Debt-hungry China Inc fuels local banks' takeover of Asia league tables

Bank of Tianjin Co

11/05/2016 24:00

* Chinese banks take top 6 slots in Asia ex-Japan DCM league 
    * HSBC slips to 7th from 1st in 2015, Citi to 9th from 2nd 
    * China banks aided by world's largest corporate bond market 
    * Foreign banks hamstrung by regulatory restrictions 
 
    By Umesh Desai and Denny Thomas 
    HONG KONG, May 11 (Reuters) - Chinese banks have for the 
first time claimed the top spots for Asian bond market 
underwriting, on the back of a booming local corporate bond 
market and increased funding needs of companies in the world's 
second-largest economy. 
    China has hosted the world's biggest corporate debt market 
since 2014, and local banks are making hay while regulatory 
restrictions limit the ability of foreign rivals to compete. 
    Bank of China  601988.SS   3988.HK , China Construction Bank 
 601939.SS   0939.HK , Industrial and Commercial Bank of China 
(ICBC)  601398.SS   1398.HK , CITIC Securities  600030.SS  
 0267.HK  and Agricultural Bank of China  601288.SS   1288.HK  
now sit at the top of the Debt Capital Market (DCM) league table 
for Asia Pacific excluding Japan for the year to date, Reuters 
data show. 
    HSBC  HSBA.L  0005.HK , last year's leader of the table, 
which covers all local currency bonds, dropped to seventh, while 
Citigroup  C.N  slipped to ninth position from second. 
    "Multi-national companies have limited finance demand, given 
the sluggish growth, while Chinese ones are enthusiastically 
seeking overseas expansion and need capital from offshore 
markets," said Leon Qi, China banking analyst with Daiwa Capital 
Markets. 
    Among the deals joint managed by Chinese banks was Exim Bank 
of China's three-tranche bond raising $3 billion, the biggest 
corporate deal of the year. 
    Chinese banks have also been making inroads in other 
investment banking business in Asia, including equity capital 
markets (ECM), which account for about half of investment 
banking fees in the Asia Pacific region. 
    Chinese banks now account for eight of the top 10 slots in 
the ECM league table in Asia, with CITIC, which in 2013 bought 
Asia-focused CLSA, leading the field.  urn:newsml:reuters.com:*:nL3N1733OG 
    Chinese banks worked on the two largest Asia Pacific IPOs 
this year, the $1.94 billion listing of China Zheshang Bank Co 
Ltd  2016.HK  and the $990 million offering of Bank of Tianjin 
Co Ltd  1578.HK . 
    They have also been aggressively taking market share from 
foreign banks in the Asian leveraged buyout loans market. 
 urn:newsml:reuters.com:*:nL3N13436R  
    Their dominance in Asia extends to the syndicated loan 
market, where the top three positions as mandated arrangers are 
already held by ICBC, Bank of China and China Construction Bank, 
latest Thomson Reuters data shows for the year to date. 
     
    AGGRESSIVE OVERSEAS EXPANSION 
    Mergers and acquisitions (M&A) is the only segment where 
Chinese banks are yet to make a serious dent, with foreign 
investment banks still taking six of the top 10 slots, led by 
Goldman Sachs  GS.N . 
    Though they have not made inroads in investment banking 
business outside Asia, they are nevertheless benefiting from 
funding corporate China's aggressive overseas expansion as 
domestic growth slows.  
    Chinese companies have launched about $100 billion worth of 
outbound M&A so far this year, already within touching distance 
of last year's record $104 billion tally. 
    Chinese banks' near dominance of Asian DCM has been driven 
by domestic companies' increasing switch to bonds in the yuan 
currency, also known as the renminbi (RMB), which come with 
lower coupon rates than dollar bonds. 
    "Chinese financial institutions are taking advantage of this 
shifting market landscape to cater to the financing needs of 
their customers and grow their own presence in the capital 
markets offshore," said Daiwa's Qi. 
    According to Standard & Poor's, China's corporate debt 
market, at an estimated $16.1 trillion outstanding, dominated 
the Asia-Pacific region's $25.5 trillion aggregate and is a 
significant portion of the global total of $50.5 trillion. 
    S&P expects Chinese corporate debt to hit $28.5 trillion by 
2019 or 40 percent of the global sum. 
    "The onshore RMB market is huge versus the other local 
currency markets in the Asian region, and recently we are seeing 
a lot of the Chinese issuers turning homewards to issue debt," 
said a DCM banker at one of the top five Chinese banks. 
    Last month, Agile Property raised 1.2 billion yuan ($184 
million) in 4-year bonds at a coupon of 5.8 percent, 
substantially lower than the coupon range of 8.25-9 percent 
attached to its dollar-denominated bonds over the previous five 
years. 
    In the first quarter of this year Asian issuance of bonds in 
the 'G3' currencies - U.S. dollar, euro and yen - has fallen 16 
percent as the pipeline slowed following three record years. 
    "This is the reason why there is a skew, as Chinese local 
bond markets are expanding amid a slowing G3 bond market," said 
the banker. 
 ($1 = 6.5174 Chinese yuan renminbi) 
 
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Graphic on Asia Pacific debt underwriting    http://tmsnrt.rs/1OevsH2 
TABLE-Chinese banks top debt underwriting league table    
 L3N1862HK  
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Reporting by Umesh Desai and Denny Thomas; Editing by Will 
Waterman) 
 ((umesh.desai@thomsonreuters.com; +852-2843-6935; Reuters 
Messaging: umesh.desai.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA BANKS/DEBT UNDERWRITING