Looking East: Banking trends realign across Asia Pacific
01 Oct 2019
Asia Pacific remains the fastest growing region globally, yet it is more a collection of markets at different stages of economic and geopolitical development. As companies in Asia Pacific become more international in their reach and ambitions, how is this changing banking trends in the region?
In this video, Vanessa Koo, Head of Banking, Asia Pacific highlights three M&A themes in 2019: regional sponsors deploying their capital, repositioning of multinational corporates and paradigm shift in China for M&A deal-making.
Koo also examines Asia Pacific’s debt capital markets and equity capital markets, while offering her views on the growing momentum of environmental, social and governance (ESG) in the region.
In terms of the 2019 M&A market in Asia, we have experienced a slowdown in both domestic and cross-border deal-making with volumes down 28 percent year-on-year in the first half.
Macroeconomic and geopolitical dynamics have created headwinds in certain traditional cross-border transaction corridors whilst creating interesting deal opportunities elsewhere.
For example, China-US deal activities are being impacted by ongoing trade disputes, but Japan outbound continues to be robust.
We see three major themes continuing to drive M&A in the region.
Theme 1: Regional sponsors deploy capital - Regional sponsors’ capital where private equity funds in Asia-Pacific continue to look for opportunities to deploy the large amounts of capital that they have been able to raise. Some of these sponsors are now exploring exit options for portfolio companies that were acquired in recent years.
Theme 2: Repositioning of Multinational Corporations - The repositioning of multinational corporations in the region particularly in those sectors and markets where foreign ownership restrictions have been liberalised.
Theme 3: Paradigm shift in China - A paradigm shift in cross-border deal-making in China where it is no longer essentially a one-way outbound M&A market opportunity.
Asian high-yield bonds driven by China
The high-yield bond market in Asia Pacific has been particularly active in 2019 driving the overall DCM fee wallet up 15 percent year-on-year for the first half. Asian high-yield has been largely driven by Chinese property companies issuing offshore bonds. China high-yield is expected to continue to be active with India and Indonesia also being markets with large opportunities to contribute to the overall Asian high-yield space.
The recent geopolitical issues in the region have not materially affected client behaviour, thematics. even FX volatility is less relevant for primary issuances. However, the US-China trade dispute has become a significant event for the global economy. And thus it does impact primary markets.
Over the longer term though, we believe Asian issuers’ desire and ability to fund from the US dollar bond market remain strong.
Equity derivative products come of age in Asia Pacific
Asian clients are more accustomed to using equity derivative products to support overseas investments and stake acquisitions of listed companies. We have observed our client base becoming more sophisticated in appreciating the merits of hedging and risk management offered by derivative solutions.
In the corporate derivative space, we observe stronger interest from clients to embed downside protection in financing structures as well as more equity-linked financing opportunities arising as credit conditions in China tighten.
Rising geopolitical tensions and increased market volatility have led to lower issuance volumes by Asian clients with total ECM volume down 23 percent year-on-year for the first half of 2019, with most listings by Chinese issuers followed by India and Japan.
Future theme: Environmental, social and governance (ESG)
ESG themes are definitively gathering stronger momentum in Asia as the demand for more investment opportunities linked to a sustainability purpose continues to increase. Many of our corporate clients in Asia are not only participating in green financing, but we are also engaged in strategic dialogues with them around how to evolve their businesses to a more sustainable model.
Discover the growing importance of ESG in debt capital markets, with key insights from Susan Barron, our Head of Green and Sustainable Capital Markets.
About the expert
Vanessa Koo is a Managing Director, Head of Banking for Asia Pacific and Head of Banking for Greater China at Barclays, based in Hong Kong.
Vanessa assumed her regional leadership role for Banking in January 2019 and was appointed Head of Banking for Greater China in January 2016.
Previously, she served as the Head of Mergers and Acquisitions for Asia Pacific from June 2014 to January 2019, and prior to that, Vanessa led the Consumer Retail Group coverage team for Asia Pacific and was responsible for advising consumer retail clients on their strategic imperatives, including mergers and acquisitions and capital markets activities.
Prior to joining Barclays in 2010, Vanessa was Head of Mergers and Acquisitions for Greater China at Goldman Sachs. She joined Goldman Sachs in New York in 1998 before relocating to Hong Kong in 2000. Vanessa earned a BA in Economics from Princeton University