2017 is a significant year in the history of Asia’s financial markets. It is now 20 years since the devaluation of the Thai baht marked the beginning of a crippling financial crisis that rippled across Asia. It’s also 20 years since Hong Kong returned to Chinese rule, following the handover of the former British colony.
Twenty years after the Asian financial crisis, the region’s economies are stronger and its finances more secure. While lessons have been learned, however, some flaws remain unresolved, and China’s dominance has brought with it new risks.
Twenty years after colonial rule, Hong Kong’s relationship with China is once again a source of anxiety.
Asia’s investment banking industry has been through its fair share of upheaval over the past 20 years, and regulatory pressures and rising competition are adding to the challenges. What does it take to be successful in Asian banking today?
Financial technology is upending supply chains and payment systems around the world, but has yet to disrupt major capital financing. Will it ever transform the primary capital markets?
The impact of financial technology companies on the traditional banking sector will depend on the attitude of regulators, says Avinder Bindra.
The rise of financial technology has brought banking to a critical juncture, where incumbent institutions must adapt to stay relevant, says Piyush Gupta, CEO of DBS Bank.
IFR Asia’s first issue came off the presses on March 8 1997, and painted a mixed picture of pre-crisis Asia. While Indonesia’s capital markets were clearly roaring, things were already looking rocky in Thailand.
Only months after IFR Asia’s first issue in March 1997, Thailand had given up on its currency and the Asian financial crisis was in full flow. IFR Asia was left asking the same questions as many of its readers: what do we do now?
We asked some former colleagues for memories of their time at IFR Asia. Happily, they haven’t forgotten how to tell a good story
In 1995, I relocated to Hong Kong from London, where I was reporting on UK and European equities for IFR, to help launch a sister publication covering Asia’s rapidly developing capital markets. For a British national, the promise of witnessing the divestment of one of the last vestiges of empire in the return of Hong Kong to China in 1997 was too good to resist.
IFR Asia asked market participants to predict what might happen in the next 20 years. We quickly found that nobody was brave enough to put their hopes and fears on record, so we did it ourselves. We stand by our predictions 100%, as long as they come true. If not, then they were all just a bit of a laugh.
The boom in Asia’s capital markets came to a shuddering halt in the second half of 1997, only a few months after IFR Asia’s first issue. One by one, central banks across Asia were forced to float their currencies, triggering huge devaluations and mass defaults. By the end of the year, Thailand, Indonesia and South Korea had all turned to the International Monetary Fund for assistance.
China Telecom’s 1997 IPO is remembered as a pivotal moment in China’s engagement with the global capital markets, smashing size records and sowing the seed for big listings from the country’s public sector. The origins of the deal, however, trace back to Hong Kong’s red-chip fever in the mid-1990s.
The turmoil in South-East Asia claimed its first victim in Hong Kong at the beginning of 1998, when homegrown investment bank Peregrine’s aggressive underwriting in Indonesia led to its downfall. The trouble spread, however, and by August the Hong Kong government was forced to intervene to prop up local stocks.
While the dominoes were falling across Asia, Taiwan weathered the Asian financial crisis relatively well. The island’s economy did slow from 6.7% growth in 1997 to 4.6% in 1998, but that was by far the highest of any of its Asian neighbours – most of which slumped into recession. The central bank was forced to release its grip on the currency, and inflated stock prices took an initial tumble in the 1997 rout, but recovered relatively quickly. In the 12 months to June 1998, the stock price index fell 16%, versus more than 40% in Singapore and Hong Kong, and more than 60% in South Korea.
Deals began to flow again in 1999, at least in North Asia. China’s red chips resumed their overseas march through the Hong Kong IPO market, and governments began looking to sell down the investments they had been forced into at the height of the crisis.
Securitisation played a part in Asia’s recovery, too, helping banks and governments recycle balance sheets and offload risk. Structured financing survived test after test in the region, from the Asian financial crisis to consumer credit blowups, before the US subprime disaster finally put paid to any mainstream ambitions.
