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Saturday, 01 November 2014

Breakout

Li Ka-shing IPOs could be HSBC’s breakout moment

Li Ka-shing may have given HSBC a breakout moment in investment banking. The Hong Kong tycoon looks to have handed the bank two juicy mandates to run initial public offerings. That’s significant. HSBC has never quite managed to turn its formidable Asian banking relationships into deal fees. Things might finally be coming together.

HSBC is a big lender to Li’s companies, as befits the biggest bank in Hong Kong. But it has won only three out of 14 equity mandates from his holding company Hutchison Whampoa over the last decade, according to Thomson One. Now there are two more. A.S. Watson & Co, which HSBC is advising on a float according to Sky News, could be valued at around $20 billion if it can attract the same 12 times trailing EBITDA multiple as U.S. food-to-healthcare chain Walgreen. HK Electric could raise up to $5.7 billion by listing in January.

Reaching this point has been a long struggle. A decade ago, HSBC tried and failed to be a force in global capital markets. It brought in Morgan Stanley’s former top dealmaker John Studzinski to shape the investment bank. He went on an expensive hiring spree but failed to pull in deals and left in 2006 to join Blackstone. In the year to Dec. 18, 2013, HSBC was a middling seventh for Asia-Pacific IPO underwriting, albeit rising from nowhere in the top 25 in 2010.

Rivals privately fear the day HSBC’s corporate banking relationships and the investment bank manage to work together. Having a commercial bank also enables HSBC to maintain relationships with large companies where other banks are sometimes forced to cut off low-paying investment banking clients. So far its successes have been limited to high-yield corporate debt, where it has consistently held a top three position in Asia-Pacific since 2010.

It’s not simply buying deal mandates with access to its balance sheet. HSBC’s loan book in its “global banking and markets” division in Asia isn’t growing much, which suggests it’s not offering more access to credit as a way of winning roles. That may work against it, if rivals decide to be aggressive with their own balance sheets. But getting a nod from Li, one of the region’s most active deal-doers, suggests things are at last moving in the right direction.

 

 

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Context News

HSBC has been appointed to manage the initial public offering of Hutchison Whampoa’s health and beauty retail arm, A.S. Watson & Co, alongside Bank of America Merrill Lynch and Goldman Sachs, Sky News reported on Dec. 18.

HSBC is also a joint sponsor on the listing of HK Electric Investments, which is currently part of Power Assets Holdings, a subsidiary of Li Ka-shing’s flagship conglomerate Hutchison Whampoa.

HSBC was ranked number seven in IPOs by proceeds in Asia Pacific ex-Japan for the year to Dec. 18, according to Thomson One. The bank did not appear on the league table in 2010. In Hong Kong, it ranked third for IPO proceeds in 2013 and seventh in 2012.

For mergers and acquisitions, HSBC ranked sixth in Asia Pacific ex-Japan for 2013, having risen from fifteenth in 2010.

HSBC has advised Hutchison Whampoa group companies on three out of a total of 14 equity issues and four out of 195 deals since 2003, according to Thomson One. 

(Research by Robyn Mak)

 

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