ANZ Investment bank started to appear last year as independent financial adviser on a lot of M&A transactions in Singapore. How did that franchise get built?
We had to think what can we do that is different to everybody else. In my previous experience of Hong Kong in the 1980s when I was with Morgan Grenfell, we focused on independent advice, particularly relevant in an environment in which regulations were being rapidly overhauled. There were new listing rules, and the unification of the stock exchanges. We identified an opportunity where there was a need for many, many transactions to have a third party view to advise shareholders other than the controlling ones.
When I joined ANZ we had no corporate finance presence in Southeast Asia, apart from the commercial bank. We thought that perhaps the Singapore market was one where we could develop a type of business similar to my previous experience in Hong Kong.
We started this two years ago, largely through our relationship team in Singapore. They were sent out with a mandate to develop a further line of business with their customers, given that margin lending income was always going to be constrained by the size of our balance sheet.
So we offered clients a pure advisory service. And as Singapore's regulations are very similar to those in Hong Kong, with a market of independent shareholders who needed independent advice, there was definitely a need to give an impartial, third party view.
That was the line that we took and due to the restructuring going on in the Singapore, a lot of opportunities came up for offering third party advice.
Since then we have done about 10-12 transactions, all with major Singapore companies such as OUB, Keppel, Sembcorp as well as smaller companies.
The first time I saw your name was the Omni Celestica deal.
That was S$1.6 billion deal. It was also a tricky deal, because the share prices were yo-yoing around as that industry went into freefall over the period of the scheme of arrangement.
The sort of deals we have done are: Sembcorp's disposal of its marine services business; Sembcorp's acquisition of a waste management business; Pacific Carriers, a Kuok group company, where he bought out the minorities, and of course the UOB and OUB deal. We're currently working on Keppel T&T's privatization. It has a 35% stake in Mobile One. We have also just finished a major restructuring involving two of Fraser & Neave's quoted subsidiaries.
We are also beginning to make inroads into Malaysian companies, some of which are listed in Singapore and also Indonesian companies.
Who are your main competitors?
The answer is - and I don't want to be too complacent about this - but there is not much competition for our independent advisory business. The three local Singapore banks are often conflicted out, because they may be the principal lenders to most of these companies. The American houses aren't that interested in this business. They regard it as too small and there is no capital raising involved where they can make big dollars, whereas we're completely comfortable with the size of the deals, we understand the legal exposures and have no problem putting our name to documents and stating whether something is fair and reasonable.
That's the type of work I've done for the last 20 years and is our area of expertise, we have no problem giving advice.
This is the nature of the business and it's been quite successful. The fees that go with it are reasonable.
I'd heard the fees aren't very good.
It depends on your cost base. If you've got a huge engine to run - with sales, trading and research - and that needs to be fed with capital markets transactions, you need big dollar deals. But if you're in the advisory business with a small team your overheads are much more manageable. You know what your expenses are and you can work out the revenue that will come from three or four deals - that will meet your costs - and everything else is profit.
How many in your team in Singapore?
Five.
Are they locals?
Two expats, and three locals. They're supplemented by people in London and people in India. We work together as a closely integrated international team with colleagues travelling to Asia whenever necessary. For example, I went in to work on OUB for two weeks, and a FIG expert from India also flew in.
We also turn down a lot of deals that come our way. Quality control is important.
How many deals did you turn down last year?
As many as we did. So around 10.
Will Singapore be less active this year?
Singapore is suffering from negative growth, so therefore you'd expect the level of activity to tail off. While there may not be another UOB OUB deal. Those are one offs. There may, however, be further restructuring of the government linked companies, but in terms of size they won't be as big as the bank deals.
Having said that, the year has started off very well for us. We've done a large restructuring for the Hong Leong Group where they bought three businesses in China - ranging from diesel engine manufacturing to packaging. They were buying out three joint ventures. We're currently working on the Keppel T&T buyout of the minorities. That has a range of interests from logistics to shipping, as well as a stake in Mobile OneAnd there are two other transactions in the pipeline that have not been announced. So that's not a bad start.
When you did your budget for this year did you think that the revenue to cost ratio might fall, to say two to one?
Last year was particularly good for us. We want to build from doing independent financial advisory work into general financial advisory and acquisition financing. The way we're doing that is leveraging on the back of the corporate lending relationships and using some of our sector specialist skills. We are also very strong in ANZ on the project finance side. What we're developing in Singapore is a strategy of leveraging off the project finance sector expertise we have in telecoms, power, oil & gas, shipping and mining and using that to build up our corporate finance activities. Equity capital raising will still be out of the question for us. Why compete with the Americans at this? We'll stay specialist advisers.
But will you compete with the major US firms for M&A mandates?
It would be unrealistic for us to say we are going to take on the big boys and beat them at their own game. What we want to do is to find niches where there is less competition and where our specialist knowledge and ability to handle difficult deals offers value. This type of general advisory business is not the forte of American banks. They prefer quicker, easier to manage capital markets deals - the large M&A deals where $500 million of convertibles goes through the trading room - rather than the drawn out, restructuring/advisory work.
But American firms restructured PetroChina and Sinopec?
Yes, but these were enormous capital markets deals at the end of them. If a deal can lead to a major IPO or capital raising, American firms are much more comfortable. Just think about their cost base. To keep that engine oiled, they've got to put a lot of chunky deal flow through it so they can be sure to close in a reasonable time frame.
How will you manage your own expansion without costs getting out of control?
Our plans will be developed within a cost-controlled environment. Our team in Singapore is four people; with another 12 people who do project finance. The resources of the latter can be chanelled into corporate finance when a particular sector expertise is required. We're able to take advantage of our people's transferable skills..
So in other words, you are not hiring?
We currently have no plans to hire in Singapore but who knows how the market might develop.
Any plans for Hong Kong?
It's a different market place for corporate finance players. The international banks used to control the independent financial advisory work - such as Rothschilds, Morgan Grenfell, Standard Chartered. They did a lot on the local corporate finance scene. But over the past five years you've seen all that work go into the hands of local Chinese banks and smaller boutiques. International banks only get involved on the very big transactions such as when DBS bought Dao Heng.
In Singapore you don't find that. There isn't the same proliferation of small, boutique financial advisory houses.
So in a nutshell, it would be very hard for us to replicate what we have in Singapore in Hong Kong.
I'd far rather expand our Singapore business into Malaysia and Indonesia, which is what we are doing.
Do you think appetites for hostile takeovers have diminished after everyone saw how much trouble DBS got into with OUB?
A more fundamental question is when was the last hostile takeover in Singapore? We were recently trying to work out how many contested or hostile takeovers there had been in Singapore in its history. It could be less than five.
So it is unfamiliar territory for Singaporean investors and the authorities to be faced with a hostile situation and it's not the Asian way of doing things. This is largely because management and control are synonomous here. Unless the controlling shareholder wants to sell, you're never going to force them to sell by making them an offer.