Enthusiasm for all things tech took hold of the Asian capital markets, as it did around the world, pushing investors into decisions that were not always, well, rational. Hong Kong hosted two of the most memorable, top-of-the-market trades of the dotcom era. Li Ka-shing’s foray into the internet sector triggered frenzied scenes across town as retail investors fought – literally, at times – to get their hands on shares in
PetroChina’s IPO in April 2000 opened the floodgates for jumbo Chinese state-owned enterprises looking to access overseas equity capital. In proving investors would support a major listing in H-share format, the deal paved way for the many IPOs of Chinese lenders and insurers that would transform the Hong Kong market in the years to come.
Having retained access to the capital markets throughout the crisis, Asia Pulp and Paper eventually threw in the towel in March 2001, calling a standstill on a staggering US$12bn of debt in the world’s biggest corporate emerging market default. APP’s move triggered fraught scenes as onshore and offshore creditors battled to enforce their rights, at one point marching into the offices of a subsidiary with a list of demands.
Japan’s asset-backed market was the source of intense competition in the early 2000s, to the extent that issuers sometimes found it hard to choose between rival arrangers.
Good news has outweighed bad in Australia for far longer than IFR Asia has been around, with the country now recession-free for almost 26 years straight. The combination of a natural resources boom, a banking oligopoly and – perhaps most importantly ¬– the effect of a desirable climate on house prices has contributed to strong and stable growth.
Having limped along since the financial crisis, South-East Asia was back on its feet by mid-2002, with a series of significant capital raisings completed in a matter of weeks. In Malaysia, where the imposition of capital controls at the height of the crisis had left international investors outraged, mobile phone operator Maxis reopened the market with the country’s biggest IPO in 10 years. Days later the government sold the world’s first sovereign Islamic bond in US dollars, putting Malaysia firmly back on the capital markets map.
Asia’s debt restructuring scene has been one of the most colourful sectors of the financial markets in the past 20 years.
Severe acute respiratory syndrome, to give Sars its full name, spread around the region in early 2003, leading to deals being called off and bankers quarantined. With the war in Iraq and a consumer credit bust in Korea, confidence looked for a time to be irreparably damaged.
Hutchison Whampoa’s US$5bn three-tranche bond issue, launched in November 2003, stands out as a key moment in the development of the Asian bond market. The deal remained Asia’s largest dollar bond offering for more than a decade, until Sinopec matched the size in 2014 and Hutch beat its own record later that year.
Risk-taking was back on the agenda in 2004 with a collection of new listings from Asia’s technology sector, including a US$200m Hong Kong IPO for a little-known Chinese company called Tencent. The bond markets also welcomed exotic new industries, allowing Toronto-listed Sino-Forest to make its debut, and Las Vegas Sands opened the first foreign-owned casino in Macau, repaying its project costs within months.
Outbound Chinese deals moved to another level in 2005 as industry leaders and newly commercialised banks looked to raise their global profile. Bank of Communications and China Construction Bank had investors rushing to subscribe to their Hong Kong listings, while computer maker Lenovo transformed perceptions by showing that China could take over a well-known global brand.
The Philippines’ equity capital markets have minted several new billionaires over the past decade or so, but it was the modest listing of a lowly public utility in 2005 that started the flow.
Growth capital was very much the flavour of the year throughout 2006, as companies across Asia turned to the equity markets and overseas acquisitions in search of expansion opportunities. Two more Chinese banks sealed massive Hong Kong listings, culminating in ICBC’s world-beating US$22bn float.
Tata Steel’s acquisition of European steel maker Corus was a defining moment for the Asian syndicated loan market. The massive US$13bn term loan proved that Asian borrowers could access enormous amounts of money without the US market, raising the bar for outbound M&A. But it wasn’t supposed to be that way.
Trouble brewing in the US subprime mortgage market proved to be of little consequence in Asia, where analysts were more focused on booming Chinese stocks. Shanghai soared 240% in the 12 months to October 2007, taking Hong Kong with it into bubble territory and unleashing a wave of A-share listings as overseas Chinese companies raced back home.
India’s JM Financial ended its nine-year joint venture with Morgan Stanley in 2007, dissolving the last of the JVs with the bulge-bracket investment banks and ushering in a new chapter for the local market.
Asia’s response to the global financial crisis was largely one of bewilderment. Asian banks, at least since the region’s financial crisis, were conservative, largely state-run institutions funded by a massive deposit base. The world of prop trading and subprime mortgage-backed synthetic debt was quite literally thousands of miles away.
