Brian Kelleher, Reuters
Hong Kong: Asia Pacific equity and merger deals had another bumper quarter as new listings from China and mega acquisitions in India set the pace for what is likely to be another record year of regional investment banking activity.
Investment banking fees for the region, excluding Japan, rose to $1.1 billion (Rs4,793 crore), up 8% from the first quarter of 2006 as M&A activity jumped 42%, according to preliminary data from market research firm Dealogic.
Last year was a record for investment banking activity in the region, partly due to multi-billion dollar IPOs from two Chinese lenders, but bankers and lawyers said 2007 may be even better.
“The record setting activity of last year shows no signs of abating,” said Roger Denny, partner and head of M&A, Asia for law firm Clifford Chance. “What we’ve been working on and what’s in the pipeline suggests it could be another record year.”
M&A volume hit $105 billion, a record for the first quarter, as India took centre stage.
Britain’s Vodafone last month agreed to buy a controlling stake in Hutchison Essar for $11.1 billion, acquiring control of India’s fourth-largest mobile phone company from Hutchison Telecommunications International Ltd.
Indian steelmaker Tata Steel in January outbid Brazil’s CSN for Anglo-Dutch group Corus in a $12.2 billion deal, and Indian aluminium producer Hindalco Industries Ltd. also agreed to buy Canada’s Novelis Inc. for $5.9 billion, including debt.
“India is a cross-border acquisition and finance opportunity,” said Robert Rankin, head of Asia investment banking for UBS, which advised Vodafone on the Essar deal. “Multinationals are going into India, and Indian companies are looking to go international.”
UBS led the regional revenue rankings with $160 million, followed by JPMorgan ($75 million), Citigroup ($59 million), Merrill Lynch ($56 million) and Credit Suisse ($55 million), Dealogic said.
Private equity firms, also known as financial sponsors, accounted for $7.2 billion worth of acquisitions, or 7% of regional M&A activity.
“We could quite easily see the proportion of private equity as a percentage of M&A activity in the region go from high single digits to the high teens this year,” said Denny, adding that hedge funds were becoming more active in M&A-type activity.
“The entire group of financial investors is going to be a significant influence on M&A activity in the region this year.”
China’s benchmark Shanghai composite index dropped nearly 9% on 27 February, triggering a global stock market decline that was exacerbated by fears of growing bad loans in the US subprime mortgage market.
But markets have since recovered — Chinese shares are again touching new all-time highs — and new listings from the mainland have remained robust, with $2.7 billion worth of IPOs, up from $2.0 billion in the first quarter of 2006.
China’s CITIC Bank, the coutry’s seventh largest commercial lender, looks set to raise more than $3 billion in a simultaneous listing in Hong Kong and Shanghai late next month.
Country Garden Holdings Co. is set to raise up to $1.7 billion in what would be the largest IPO by a Chinese property developer.
UBS was the top equity underwriter for the quarter, followed by JPMorgan, Goldman, Citigroup and Credit Suisse.
Rankin of UBS predicted further Singapore issuance from the real estate sector.
“We are also working to make sure the China pipeline gets completed,” he said, noting that the lineup of upcoming mainland IPOs was strong.
“We’ve also done issuance in the Philippines, which is, so far this yer, our second-busiest market outside of China in terms of the number of deals completed,” he said.
Philippines equity volumes hit $1.2 billion in the first quarter, compared with $1.7 billion for all of 2006, as firms such as Filinvest Land raised money.