China’s biggest lenders are starting to out-muscle global investment banks to earn record fees for managing dollar bond sales in Asia excluding Japan.
Bank of China jumped to fourth from seventh place this year, overtaking Deutsche Bank AG, Bloomberg-compiled data show. Industrial & Commercial Bank of China, not among the leading 30 bookrunners in 2010, entered the top 10 at seventh from 11th, as Goldman Sachs Group slid five places to 13th.
Chinese banks rode the rising tide as the nation’s dollar bond issuance surged above $100bn for the first time, rising almost 10-fold from $11bn in 2010 and accounting for 56% of the regional total. Ernst & Young said that Chinese banks are putting pressure on foreign banks as they are willing to underwrite deals at lower fees and can leverage relationships as domestic companies mount a global acquisition spree.
“It will be interesting to see how it shakes out next year and whether we might see some of the foreign banks start thinking about whether they should retreat from the debt markets,” said Keith Pogson, Hong Kong-based managing partner.
Chinese banks earned 23% of the $821mn in fees from dollar bond sales in Asia ex-Japan, a rise from 3% in 2010, data compiled by New York-based consultancy Freeman & Co show. They grabbed business from American and European banks, whose share each plunged at least 10 percentage points to 30% and 32% respectively.
Competition is expected to remain intense, as Chinese banks continue to beef up their platforms, while foreign banks re-think their business models in Asia, according to Simon Roberts, Asia Pacific head of global headhunting firm Sheffield Haworth.
“We have seen Chinese banks looking to expand their franchises overseas, hiring in London and New York,” said Hong Kong-based Roberts, who previously worked at Cazenove & Co and UBS Warburg. Freeman & Co’s data show China’s lenders earned a record $210mn in fees this year from loans financing major acquisitions, about 63% of which came from dollar lending.
The nation’s global M&A topped $240bn in 2016, data compiled by Bloomberg show.
“They have been aggressive in providing balance sheet and bridge financing, which leads to debt deals later on,” said EY’s Pogson.
As fees for dollar bonds come under pressure, foreign banks have focused on more lucrative high-yield offerings. Deutsche Bank ranked second in dollar junk debt for Asia excluding Japan, just behind Bank of America Merrill Lynch, Bloomberg-compiled data shows. Haitong Securities Co was the only Chinese arranger in that top 10, moving up 16 spots to sixth place. HSBC Holdings was third in high-yield and first in arranging overall regional dollar note offerings.
A spokeswoman at Deutsche Bank and a spokesman from Goldman Sachs declined to comment. A Bank of China spokeswoman didn’t respond to four calls and an e-mail. An ICBC Asia spokeswoman wasn’t able to immediately respond.
Underwriters competing aggressively for volumes may not earn the most money. JPMorgan Chase & Co, ranked sixth for all ratings and 10th in high-yield, said that some Chinese banks appear both as arrangers and investors in dollar bonds and that fees are less standardised in Asia than the US market.
“League table positions may not have a direct correlation with the banks’ profitability,” said Mark Follett, head of debt capital markets origination for Asia excluding Japan.
The company logo for the Industrial & Commercial Bank of China is seen outside a branch in Beijing. ICBC, not among the leading 30 bookrunners in 2010, entered the top 10 at seventh from 11th, as Goldman Sachs Group slid five places to 13th.
