UBS AG used contacts with China’s richest people to help it climb into the top-five arrangers of G-3 bonds in Asia for the first time since 2011.
The Swiss lender, which runs the Asia-Pacific region’s second-largest private bank, has jumped five spots from last quarter to become the third-biggest arranger of notes in dollars, euros and yen, according to data compiled by Bloomberg. Citic Telecom International Holdings Ltd., a unit of China’s largest state-owned investment firm, picked UBS among managers of its inaugural U.S. currency bond, while China Vanke Co., the country’s largest developer, also hired the bank for its debut dollar offering.
“We’ve had the right focus on the right clients and have had a pretty high hit rate in terms of focusing marketing,” said Paul Au, the head of syndicate at UBS in Hong Kong. “We work extremely well with our wealth management colleagues in terms of deal origination and identifying the right product for our clients.”
UBS helped arrange high-yield bonds for Chinese issuers as dollar offerings in Asia excluding Japan have risen to a quarterly record of $45.3 billion. Yields on dollar debt from China have fallen 223 basis points, or 2.23 percentage points, in the past 12 months to 5.5 percent, according to JPMorgan Chase & Co. indexes. That’s a bigger decrease than the 64 basis point decline to 4.32 percent for notes in the currency sold by all Asian companies, the indexes show.
Asia is a bright spot for Switzerland’s largest lender, which announced in October that it would largely exit fixed-income trading and fire a total of 10,000 workers from that and other divisions. The bank has fallen 2 spots to 14th in U.S. bond rankings this quarter from the previous three-month period, Bloomberg-compiled data show.
In Asia, HSBC Holdings Plc held its No. 1 position in arranging debt in G-3 currencies, taking 15.5 percent of all deals, up from 14.7 percent in the last three months of 2012.
“We have a large and diversified client base in Asia who regard us as being a safe pair of hands to lead manage their bond deals,” said Stephen Williams, head of debt capital markets for the Asia-Pacific region at HSBC. “Connecting with different parts of the organisation is critical. We have had several deals this quarter that have emanated from referrals from our private banking business.”
Standard Chartered Plc followed with an 11.2 percent market share, up from 5.9 percent last quarter when it ranked seventh among arrangers, according to the data. UBS has 9.3 percent so far this year.
“Clients understand we are product agnostic and can deploy a range of alternatives, depending on their requirements,” said Aaron Russell-Davison, the global head of bond syndicate at Standard Chartered. “Bonds have been attractive in the first quarter, but issuers also appreciate that we bring other products to their table.”
Citigroup Inc. is the fourth-largest underwriter in Asia so far this year, with an 8.3 percent share, down from 10.6 percent last quarter when it ranked third, the data show. JPMorgan Chase & Co. is in fifth place with 8.1 percent of issuance, down from fourth with 10.5 percent in the three months ended Dec. 31.
“We aren’t targeting to be a certain number on the league tables,” said Murlidhar Maiya, the Hong Kong-based head of debt capital markets for Asia ex-Japan at JPMorgan. “What we are targeting is generating good solutions for our clients and at the same time running a profitable business.”
James Griffiths, a Hong Kong-based spokesman for Citigroup, declined to comment on the bank’s position in the league table. Citigroup was the biggest private bank in the Asia-Pacific region by assets in 2011, followed by UBS, according to a Private Banker International survey released in October last year.
Chinese developers have sold dollar debt as authorities stepped up a three-year campaign to avert a bubble in property prices. The State Council, now led by Premier Li Keqiang, called for higher down payments and interest rates for second-home mortgages in cities with “excessively fast” price gains, according to a statement on March 1. Bond investors have speculated the measures will help discourage the builders from excessive investment.
Hong Kong-listed Greentown China Holdings Ltd. hired UBS along with other arrangers to sell $300 million more of its existing February 2018, 8.5 percent bonds on March 26. Wharf Holdings Ltd., controlled by the family of billionaire Chairman Peter Woo, invested HK$5.1 billion in June buying shares and convertible bonds in Greentown.
Outside of the real estate sector, steelmaker Citic Pacific Ltd. sold seven-year dollar bonds to yield 6.375 percent through lenders including UBS yesterday.
Faster growth in the world’s second-biggest economy is fueling demand for assets from the nation and leading to rises in the currency. Gross domestic product expanded 7.9 percent in the three months through December, up from 7.4 percent in the previous period.
The yuan touched 6.2095 on March 25, its strongest level since the government unified official and market exchange rates at the end of 1993. It traded at 6.2146 per dollar as of 10:52 a.m. today in Shanghai, prices from the China Foreign Exchange Trade System show.
The yield on China’s benchmark 10-year government note was at 3.56 percent compared with 3.58 percent at the end of last year. Average yields on top-rated onshore corporate bonds with similar maturities have declined 11 basis points to 5.18 percent, narrowing the premium to 161.5 basis points.
The cost of insuring China’s sovereign bonds from non-payment for five years has fallen 2 basis points to 71 from a high for the year in February, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to adhere to its debt agreements.
UBS led underwriting of high-yield notes in dollars, euros and yen in Asia this year, with 12.5 percent of the market compared with 12.2 percent for HSBC, which ranks second, according to Bloomberg’s league table as of 2:00 p.m. today in Hong Kong. Sunac China Holdings Ltd. sold $500 million of five-year notes at 9.375 percent yesterday, with HSBC among the arrangers, according to Bloomberg-compiled data.
“Unlike previous years, bond issuance year-to-date has shifted from investment-grade to high yield,” said UBS’s Au. “We had a plan to cover some of our Chinese property clients which worked out well in terms of the market trend.”
For all of 2012, HSBC led the high-yield category with 15.5 percent, trailed by UBS with 12.8 percent, according to the data. Investors have shifted funds into higher-yielding asset classes as policy rates in Europe, the U.S. and Japan remain near zero.
“With credit spreads at all time lows, the demand especially from the retail bond community has been towards higher-yielding notes,” said Desmond Soon, a Singapore-based senior portfolio manager at Western Asset Management, which managed $461.9 billion of assets globally as of Dec. 31. “This has shifted the composition of newly issued Asia dollar bonds towards high-yield this year.”
Beyond China, UBS was also hired to help arrange the debut dollar offering for billionaire Sunil Mittal’s Bharti Airtel Ltd. and for Petron Corp., the largest refiner in the Philippines.
The Swiss bank’s use of its wealth management business to help boost its bond underwriting comes after it posted a second straight quarterly loss at the end of 2012. The lender is cutting group risk-weighted assets by about 100 billion francs by the end of 2017 as it shrinks the fixed-income business at the investment bank. The unit will need three to five years to fully transform itself, Andrea Orcel, CEO of the investment bank, told staff at town-hall meetings in November, according to two people who heard him speak.
“We are exiting some part of our fixed income businesses, but client-facing and credit businesses remain core for us,” said UBS’s Au. “UBS is quite unique in Asia - whereby as a firm we have a very strong presence in wealth management and we are able to connect the dots.