The usual global suspects dominate Asia’s M&A investment banking scene and Standard Chartered Bank is not among them. Yet from a standing start four years ago, SCB is becoming a growing force in the sector, having quickly scored some advisory successes as it builds an Asian franchise. Deal flow is sourced not from the bank’s powerful small and medium-size enterprise business but from a small number of repeat clients, says V Shankar, SCB’s global head of corporate finance.
“You have to compete where you can win,” he says. “Our fundamental strategy is brains, brawn and client relationships: the right deals with the right people. We do pure advisory work with a lot of repeat clients.”
The brainpower in the equation is applied by seeking out angles for new business that might be unique to SCB, says Shankar. “Do we have unique insights or geographic or industry expertise to add?” he ponders. “If it’s an intra American/European deal, we’re not the guys. But for a Chinese company buying into Africa or a Malaysian company into India, do we add value? Yes.”
That is why SCB advised Sinopec when it began investing in African oil fields, he says, and why Malaysian telecoms business Maxis Communications mandated SCB when it bought India’s mobile market. SCB has also closed deals in Australia, Hong Kong, Indonesia, Singapore and Thailand.
Few banks, if any, have the geographical coverage of SCB, with its Asia, Middle East and Africa strategy. Cynics might argue that this is a good thing but SCB, by design or luck, currently finds itself in something of an M&A sweet spot. China’s thirst for natural resources has driven it towards Africa where deals are easier to close than in a more xenophobic west. India’s emergence as an economic power has already increased the acquisitiveness of larger companies, and the investment attractions of both countries have led to a flurry of inward investment from richer Asian economies, including Malaysia and Singapore. SCB benefits since it has a strong franchise in the countries involved in many of these cross-border deals.
The bank is not just relying on geographical good fortune to win deals. The element of brawn in SCB’s investment banking model emanates from a use of the bank’s balance sheet to help facilitate deals. “It’s not just ideas that get you the bacon,” says Shankar, “you’ve got to support your deals with capital.”
High-profile debt
That capital has been most conspicuously employed so far through SCB’s private equity business, also overseen by Shankar. The first investment was the high-profile financing and advisory deal for 98 Holdings’ buyout of NatSteel in Singapore. Since then, says Shankar, the unit has closed deals in China, India and Korea. “We’re focused on late-stage finance and buyouts,” he says. “The business has been very successful.”
In fact the whole corporate finance operation has been profitable from year one, claims Shankar, partly as a result of what he calls a “Lego-like” approach to building up the franchise.
“We’re going about it in a very sensible Standard Chartered Bank sort of way,” he says. “I set up the team in Hong Kong and Singapore in 2002, opened India and Dubai in 2004 and Korea and London last year.”
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“Our fundamental strategy is brains, brawn and client relationships: the right deals with the right people” V Shankar, Standard Chartered |
He says that the bank is now actively considering opening offices in Africa but it is difficult to escape the conclusion that Shankar’s real ambitions lie in a more comprehensive Asian M&A practice. He says he is keen to expand his north Asian business, largely focused on China and Hong Kong to date, especially into Taiwan and Korea. He even admits that owning an integrated equities business, as most of his competitors do, would be beneficial. “The absence of an equities business hasn’t hurt us, but it would definitely help,” he says. “Never say never: we’re looking at equities but we’re far from making a decision to do it.”
In the meantime, SCB remains focused on exploiting three key themes that Shankar believes are emerging in Asian M&A based on his belief that leverage is misunderstood in the region because of the financial trauma that Asian companies suffered during the 1997/98 regional financial crisis. This hesitant approach to borrowing provides significant M&A opportunities, says Shankar. “I think you’re going to see three key themes emerging,” he says. “First, you’ll see more activist-type deals like the Carl Icahn/KT&G situation: hedge funds and alternative funds taking a significant stake and forcing corporate action. Secondly, you’ll see management teams taking the leverage route themselves and returning money to shareholders. Thirdly, the emergence of these kinds of deals will drive a huge upsurge in cross-border M&A.”
If Shankar’s hunch is right, SCB will be there alongside its larger competitors seeking to exploit that trend, at least as it applies to Asian M&A, inward or outward. There is evidence that these western market trends are already on their way to Asia. Hedge and activist funds are becoming more aggressive, Asian companies are under increasing pressure to return surplus cash, most notably in Japan, and cross-border M&A is becoming both easier and more prevalent. SCB’s investment banking practice will never be the biggest in Asia, but it could yet become one of the smartest.
