GlobalCapital China 2019 awards winners: Part II

Bank of China For the second year in a row, Bank of China stood out among Panda bond underwriters, making it the winner of the Best Panda Bond House award for 2019.

It wasn’t an easy year for banks in the Panda market. New issuance volume declined by 38% for the year to early December versus the same period in 2018. Some frequent red-chip Panda issuers last year, such as Singapore-headquartered GLP, were missing from the market this year. Local real estate names such as China Resource Land and Sino-Ocean Group Holdings also disappeared due to onshore deleveraging policies on the real estate sector since the second quarter.

While the number of Panda bonds declined from 45 during our last awards period to 31 this awards period, Bank of China’s involvement as a lead underwriter jumped from 15 deals to 17 bonds — more than any other bank on the league table. Further, it was mandated as the lead underwriter on 12 out of 14 “real” Panda bonds, those printed by non-Chinese issuers, GlobalRMB data shows.

But a dominating market share is not the only strength of Bank of China. As one of the big four banks in the Mainland, the firm is not only the most internationally-minded bank onshore, it is also equipped with local expertise, a vast network of domestic investors and a close relationship with the onshore regulators. All of these make Bank of China a natural fit for underwriting Panda bonds.

Foreign issuers are also increasingly paying attention to the bank’s advantages in the Panda market. During our awards period, Bank of China was mandated on several landmark Panda deals. Some of them opened a new funding channel for foreign issuers while others introduced a new asset class to onshore investors.

Among the notable deals were the first Panda bond from Portugal, which opened up the market to eurozone issuers. Then there was the tightly priced and well-executed Panda by repeat issuer the Republic of the Philippines. In addition, a senior preferred TLAC-eligible Panda by Crédit Agricole introduced a novel capital instrument to the China market.

Bank of China was also not short of mandates from Daimler and BMW. The Chinese bank was the lead underwriter on all five private placement Panda bonds sold by the two German automakers. Where there was a Panda deal to be done, there was Bank of China.

Many large state-owned banks have told GlobalCapital China that the Panda bond market is too small and insignificant to put too many resources to develop the asset class. But Bank of China says it is determined to keep its focus on Panda bonds. The willingness to make a small nascent market a strategic focus of a large bank makes Bank of China deserving of the Best Panda Bond House award for 2019.

China Merchants Securities The Chinese securitization market took off this year. New asset types sprung up and competition among securities houses became fierce. In such a rapidly developing market, banks had to choose carefully where they wanted to put their resources to work. Some spent more time and effort in developing new asset types, while others lowered their fees to grab market share.

This made it tough to choose a winner, as both international and domestic banks made their mark in different ways on the Chinese ABS market in 2019. But for this award, GlobalCapital China has recognised a firm that is most equipped and committed to bringing international investors into the onshore market. It is also one that has made a concerted effort to solve some of the long-standing problems in the domestic securitization market. China Merchants Securities is our pick for the Best Bank for ABS. 

The securities house stands out in terms of the sheer volume of deals it has underwritten. During our awards period, CMS underwrote 134 deals worth Rmb256.7bn ($36.6bn), ranking first in the league table, Wind data shows.

But it’s not just a numbers story with CMS. The securities house also used the asset type it is best at — residential mortgage-backed securities (RMBS) — as a testing ground for innovative market practice and as a platform to draw international participation.

In August, CMS completed Jianyuan 2019-7, an Rmb9.87bn four-tranche trade originated by China Construction Bank. The transaction was wrapped up a day after USD/CNH broke 7 for the first time in a decade. Despite the adverse market conditions, CMS still managed to attract a record high number of international investors into the deal. The RMBS trade saw 14 global investors come in, among which eight were investing in the Jianyuan series for the first time.

Through Jianyuan 2019-7, CMS also addressed a big problem in the Chinese RMBS market — the lack of secondary market liquidity. CMS and other underwriters provided a continuous two-way market-making service for the class A1 and A2 notes of the deal.  Further, they managed to qualify the triple-A rated senior tranches for pledged repo collateral, making the notes more attractive to onshore investors.

