JPMorgan is, according to the league tables, the leading arranger of emerging-market debt, with a good spread of primary market business in Latin America, Asia and emerging Europe for sovereign, corporate and financial institutions. It’s also widely know to be one of the two dominant traders – along with Citigroup – in all emerging-market debt classes including local currency instruments.
Both predecessor banks were big traders and if one plus one makes only one and a half, the new bank’s secondary market share in emerging market fixed income could exceed 20% in 2001.
It produces well-followed research and has recently shown some innovation its provision of indices for emerging-market investors.
“The business approach is, in our minds, a global one, whereas many other firms focus on a particular region or strength,” says Moctar Fall, who runs the global emerging-market capital markets group from New York. To be fair, the old Chase and JPMorgan emerging-market businesses were mainly focused on Latin America, while JPMorgan was stronger in eastern Europe. Neither could claim dominance in Asia. Fall admits that “it will be difficult for any one firm to be number one across all the emerging-market regions,” but claims that JPMorgan has fewer weak spots than most of its competitors.
The bank has a strong record of franchise deals. It’s been a bookrunner on sovereign bonds from Latin America this year for Argentina, Brazil, Colombia, Mexico, Uruguay and Venezuela and led corporate deals for Mexican telecom company, Telmex and Brazilian media company, Globo. It was also a lead manager in the recent $29.5 billion debt exchange for Argentina.
Eastern Europe has been a little tough for the firm. It was going through its merger while the mandate was being awarded last December for Poland’s issue, which came to the market in January, a key sovereign deal from the region. It also suffered from previous successes. Having led several deals for Hungary – JPMorgan led its euro debut deal in 1999 and Chase its large floating-rate note last October – it lost out on the most recent Hungarian sovereign bond deal. But the new JPMorgan has led sovereign bonds for Croatia and Lithuania this year and was recently mandated by Romania and has led a corporate issue by Termoelectrica. It also led, jointly with CSFB, two dollar bonds for Lebanon.
From Asia, it priced an FRN for the Philippines in April and corporate deals for Hong Kong Land and Hutchison Whampoa.
As well as building on its strengths in emerging market debt in euros and dollars, JPMorgan is also capable of executing deals in local currencies. Fall recalls: “When Uruguay at the beginning of the year had an immediate borrowing need but did not want to cannibalize demand for future strategic issues in dollars and euros, we proposed to them a local market solution in Chilean peso. We’ve done two deals for Uruguay and one for the World Bank in Chilean peso and another Mexican peso deal for the World Bank. This shows a significant integrated, global approach.”
Another example of various parts of the new JPMorgan coming together to do a deal that the predecessor firms could not have, comes from South Africa, where Chase’s balance sheet, JPMorgan’s risk management skills and Flemings’ equity research and advisory ability led to a domestic rand bond issue for mining company Harmony Resources. Jakob Stott, head of investment banking for central and eastern Europe, Middle East and Africa, takes up the story. “Flemings had a great investment banking relationship with Harmony and had advised them on the M&A side.
Since then, we’ve done syndicated loans for them. A key to this was us arranging hedges that allowed other banks to participate in the loan. Harmony had not traditionally hedged its production. We then arranged a domestic rand bond to refinance the bank debt.” The firm is now acting as financial adviser to the company on a share issue. “These are deals which the heritage firms, on their own, might not have done,” says Stott. “And remember this is not a very large company. It shows how we can really reach deeply into local markets.”
There are similar stories in Brazil. The bank has arranged a syndicated loan for Globo, as well as launching a local-currency bond issue in Brazil in April and its debut euro-denominated bond in May. Falls says: “The way we are organized means that it is the same team organizing these transactions for the client. We have regional emerging-market capital markets groups in the three centres covering bonds and loans, hard currency and local currency, as well as a global liability management group. That means we can provide the best solution to each client with one phone call. That’s something that other banks struggle to achieve.”
Fall is not keen on the idea of using the new group’s large balance sheet to win business through extending loans in the emerging markets. “You need to do that from time to time because of the synergies between businesses. We’ve understood the need to do it, but very selectively.”
The bank is keen to provide credit exposure to investors wherever they require it, through credit derivatives if not through underlying assets. The firm has also brought its quantitative skills to bear in devising the euro emerging market bond index for European investors. “These dedicated investors need something to benchmark themselves against, especially considering the speed with which they had been setting up euro convergence funds,” says Richard Luddington, head of debt origination for central and eastern Europe, Middle East and Africa. The firm is also exploring ways of extending investor coverage to more middle-market accounts through internet-based services and in cooperation with the likes of Bloomberg.
