Chinese Brokers Are Muscling in on Asia's Junk Bond UnderwritersBy and
Haitong tops first-quarter rankings as StanChart, UBS slide
Asia corporate junk bond sales hit record in first quarter
China’s brokerages are out-muscling global investment banks to win more underwriting business in Asia’s junk bond market amid record offerings, as they increasingly help borrowers from the nation raise foreign currency debt.
Haitong Securities Co. topped the league table for high-yield notes denominated in dollars, euro and yen from companies in Asia excluding Japan in the first quarter, according to data compiled by Bloomberg. China Merchants Securities Co. moved up four places to fifth. While HSBC Holdings Plc rose three places to second, Standard Chartered Plc and UBS Group AG slid to eighth and 11th from first and second in the first quarter of 2016.
Junk bonds offer more lucrative fees than high-grade bonds, giving an extra boost to financial institutions that can expand in the business. As Chinese firms have flocked to the offshore high-yield market, mainland banks and brokerage firms have grabbed market share away from international peers. Issuance of junk notes in dollars, euro and yen from Asia excluding Japan swelled to a record $14.6 billion in the first quarter, with nearly 70 percent from Chinese companies.
“It’s increasingly competitive and Chinese banks are effectively buying market share with their balance sheet,” said Veronique Lafon-Vinais, an associate professor of business education at the Hong Kong University of Science and Technology.
Standard Chartered and UBS declined to comment. Alexi Chan, global co-head of debt capital markets at HSBC, said that the significant rise in Asia high-yield bond sales reflected the “constructive market sentiment” and “positive outlook for China’s economy.” An external spokeswoman for China Merchants Securities said that it has no comment.
Chen Yi, head of debt capital markets at Haitong International Securities Group, a unit of Haitong Securities, said the firm has a “full-scale sales team covering institutional investors and private banking clients based in Hong Kong, Singapore and London” and that its distribution is as good as its international peers.
Chinese brokerages have increasingly played a leading role. China Evergrande Group, the nation’s largest developer by sales, raised a total of $2.5 billion through junk bond sales in March. The firm hired Credit Suisse Group AG, China Merchants and Haitong for its initial $1.5 billion note sale, and for the subsequent $1 billion offering, it used the two Chinese institutions along with China Citic Bank International Ltd. A spokeswoman for Credit Suisse declined to comment.
Onshore investors are keen to diversify their holdings into dollar assets, and that plays to mainland banks’ strengths.
Junk bonds from Asia are predominantly placed within the region now, with a large chunk going to Chinese asset managers, and mainland banks have relationships with those investors, according to Frank Kwong, head of primary markets for Asia-Pacific at BNP Paribas SA. “They are important competitors,” he said. “We can’t just discount them.”
With bonus pools at international banks shrinking, EY said foreign banks have found it difficult to hold down talent due to caps on bonuses and pay restrictions.
“The Chinese banks and brokers are much more happy doing a ‘eat what you kill’ style of remuneration for bankers,” said Keith Pogson, a Hong Kong-based managing partner at the professional services firm. “If you’re a real serious mainland originator, you’re going to do much better working for a Chinese brokerage than you are going to do for a Western bank increasingly.”
— With assistance by Carrie Hong