Investment banking: SC Lowy eyes acquisition

By:
Duncan Kerr
Published on:

Small Asian firm has big European ambitions; expands into debt capital markets.

Michel Lowy-600
Michel Lowy, co-founder and CEO, SC Lowy

Roughly a year ago, SC Lowy, a small, Hong Kong-headquartered, fixed-income investment-banking firm, opened an office in London to expand its business in Europe.

For a firm that trades loans, high-yield bonds and is moving into primary debt capital markets, there are plenty of opportunities in the European market.

One that is especially bold and which Michel Lowy, co-founder and CEO, says is "absolutely" on the cards, is the potential acquisition of a bank.

It’s "not going to happen tomorrow" he cautions, but he is interested and is looking for what would, if the firm did pull it off, be its second bank acquisition.

Last year SC Lowy and co-investor Yuil PE, a Korean private equity firm, acquired Shinmin, a small South Korean mutual savings bank. 

The price of the transaction was not disclosed, although the size of its balance sheet is around $300 million equivalent, according to Lowy, who expects to grow it further. 

That’s because the rationale behind the acquisition is that it gives the firm access to local financing markets, and with that the ability to on-lend to consumers and small to mid-size corporates. 

For the last six years we have almost exclusively
been a secondary trading and investment business.
Now we are adding the primary piece

Michel Lowy

Having already built what the firm claims is a leading secondary loan and bond-trading platform across Asia-Pacific, providing financing may be a natural next step.

The longer-term plan is to do the same in Europe, but for now Lowy says the firm is more focused on building its loan and bond trading and investment business.

It’s an area he knows something about, having run Deutsche Bank’s strategic investment – distressed products – group for Asia-Pacific before leaving in 2009 to co-found SC Lowy with Soo Cheon, formerly Asia-Pacific head of in-house research and trading in Deutsche’s strategic investment group. 

Today the firm has about 40 staff, with most in its Hong Kong head office, and the rest spread between Seoul, Sydney, New York and now Mayfair, London. 

Lowy expects headcount to double over time, while the appointment in February of Florian Schmidt, former head of ING’s high-yield capital markets group, as head of debt capital markets, shows one area where the firm is hiring. 

"For the last six years we have almost exclusively been a secondary trading and investment business," says Lowy. "Now we are adding the primary piece."

The firm is not so foolish to be chasing mandates for benchmark-sized bonds, rather it plans to pick off smaller, more complex opportunities beyond the interest of big investment banks

The $85 million debtor-in possession financing it provided troubled shipping company Korea Line in 2013 is one example of what the firm is looking at. The $125 million senior bond it co-led with HSBC and Morgan Stanley last year for Hong Kong-listed property developer, Redco, shows what else it can do. 

Winning similar such trades in Europe may prove more difficult, but Lowy says the firm is undeterred. 

"The market in Europe is significantly larger than the market in Asia and it is competitive but we’re not afraid of that because nobody that we see does it like us," he says. 

Further reading
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While the breadth of Lowy’s vision is not known, certainly the firm’s size, intensive research-driven approach to trading and investing, and having a balance sheet large enough to close transactions over a $100 million without having to wait for the buyers and sellers to be lined up, do make it quite distinct. 

How it does business with clients helps distinguish SC Lowy too. 

"Many of the large clients we work with want to work with us because they know we’re not going to try and front run them," says Lowy. "They also know they have a firm that is professional, who understands the trade and that its not going to fall through."

Only their clients can accurately judge whether that stands up or not, but that the firm now boasts over 500 of them, including international and regional banks, asset managers, hedge funds, private equity firms and pension funds, does at least help support that view. 

On the broader question of how Lowy assesses the state of the European markets, he is cautiously optimistic. 

"It’s certainly not easy making money today because directionally it’s very difficult to call the market as a result of the volatility from all the uncertainties out there. It’s not going to get any easier in the foreseeable future. At the same time, we are better in a tough market because we can take a view."

As to the firm’s growth plans and a possible exit, Lowy says that for now they are just focused on "what business do we want to grow and what do we need to do that". 

He adds: "We’re open to partnerships, and we are also in discussions with some Indian and Chinese institutions around joint ventures in debt capital markets because they have relationships with borrowers and issuers that we don’t have."

Small European banks may offer that benefit too.