Bank of the Year
In a year of firsts across Asia’s capital markets, one bank was a regular feature on the most innovative deals and landmark transactions. For using its global clout to move Asian markets forward, Morgan Stanley is IFR Asia’s Bank of the Year.
Morgan Stanley cemented its reputation at the pinnacle of Asian investment banking in 2018, leading an unmatched collection of high-profile deals across the entire region.
When it comes to connecting Asian companies with US capital, Morgan Stanley’s credentials speak for themselves, but 2018 showcased its willingness – and ability – to look beyond the low-hanging fruit and take on some of the most challenging and complex deals of the year.
It was especially impressive in Hong Kong’s stock market, where it has long been a vocal proponent of reforms to make the city a more competitive global hub. After the exchange revamped its listing rules in April, Morgan Stanley moved quickly to bring the first listings with weighted-voting rights and the first from the pre-revenue biotech sector, working hard to develop the market and introduce a new asset class to international investors.
The bank flexed its muscles far beyond Chinese equities, leading key financings in South-East Asia and Australia and a full hand of M&A advisory mandates across the region. The debt business – less of a focus in recent years – also came into its own in 2018, with a vastly improved showing thanks to some marquee bond mandates.
In a year when the best advisers needed to respond quickly to changing market conditions and new regulations, Morgan Stanley’s impressive risk appetite, long-standing client relationships and experienced management team meant it was best placed to thrive.
“2018 has been a powerful US year. Technology was again a big theme, and our global franchise really delivered for our Asian clients,” said Dieter Turowski, chairman of investment banking for Asia Pacific.
Even if conditions played to Morgan Stanley’s strengths, with outbound Chinese investments taking a back seat to heady US stock markets and a strong dollar, the bank’s book of business went far beyond technology listings in New York. It delivered an impressive spread of innovative and complex deals across Asia and across asset classes.
“We had our best year ever in South-East Asia,” said Turowski. “In equities, we were in the top three in all five regions across Asia Pacific.”
In equities, the bank held off stiffer competition in 2018 to once again place more stock than any other arranger, with the leading share of block trades and secondary offerings across the region, as well as a dominant position in Hong Kong.
Naspers’ US$9.8bn sell-down in Tencent Holdings was a particular highlight, and one that required Morgan Stanley and the two other bookrunners to handle a truly global overnight bookbuild for a Hong Kong-listed stock.
The US bank was also one of the sponsors on Hong Kong’s most significant IPOs of the year, handling the landmark HK$42.6bn (US$5.4bn) IPO of Chinese smartphone maker Xiaomi, the first listing in the city with weighted voting rights, and the HK$33.1bn listing of Chinese online services provider Meituan Dianping, the second deal of the kind. Morgan Stanley also sponsored three listings from pre-revenue biotech companies, throwing its weight behind Hong Kong’s plans to become a fundraising hub for the promising sector.
Outside Hong Kong, Morgan Stanley listed 11 Chinese companies in the US during IFR’s review period, including electric vehicle maker Nio during the tricky late summer session.
Vietnam was another highlight. In a year when records fell with alarming regularity, Morgan Stanley was involved in the country’s biggest listing of all time, the D31trn (US$1.3bn) initial equity offering of property developer Vinhomes. The deal tested the limits of the Vietnamese stock market, proving that the fast-growing country has the ability to host sizable offerings.
The bank also won its first JGC role on a Philippine share sale in 2018. It was involved in the complicated US$637m follow-on for San Miguel Food and Beverage, which aimed to restore the company’s free float after consolidating its F&B businesses into a single listed entity. Though the size came in well south of some initial expectations, the deal required careful handling in torrid market conditions, particularly as the shares were sold at a premium.
Australia was a bright spot. Morgan Stanley built on its recent successes with repeat mandates from some of the most important clients, notably the two-time fundraisings of a combined A$6.7bn for Transurban Group. The bank also worked on Australian gas and oil producer Woodside Petroleum’s A$2.5bn entitlement offer to fund the purchase of ExxonMobil’s stake in the Scarborough gas field.
CREDIT AND CONTINUITY
Morgan Stanley’s consistency has been especially impressive in recent years in Asia Pacific, where it is never far from the top of the equity underwriting and merger advisory tables.
This kind of golden streak is not the product of chance. The bank clearly values long-term relationships, and works hard to retain and nurture talented individuals: Turowski’s elevation to chairman in 2017 freed up a round of promotions, but otherwise the Asia leadership class has been remarkably stable.
Morgan Stanley continues to make a point of promoting from within, most recently elevating syndicate stalwart Alex Abagian to co-head of equity capital markets for Asia Pacific in August 2018, alongside Mille Cheng, and naming high-yield debt banker Ernst Grabowski head of debt syndicate for Asia Pacific.
Consistency often breeds complacency, but there is no sign of any loss of focus. Instead, Morgan Stanley continues to make thoughtful investments and strategic changes to improve its already strong franchise.
The debt business is a case in point. Julien Begasse de Dhaem, an 18-year veteran who stepped up to head global capital markets for Asia Pacific in 2017 has been instrumental in transforming Morgan Stanley’s approach to bond underwriting. The bank makes no secret of its ability to take risk when appropriate, as well as distribute, and it used the full range of its abilities to good effect in 2018.
Morgan Stanley rose to third in the league table of G3 bond underwriters in Asia Pacific, excluding Japan, for IFR’s review period. It gained five places on the previous 12 months – more than any other bank in the top 10 – and was one of very few international banks to increase its share in a declining high-yield market.
“Complexity plays to our hand,” said Begasse. “We want to do good deals where we can add value, and that has not always been possible in recent years.”
Morgan Stanley’s signature debt deal of the year was a US$3.3bn fully underwritten 18-month bond for the purchasers of 47 floors in Hong Kong skyscraper The Center, sold in late 2017 for US$5.12bn, a world-record price for a single-building deal.
The deal was in danger of falling apart after the main Chinese investor pulled out, and the consortium members – now a collection of Hong Kong tycoons – had little time left to arrange financing. Morgan Stanley came up with a short-dated, deferrable bond that would act as a bridge, giving the investors more time to put in place long-term funding for their new assets. The notes are also pre-payable, to allow the property investors to refinance their portion early. Alongside a US$811m mezzanine piece, the deal covered 80.8% of the property value.
A handful of institutional investors took up the notes in late April, drawn by the 7.5% yield and short maturity. Morgan Stanley went in with anchor investors and was off risk within a week, highlighting both its structuring and distribution capabilities.
In a similar vein, Nagacorp’s US$300m debut bond introduced the first Cambodian issuer to the international markets in a rocky period in May, but priced inside guidance and traded well, giving the company a valuable funding gateway for future projects and the poor South-East Asian nation a first foothold in the international markets.
The bank also put its capital markets expertise to good use in financing and hedging around important acquisitions. It helped a Chinese consortium manage the record US$16bn purchase of GLP, helped Geely Auto finance a US$9bn stake in Germany’s Daimler, and Tianqi Lithium buy a US$4bn stake in Chile’s SQM – to name but a few.
Despite some intense competition, it held on to the top spot for M&A advisory involving Asian targets or acquirers in IFR’s review period.