BEST BANK
China Merchants Bank
BEST EQUITY HOUSE
Merrill Lynch
BEST DEBT HOUSE
Morgan Stanley
BEST M&A HOUSE
Morgan Stanley
Deciding the award for best bank in China among the big six banks would be a matter of choosing the least bad bank, given the parlous financial condition of China’s state-owned banking system. Outside the big six, though, there is some hope in China Merchants Bank, winner of this year’s best bank in China award. Although state-owned, China Merchants Bank is professionally managed and is generally regarded as one of the best-run banks. Headquartered in Shenzhen, southern China, the bank has grown to a network of more than 400 branches, including offices in 30 major cities in China and in Hong Kong. The bank offers customers the full range of retail and corporate banking services, including a worthwhile e-banking platform.
China Merchants Bank was listed in Shanghai more than three years ago, but rumours are now rife that it will consider an overseas listing. With comparable banks such as Bank of Communications and China Minsheng Bank receiving strong interest among international investors, it’s a logical move on the part of its management.
China Merchants Bank is consistently profitable and financially sound. Net income has risen strongly in each of the past four years and the bank’s total capital ratio remains a respectable (and equally important a believable) 9.6%. With a net interest margin for the year ended December 31 2004 of 2.74% and a cost-to-income ratio of 41.03%, return on average equity was a respectable 15.92%.
The award for best equity house in China proved a difficult decision and ultimately came down to a straight fight between Merrill Lynch and Goldman Sachs. Although CICC topped the league tables for equity issuance as usual, much of that was taken up by domestic deals. Merrill Lynch won because of its superior league table position and the range of transactions completed.
In the period under review, Merrill Lynch raised almost $2.5 billion through equity and equity-related transactions for Chinese companies and $2.3 billion from straight equity. Chief among the deals were the $93 million follow-on trades for mainland China internet company Ctrip.com International, the $370 million IPO for China Power and the $1.2 billion IPO of Air China. Merrill Lynch also completed a $1.4 billion block trade in Sinopec, the largest China block trade since 2003. Merrill Lynch’s run of good form in China has continued into 2005 with the $142 million IPO for China Techfath Wireless and the massive $2.95 billion IPO for China Shenhua Energy.
The award for best debt house in China this year goes to Morgan Stanley, not because of its league table dominance – in fact Morgan Stanley appeared some way down the table, but for an outstanding achievement in reopening the high-yield debt market for China issuers. Morgan Stanley acted as sole bookrunner for the highly successful $300 million high-yield issue for Sino-Forest, a well-structured deal that timed the market just right and attracted orders of more than three time the value of notes on offer, enabling Morgan Stanley to increase the issue size from the initial $200 million.
Sino-Forest was followed quickly by a $200 million high-yield issue from Panva Gas that Morgan Stanley again ran alone, this time attracting orders of 10 times the amount of debt on offer. Asia Aluminum’s $450 million issue was the next high-yield offering, another China credit, followed by a $195 million issue from Mandra Forestry.
The key to the success of Morgan Stanley’s specialist high-yield team, led by Max Blandon, was not only timing issues to meet market demand but, crucially, to structure the transactions sufficiently tightly to ensure investors were comfortable with the risk-reward equation on each credit. In the wake of Morgan Stanley’s success, a number of other houses followed suit, but with mixed results.
In the midst of reopening the China high-yield market, Morgan Stanley also managed to complete a $600 million and €325 million issue for China Development Bank and a $500 million bond for the sovereign.
Morgan Stanley also wins the award for best M&A house in China. It led the China M&A league table in terms of value of deals completed during the period – some $2.5 billion from 12 deals – but also stood out from the competition because of the range and quality of the transactions. Chief among these were the $1.3 billion defence of Sina.com from a hostile takeover by Shanda Interactive, the $1 billion strategic alliance between PCCW and China Netcom, Tesco’s $260 million acquisition of 51% of Hymall Retail Group, and the $36 million acquisition by Asiainfo Holdings of the IT services division of Lenovo.
