Friday, 22 March 2019

Equity House, China Equity House

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  • Equity House, China Equity House

In a rollercoaster year for Asian equities, one bank used its outstanding market read to raise funds for clients big and small in short windows of opportunity. For its unparalleled execution in difficult markets, Morgan Stanley is IFR Asia’s Equity House and China Equity House of the Year.

Morgan Stanley consistently stood out from the crowd in 2015 as the first to take advantage of short windows in a volatile year for Asian equity offerings.

The US bank had the confidence to reopen the Hong Kong IPO market after the summer rout, as well as handling deals in difficult conditions from Thailand to Indonesia.

It focused on situations where it could play a leading role in execution, dodging most of the bunfights among 20-strong IPO syndicates and, instead, chalking up jumbo – and lucrative – deals as sole arranger or one of only two or three sponsors.

The targeted approach allowed it to resist downward pressure on fees, boosting confidence in Asian equity underwriting as a sustainable business, and have more control over the timing of the deals it brought to market.

“In a year of two halves marked by consistent volatility, we are proud of our execution success, which was based on our accurate market judgments,” said Jerome Leleu, co-head of Asia Pacific ECM at Morgan Stanley.

The period between November and June was a golden one for equity underwriters. Soaring A-share valuations set the stage for many giant equity offerings from China, again the busiest market in Asia during the year.

During this period, Morgan Stanley was involved in most of the jumbo Chinese deals, including the HK$31bn (US$4bn) IPO of Dalian Wanda Commercial Properties, the HK$38.7bn IPO of Huatai Securities, the HK$25bn IPO of CGN Power and the HK$32bn IPO of GF Securities – the last two as global coordinator.

Sentiment in China’s stock markets reversed in mid-June. As of mid-July, the Shanghai stock market had already fallen more than 30% from the seven-year high in June.

Against this backdrop, Morgan Stanley, as one of the sponsors, completed the HK$11.28bn IPO of China Railway Signal & Communication Corp in July, thanks to cornerstone investors that took up almost 70% of the shares.

Then, in September, Morgan Stanley broke a two-month lull in a shaky Hong Kong market as the sole sponsor of the HK$2.2bn IPO of IMAX China and HK$1.9bn IPO of lingerie manufacturer Regina Miracle.

With extensive pre-marketing efforts and reasonable valuations helping to build momentum, both IPOs priced at premiums to closest peers and traded well.

IMAX China rose 10.5% on its first day and Regina jumped 16.0%, restoring investor confidence in new listings and encouraging other Chinese issuers to come to market in a year-end IPO rush.

The HK$8.87bn listing of Dali Foods Group was another success as the first sizable Hong Kong IPO since the Chinese equity rout to come without a disproportionately big cornerstone tranche. Instead of hiring an army of bankers, Dali picked only Morgan Stanley and Bank of America Merrill Lynch to run the IPO.

On another occasion, Morgan Stanley snatched a HK$36.83bn private H-share placement for Ping An Insurance from two of its biggest rivals. The win hinged on Morgan Stanley bringing in Alibaba chairman Jack Ma and Tencent chairman Pony Ma among the 10 investors.

The Alibaba relationship also won Morgan Stanley a HK$12bn private placement of Alibaba Pictures Group, the film and entertainment unit of the Chinese e-commerce giant, in June.

The bank’s geographic reach was impressive. It had senior roles on the Rs30bn (US$462m) Interglobe Aviation float, the largest Indian IPO of the year, and on the Rs43bn qualified institutional placement of IndusInd, the year’s largest Indian QIP, as well as on the US$1.6bn ADR and local offering from HDFC Bank. Morgan Stanley also had key roles in the jumbo recapitalisations of Australian lenders CBA (A$5.08bn or US$3.68bn) and NAB (A$5.5bn).

In a lacklustre year for South-East Asia, Morgan Stanley featured on a handful of meaningful floats, including as sole global coordinator on a Bt37bn (US$1.1bn) IPO of Thailand’s Jasmine Broadband Internet Infrastructure Fund, the year’s largest IPO in SE Asia. It was also a joint lead on Indonesian hospital operator Mitra Keluarga’s Rp4.5trn (US$341m) IPO and on Malakoff’s IPO of M$2.7bn (US$628m), Malaysia’s largest in 2015.

To see the digital version of this report, please click here.

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