Farhan Faruqui remembers the weekend of the Citigroup bailout well. He was late for dinner.
Japan’s track record of successful partnerships between domestic and international financial institutions is not a long one.
While the crisis was still making waves at the beginning of the year – Bank of America’s rescue of Merrill Lynch very nearly collapsed in January – Asia’s capital markets were soon back to doing what they do best: raising money. Global investors turned to block trades to monetise their Chinese bank stakes, and Australia’s lenders were on a recapitalisation binge, helped by a government debt guarantee.
Australia’s famously sedate bond arena may be short on hair-raising moments, but the country’s banking sector was certainly not immune from the global financial crisis.
If 2009 was a year of recovery, 2010 in Asia was all about growth. Capital markets records fell from South Korea to India as companies and governments rode the wave of enthusiasm for emerging markets, and local currency bonds blossomed as quantitative easing weighed on the US dollar.
Share sales from the Indian government have long paid a standard fee of Rs1, but it wasn’t always that way. In 2010 when the government invited bids for the Coal India IPO it said the fees had to be quoted in multiples of Rs1 and not as a percentage of the transaction. The market was inactive post the global financial crisis and few were surprised when the Rs1 figure became the final price for a Rs155bn (US$3.5bn) IPO – the largest public listing in Indian history.
With Europe held back by a worsening sovereign debt crisis, the rise of the Asian consumer was the theme behind many of the most popular deals of 2011. Global issuers, from Italian fashion house Prada to US luggage maker Samsonite, turned to Hong Kong – rather than New York or London – to list shares closer to their key growth markets, reflecting the growing clout of both Asian investors and Asian consumers.
The Chinese renminbi was one of the world’s most sought-after currencies throughout 2011, and its growing use outside of mainland China spawned big opportunities in the bond markets. Multinationals including BP, Volkswagen and Unilever all launched debut Dim Sum bonds during the year, after global fast food chain McDonald’s opened the market in August 2010.
The breakthrough growth of Asia’s debt capital markets was the highlight of a challenging year, with uncertainty in the eurozone still weighing heavily on risk appetite. Asian issuers broke the US$100bn mark in G3 bond sales for the first time, and also reduced their reliance on the 144A or global markets as local investors welcomed a range of products from perpetuals to securitisations.
Corporate bond sales in Singapore dollars peaked at S$32.8bn in 2012, according to Monetary Authority of Singapore data, a far cry from the S$3.9bn market size in 1998.
The very suggestion that the US might scale back its monetary stimulus sent several Asian currencies into a nosedive over the summer of 2013, adding to a bleak picture in a market already worried about cooler Chinese growth.
Offshore rupee financings are well known around the world as Masala bonds, but it was very nearly something different.
Asian issuers and investors took on new significance in the global capital markets in 2014, making it clear that the region is no longer dependent on western money. Alibaba’s world-record IPO, followed up with a jumbo bond, proved that Asia’s homegrown champions can stand shoulder to shoulder with the world’s biggest and best-known companies. Bank of China showcased the firepower of Asian investors with its world-record bank capital offering.
A high-profile German carmaker might not seem the obvious candidate for a test of China’s cross-border financing framework, but it was Daimler’s Rmb500m (US$73m) Panda bond in March 2014 that set the prototype for this promising market.
One of the most intriguing bond issues in Asia is one that still has not seen the light of day. Papua New Guinea has been considering a US dollar offering for longer than IFR Asia has been in print, but the sovereign debut looks no closer to happening today than it did back then.
Global markets were repeatedly caught looking in the wrong direction throughout 2016, whether it was Britain’s referendum on Europe, negative rates in Japan, the rise of Donald Trump, or the cancellation of almost 90% of India’s banknotes.
Volatility was the one constant of 2015, affecting everything from Chinese equities to US Treasuries, from South-East Asian currencies to global commodity prices. After a 12-month bull run, the wheels fell off the A-share bandwagon in June, and underwriters had to cope with massive syndicates on the deals that did come to market. A rout in oil prices resumed in the second half of the year, contributing to a miserable year for South-East Asia.
Bank of China’s US$6.5bn offering of Additional Tier 1 capital in November 2014 remains the largest international bond from a Chinese borrower.