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Best Global emerging markets equity house: Morgan Stanley |
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Also nominated: BAML, Credit Suisse and Goldman Sachs |
Consider the biggest equity deals in the emerging markets over the past 12 months and one bank has acted as global coordinator on more than any other – Morgan Stanley.
Whether it was Agricultural Bank of China’s $22 billion IPO, Petrobras’s $70 billion secondary offering or Russian technology company Yandex’s $1.3 billion debut listing, the US bank was in prime position to drive the deal. One of the keys to Morgan Stanley’s success is that even while it was going through the mill in 2008 it continued to invest in its equities business and never stopped focusing on clients. “We emerged from the crisis stronger,” says Paul Taubman, co-president of institutional securities at the firm.
For any equities house the past 12 months have been tough. Global markets have had a topsy-turvy run, with the emerging markets no exception. So the timing and pricing of deals has come under great scrutiny. “When bringing companies to the market we take extreme care to structure the transaction properly,” says Taubman. “We come from a client advisory perspective and sometimes we have to give tough messages, be it on valuation or timing.”
Like all of its rivals, Morgan Stanley has had to pull some deals and price others at the bottom of the range. It has seen some offerings dive in the secondary market. Yet it has also had its fair share of success. Take the IPO of Yandex, in which Morgan Stanley was sole global coordinator and bookrunner (Goldman Sachs and Deutsche Bank were the other bookrunners). Listed on Nasdaq, the deal is the biggest US-listed technology IPO since Google and is the second-largest emerging market internet IPO after Alibaba.
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“We come from a client advisory perspective and sometimes we have to give tough messages, be it on valuation or timing” |
Yandex conducted an extensive global roadshow, consisting of 69 one-on-one and group meetings with investors in Europe and the US. Between the start of the roadshow and the deal’s launch, Russian markets were down more than 8% and internet comparables off 6% to 7%. Yet the stock soared 55% on its first day of trading, following double-digit oversubscription levels. Unlike some internet-related firms whose shares are effectively a bet on future success, Yandex is a mature company with strong revenues and consistent profitability. Buyers of the shares included specialist technology funds, Russian investors, emerging markets managers and even pan-European funds, given the company’s expansion plans. Yandex has a 64% market share of search traffic in Russia.
Another standout Morgan Stanley deal is the $1.25 billion IPO for Argentine retail company Arcos Dorados. The US bank acted as global coordinator and stabilization agent. Never mind that the regional operator of McDonald’s restaurants was a rare equity offering out of Argentina. What really stands out is the execution. It was the first Latin American IPO to price above the range since November 2007 and the fifth-best file-to-offer performance ever in the region. Morgan Stanley converted the largest order in the book, generated more demand through one-on-one meetings than any other bookrunner (the others were Bank of America Merrill Lynch and JPMorgan) and reached the highest hit ratio in the syndicate.
Elsewhere in Latin America, Morgan Stanley was sole stabilization agent on Petrobras’s record follow-on offering. Aside from its size, the deal was important for many other reasons, not least because its failure would have been a big blow to Brazil’s standing in the financial markets. The offering involved a highly complex structure including dual listing, multiple classes of stock, priority allocation rights and a concurrent $43.5 billion asset purchase.
In Asia, Morgan Stanley was on three of the region’s biggest deals in our review period: Agricultural Bank of China, Petronas Chemical’s $4.8 billion IPO and Coal India’s $3.46 billion IPO. The latter generated plenty of headlines for the fees on the deal – one-millionth of a percent, just $34. But as India’s biggest IPO the reputational gains from managing the transaction outweighed the financial ones.
Morgan Stanley has been busy in South Africa too, where it has a joint venture with Rand Merchant Bank to provide sales and trading services for equity and convertible securities traded on the Johannesburg Stock Exchange. It placed offerings for metals producer Royal Bafokeng Platinum ($430 million IPO), AngloGold ($1.6 billion concurrent offering consisting of common stock and mandatory convertible bonds), and Life Healthcare ($690 million IPO). It also acted as joint bookrunner for the pricing of an accelerated bookbuild offering of 11.8% in Nampak, a packaging manufacturer.
The range of Morgan Stanley’s equities business in the emerging markets was reflected by its role in running a sale by Abu Dhabi’s Aabar Investments of $1.25 billion of exchangeable bonds into German auto maker Daimler’s stock. Aabar, which owns 9.1% of Daimler, set the exchange price at a 30% premium to Daimler’s average share price between launch and pricing.
