to compete with many well-established and entrenched houses.
So our strategy is to focus on mid-sized transactions, which don't come within the radar screen of the big boys.
Vedan is a good example. It's a mid-sized company, which recently completed an IPO raising HK$300 million.
We don't compete with the bulge brackets for the big deals, because we don't have the global reach of the international houses such as Goldman Sachs. Our reach is regional and we want to be the region's leading bank.
But we're not a newcomer to North Asia. If you remember we were one of the most active players in the China B share market. As B share IPOs are no longer allowed, Chinese companies are now making their way to Hong Kong instead. Needless to say there is more competition for us in Hong Kong, but we differentiate ourselves by offering our clients the opportunity to list in Hong Kong, or Singapore, in both markets.
Do you plan to leverage your balance sheet into bond mandates in the way that ABN and Barclays have successful done?
Yes as is evident in the REITs that we sponsor and underwrite. We even go beyond that. As a Singaporean bank, our strength is in the Singapore dollar. We have the largest deposit base in Singapore, which provides us with low cost funds and multiple funding cost advantages. Additionally our strong Aa2 credit rating from Moody's,, the highest rating achieved by a bank in Asia, supports our established access to the international markets, another source of lower cost capital funding.
What's the ratio of DBS' revenues geographically and do you see that changing?
Currently, about 60% of our revenues come from Singapore and 40% from overseas. We would like to lessen our dependency on the home market because regional markets are much bigger. I guess our next target is a 50%/50% split.
You're other strategy seems to be to encourage overseas listings in Singapore.
We are strongest in Singapore. It therefore makes sense for us to compete in our home turf where we have the entire bank's infrastructure behind us. What we do is look for opportunities in other markets and bring them to Singapore instead.
In 1994 to 1995, for example, we were very active bringing Indonesian companies to Singapore. Then in 1998 to 1999 we were active with companies from the Philippines like Del Monte and Ionics. Notwithstanding the Asian crisis, we could still launch issues successfully as we were very selective and brought in companies in the right sectors, were export oriented, with dollar denominated revenues.
We continue to look for such opportunities and are currently scanning the horizon in Hong Kong and Thailand.
What's your take on market conditions in Singapore at the moment?
Singapore has done very well this year in terms of number of new issues and amount raised. Like many markets, there's also a lot of liquidity sloshing around. We're now seeing average daily trading volume of close to S$800 million. We even hit S$1 billion for a couple of trading days over the last week or so. Earlier this year, the figure was more like S$200 million to S$300 million, but in better days has gone well beyond S$1billion. With this momentum, we a stronger second half.
The savings rate is also very high in Singapore, but retail investors are looking for alternative investment opportunities to bank deposits that pay below 1%. Investors aare looking for higher yielding defensive investments, such as SingPost or the REITs.
Over the last month we've seen confidence returning. Investors are now prepared to take higher risks by putting more money in the equity markets. Companies, including the smaller ones, are in turn taking this opportunity to tap the capital markets to raise funds.
One of the things funds always grumble about are the limited free floats of many Singaporean companies.
That's changing. In the old days, the promoter shareholders only offered the minimum 20% to 25% of their company. But now most of them prefer a larger free float and this trend has become more apparent since MSCI put more weight on free float. SingPost's privatization by SingTel is a good example. The free float following its IPO is 69%. Another example is M1, which has a 60% free float.
The Singapore government has also said that it only needs to hold up to 30% in most government-linked companies and in some cases, is prepared to consider 100% divestments. You will recall that we used to have foreign ownership limits and golden shares in certain listed companies. These have all been removed.
Do you think future deal flow will come from companies expanding their free float or will it still be dominated by IPO's?
There's room for both. To give one example, look at CapitalMall Trust. Having done a successful issue last year, it has returned to the market recently for a second round. Demand for the new units in CapitalMall Trust's private placement for 455.5 million new units exceeded by 28 times the 15.9 million new units originally offered under the placement. We offered 30 million new units to retail through our ATM network and the whole issue was taken up within seven hours.
What about M&A, it's been very quiet lately?
Yes 2002 didn't see many M&A transactions, whereas the year before was very active. This year should also do better than last year. Year-to-date, we've only seen a couple of M&A deals, such as the sale of Yellow Pages. But with Sars and the Iraq war behind us, I remain optimistic that the second half will see more M&A transactions.
Will it be international or domestic M&A?
We're already seeing a mixture of both. Just to highlight a few. NOL's sale of American Eagle Tankers is a major transaction. SNP's purchase of a controlling stake in Leefung Asco is another. The sale of a controlling stake in Bank Danamon is yet another.
Moving forwards you can draw your own conclusions from the fact that Singapore banks have until July 2004 to divest their non-core assets.
How has DBS' progress been?
Soon after the MAS announcement in 1999, we moved ahead and today have divested over S$2 billion of our non-core assets. We've sold off Singapore Petroleum Company, Keppel Capital Holdings Ltd and NatSteel Ltd. We don't have much left.