While the mergers and acquisitions in the Asia Pacific region crossed the $1 trillion mark for the first time aided by a surge in Chinese cross-border technology and telecoms deals, the mainland banks are missing out on the payoffs as they badly trail global rivals in advisory work.
The Chinese banks figure nowhere among the 10 biggest M&A advisers by value of deals even though they have managed to win market share from U.S. and European counterparts in stock offerings and loans with low fees, according to Thomson Reuters data up to the end of November.
With advising on $68.7 billion worth of deals, China's biggest investment bank, CITIC Securities, ranked 11th globally. While the market share of the Chinese banks in the M&A segment slumped to 13.8 percent from 33.7 percent last year, the number of Chinese banks among the top 20 M&A advisers in the region fell to seven from eight.
At a time when the lending business is under pressure due to a slowing domestic economy, the Chinese banks' struggles to emerge as leading advisers on big ticket acquisitions have curtailed their fee income growth.
"When Chinese companies go global, they will tend to call on banks and advisers who have global reach so there's still a strong role for the international banks and advisers," said Aga Guzewska-Radzka, consultant at Accenture Strategy in Hong Kong.
The deal-making boom is being driven by a push by Chinese state-owned enterprises and private companies to buy assets abroad and the massive restructuring of the region's biggest conglomerates. Bankers say that the trend is expected to continue.
The $33.7 billion combination of assets of China's three main telecom operators as well as the $15.4 billion purchase of British mobile phone company O2 by Li Ka-shing's Hutchison Whampoa were among the topo M&A of 2015.
While it has been observed that Chinese firms tend to advise on domestic deals, where they have relationships on both sides of transactions, but that's less likely in cross-border acquisitions. In the segment of financing of M&A deals, the Chinese firms have fared better than international rivals due to the cheaper funding because of their sizable balance sheets which have won them business. but this trend has not been observed in the merger and acquisition advice segment.
"They can't compete on fees there," said the head of M&A at a global investment bank who couldn't be named discussing the industry.
A quarter of M&A deal value this year has been dominated by semiconductor, Internet and telecoms transactions. This sector has been dominated by global firms such as Goldman Sachs and Morgan Stanley.
Several tactics are being adopted by the Chinese banks in order to win more cross-border deals. One example is the appointment of Italian banker Federico Bazzoni, formerly at Bear Stearns by CITIC Securities to originate deals in Europe, Middle East and Africa.
The purchase of the investment banking arm of Portugal's Novo Banco was completed in October this year by Haitong Securities, China's second-largest brokerage. This purchase would be used as a platform for global expansion.
"Where the biggest fees are going to be made are in the complex, cross-border deals where banks that understand the situation across different jurisdictions and geographies are needed," said John Kim, head of M&A for Asia ex-Japan at Goldman Sachs.
(Source:www.reuters.com)
The Chinese banks figure nowhere among the 10 biggest M&A advisers by value of deals even though they have managed to win market share from U.S. and European counterparts in stock offerings and loans with low fees, according to Thomson Reuters data up to the end of November.
With advising on $68.7 billion worth of deals, China's biggest investment bank, CITIC Securities, ranked 11th globally. While the market share of the Chinese banks in the M&A segment slumped to 13.8 percent from 33.7 percent last year, the number of Chinese banks among the top 20 M&A advisers in the region fell to seven from eight.
At a time when the lending business is under pressure due to a slowing domestic economy, the Chinese banks' struggles to emerge as leading advisers on big ticket acquisitions have curtailed their fee income growth.
"When Chinese companies go global, they will tend to call on banks and advisers who have global reach so there's still a strong role for the international banks and advisers," said Aga Guzewska-Radzka, consultant at Accenture Strategy in Hong Kong.
The deal-making boom is being driven by a push by Chinese state-owned enterprises and private companies to buy assets abroad and the massive restructuring of the region's biggest conglomerates. Bankers say that the trend is expected to continue.
The $33.7 billion combination of assets of China's three main telecom operators as well as the $15.4 billion purchase of British mobile phone company O2 by Li Ka-shing's Hutchison Whampoa were among the topo M&A of 2015.
While it has been observed that Chinese firms tend to advise on domestic deals, where they have relationships on both sides of transactions, but that's less likely in cross-border acquisitions. In the segment of financing of M&A deals, the Chinese firms have fared better than international rivals due to the cheaper funding because of their sizable balance sheets which have won them business. but this trend has not been observed in the merger and acquisition advice segment.
"They can't compete on fees there," said the head of M&A at a global investment bank who couldn't be named discussing the industry.
A quarter of M&A deal value this year has been dominated by semiconductor, Internet and telecoms transactions. This sector has been dominated by global firms such as Goldman Sachs and Morgan Stanley.
Several tactics are being adopted by the Chinese banks in order to win more cross-border deals. One example is the appointment of Italian banker Federico Bazzoni, formerly at Bear Stearns by CITIC Securities to originate deals in Europe, Middle East and Africa.
The purchase of the investment banking arm of Portugal's Novo Banco was completed in October this year by Haitong Securities, China's second-largest brokerage. This purchase would be used as a platform for global expansion.
"Where the biggest fees are going to be made are in the complex, cross-border deals where banks that understand the situation across different jurisdictions and geographies are needed," said John Kim, head of M&A for Asia ex-Japan at Goldman Sachs.
(Source:www.reuters.com)