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October 2005

Why corporate business is king

At the IMF/WB meetings the great and the good of the international bond markets gathered to sell their wares to sovereign and supranational issuers. These potential clients remain some of the trophy issuers in debt capital markets, but they are not the kings of issuers they once were.




At the IMF/World Bank meetings in Washington in September the great and the good of the international bond markets gathered in their droves to sell their wares to sovereign and supranational issuers. These potential clients remain some of the trophy issuers in debt capital markets, but they are not the kings of issuers they once were.

For much of this decade corporate business has been relatively slight: M&A volumes declined; the surge of corporate bond issuance of the late 1990s and early 2000s dried up, as companies sought to protect their ratings and started to generate huge free cash flows.

That’s all changed. Every investment banker on Wall Street is constantly on the road to S&P 500 companies. Their message: leverage up and buy now, before someone gets you. And beware of the big, bad private equity player coming to stalk you.

In debt, while overall corporate supply remains down, most originators don’t want to talk about the latest jumbo issuance, they want to talk about the benefits of hybrid debt for corporate clients. A handful of issues are the focus of attention in a multi-billion dollar market. These are the trophy mandates of 2005.

But perhaps the most exciting developments in corporate finance are in the emerging markets. Across Latin America, eastern Europe and Asia activity is on the rise. The banker arranging a $60 million IPO in Brazil is perhaps unwittingly creating a cornerstone of the business for decades to come, for emerging markets are becoming the hotspot of M&A activity.

For many years developed market companies have invested in emerging market firms. That trend continues and, in countries such as China, develops apace.

The big change is that emerging market companies are now looking to buy stakes in or even take over their peers in the developed world. In this issue we profile five companies that have done exactly that. Some bankers believe that business in this direction – from emerging to developed – will become the biggest constituent of M&A flows in the not-too-distant future.

Bookrunners shaken up
Take a close look at Euromoney’s latest annual capital raising poll: we asked frequent issuers to name the firms that most impressed them in their capital raising efforts over the past 12 months.

The results bear only a passing resemblance to league tables based on volumes of business. Firms such as HSBC and SG are fighting it out with established players such as JPMorgan and Deutsche Bank. Barclays Capital comes out top of the tree.

There could be an interesting pattern behind the numbers. Are issuers becoming tired of the product-based approach that the behemoths of the bond business often adopt? Are the smaller, but growing, firms impressing with their attention to detail and focus on what a client actually wants?

Think of an investment banker as a chef. His firm gives him the raw ingredients. He then has to create his own dishes. He needs to know what his customers want and then deliver it. Sometimes the best chefs work in smaller restaurants.







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