The Swiss bank's widely respected ECM head Colin West has just returned to London after a long stint in the region. Here he and his new successor Matthew Koder discuss the how the bank has built and consolidated its ECM platform in the region.
When did you come to Asia?
West: I came to Asia at the end of 1994 and my first deal was two simultaneous convertibles for the Formosa Plastics group in Taiwan.
Then I ran corporate finance in Singapore and then the M&A team in the region. I have always had more of an ECM focus than an M&A focus. But after the Asian crisis there was no equity business and we thought there would be lots of M&A. So, like many other people at the time, I re-branded myself as an M&A banker. We also conducted some restructuring work in Thailand and Indonesia.
Where did you spend most of your time before the Asian financial crisis?
In 1995-96 we managed a number of IPOs and bond issues out of Indonesia. In those days I probably spent half my time doing Indonesian business - in common with many bankers at the time.
How big was the ECM team then and now?
The ECM team was 12 people at its height, and is still 11 people. Weve neither expanded dramatically nor cut back dramatically. Most of the team is still in place. I remember Marcus Brown came over here literally at 24 hours notice to run syndicate when David Paine went to Lehman.
We were awarded the MTRC mandate shortly after that. We were up against the mighty house of Goldman Sachs with a huge ECM team and legions of people in investment banking. That was a baptism of fire because Marcus was new to the region and I had just taken over ECM, and at that stage I didnt have a privatization background.
But after that our early mandate successes were really in the privatization area. We won SMRT, then PSA, then SingPower, and Chunghwa Telecom.
Where were you in the league tables back then?
Back in 1999 we would have been one or two in the equity-linked league table, but seventh or eighth in straight equity.
So did Warburgs equity strength help UBS to change that?
SBC Warburg was very strong as a secondary equities firm. But neither of the ECM businesses from the old UBS or SBC Warburg were operating at the level we would have liked. At the time of the merger, UBS had a stronger investment banking franchise in most Asian countries and there were great opportunities from combining this with the Warburg brokerage business.
In 1999 and 2000 we finally got the cooperation right between investment banking and Equities and thats what really made the difference.
If you had to choose, what has been your favourite deal?
Thats very difficult. There are many favourites. SMRT was a deal that I started off on when I was in corporate finance in Singapore and completed as head of ECM. I guess I will always have a soft spot for that one.
Other highpoints were the Korea Telecom convertible which we did a couple of days before Christmas. That was a $1.3 billion bought deal done when the accepted wisdom was that you didnt do deals at that time of year. It is still the largest pure Asian equity-linked deal.
The most satisfying deals are the ones that people dont think will happen. In that respect - with the SARS situation ongoing - Singapore Post surprised a number of my counterparts. I think some of them thought we were crazy to attempt the deal at all.
Matthew, what was your view on SingPost - you were obviously at Goldman then?
Koder: We thought that Singapore Post was executed very well. Thats the truth! It was a brave and gutsy move, but the deal was managed well. And it was the right sort of deal for the time, given the appeal of the story and the dividend yield.
West: It was a pretty gloomy time. There was uncertainty over the Iraq war and SARS then became a big issue. We had worked on the deal a year to the day from the day we pitched. The reason it came when it did was because we looked at 100 different ways for SingTel to sell the business - including a trade sale and different types of securitization - and we came to the conclusion at the beginning of the year that the IPO was the best route to maximise value. The intention was to do it in May. In the event, we slightly restructured the deal with an anchor investor process and volume discounts to generate early interest from key investors before we went public with the deal. We only decided to do that shortly before pre-marketing in response to the difficult market conditions.
MobileOne is another deal that confounded accepted wisdom. Some of our colleagues in other parts of the world were quite surprised by our decision to bring a mobile phone company IPO to market in a period when other telcos were restructuring and doing rescue rights issues.
When I first told one of my ECM colleagues in London that we planned to do the deal, he said "If you complete that Ill fly to Hong Kong, take all my clothes off and swim from Hong Kong island to Kowloon." Were still awaiting delivery on that bet. Of course, those of us who were familiar with the M1 story didnt share those doubts.
Whats your view, Matthew on the state of the markets for the rest of the year and the issuance pipeline?
Koder: Things have been tough. But there has been a sustained rally in the US over the past couple of months. That has helped Asia, and although the region has been affected by local factors like SARS, those factors are largely behind us and the markets have performed very well over the last several months. That makes it easier to execute deals - corporates are more willing to issue and investors are putting money into the markets again, looking for new investment opportunities. In May we saw $1.2 billion of net new inflows into the Asian region. Thats significant. For all of 2002 that number was about $200 million. So you can see a huge difference. Most of the money is coming into Taiwan, Korea, Thailand, although South East Asia and India are also doing very well.
And with a lot of forecasters now predicting a recovery in the US in the second half of the year, that will further support growth in Asia, which will provide the foundation for continued strong market performance.
Are people now more optimistic?
The market is genuinely more optimistic. Most people are forecasting the markets will be higher at the end of the year than they are now.
West: The level of enquiry were seeing supports the view that a number of issuers will come to market in the second half. Just in the past month the whole buzz on the primary side has come back. Thats nice. Theres nothing worse than not doing deals and the signs are we could be going through a pretty busy period.
Summer holidays are approaching. So will there be a delay until September for some of the major deals?
Block trades and accelerated bookbuilds can be done on pretty tight timetables. But there will be a lull in the summer, and then you will see a good number of deals if the markets hold up. September through December will be very busy if market conditions remain supportive.
How will this years volume compare with last year?
Koder: Last year there was $11.8 billion of new equity issuance and a total of about $20 billion (with converts). Although it will be difficult to break that total this year, you never know given what we have seen in the markets over the last couple of weeks and what is expected to come to market into and after the summer.