The Jianyuan series also brought another first to the RMBS market in July 2018. Jianyuan 2018-11 was the first RMBS deal to be rated triple-A by an international rating agency. CMS was also involved in that transaction.

For focusing not just on league tables but also working towards boosting the quality and depth of China’s ABS market, CMS deserves kudos.

A well-deserved runner up for this award is BNP Paribas. Within the limited scope of work a foreign bank can do in the onshore ABS market, the French bank has gone out of its way to improve the ABS market with its international expertise. For example, it helped issuers reduce the size of their subordinated tranches in some cases, while in other cases, it helped originators get better international ratings.

During our awards period, BNP Paribas was also a joint lead on a consumer loan securitization that was not internationally rated, a rare achievement for a foreign bank in the Mainland.

HSBC HSBC has long been a leader in the G3 bond market, offering a platform that is unmatched by its peers. During the last two awards periods, it has ranked at the top of the Asia ex-Japan G3 DCM volumes by bookrunner league table, this year boasting an 8.15% market share with $30bn in volumes, shows Dealogic. Just among Mainland issuers, it ranks second after Bank of China with a 5.64% market share, versus the same ranking and a 5.09% share of the volume during the same time last year.

What was HSBC’s secret to success? First was the strong collaboration between investment banking, commercial banking and private banking — which created opportunities to take non-investment banking clients to the capital markets, while leveraging on its private banking franchise for distribution. That helped the bank gain market share in the China G3 high yield bookrunner league table this year, as it took more hard underwriting risks and put its money where its mouth is.

The bank has also added staff to its private banking division in the past year. That has allowed HSBC to capitalise on its close relationships with ultra-high net worth clients, and offer them capital markets solutions when necessary. 

Its roster of Chinese G3 DCM clients include Fosun International, Zhongliang Holdings Group, Zhenro Properties Group, Sunac China Holdings, Ronshine China Holdings, Cifi Holdings (Group) and Yuzhou Properties Company, among others.

It has also helped Chinese banks tap the international bond market, working on Industrial and Commercial Bank of China’s $3.15bn multi-tranche and multi-currency green bond in September, and China Construction Bank’s Basel III-compliant tier two deal in February. CCB’s transaction was the first offshore tier two bond from China since September 2015.

HSBC helped Chinese firms boost their focus on green, social and sustainability financing. That impetus made it GlobalCapital Asia’s best house for SRI financing this year in Asia.  In China specifically, in addition to ICBC’s green bond, HSBC worked on similar deals from Bank of China and State Development and Investment Corp.

For showing breadth and depth in its G3 offerings to Chinese clients, and for putting extra emphasis on high yield clients in a year when these credits dominated the bond market, HSBC deserves recognition.

Standard Chartered The definition of good securities services has changed rapidly in China. Before, it was about educating foreign investors on the intricacies of the different schemes to access the domestic Chinese market. That was only natural, as China was launching new connect schemes with great frequency.

The task for securities services providers now is two-fold. They still need to spend the majority of their time explaining the complexities of different access schemes, but additionally they need to find ways to improve the access links, make them more self-explanatory and in line with international practices. 

By actively participating in every step of the Stock Connect’s evolution, Standard Chartered helped deliver some of the most significant enhancements to the link. The bank developed a panel broker model to allow clients to trade with various international and Asian brokers on a single-sided settlement basis. That, in turn, allows clients outside of Asia to meet the T+0 settlement cycle within the Asian time zone.

It helped facilitate the approval of Undertakings for the Collective Investment in Transferable Securities (UCITS) funds to access the Stock Connect. It acted as a bridge between the Stock Connect regulators and their counterparts in the Republic of Ireland to bring Irish investors to China’s A-share market.

Standard Chartered also developed a “two account model”, allowing clients to fund Bond Connect trades through both onshore and offshore renminbi.

These were only some of the key standout features of the bank’s work this year. What is clear, however, is that with its deep experience in onshore China and as a long-term provider of onshore renminbi liquidity in Hong Kong, Standard Chartered is best positioned to serve foreign clients as they expand their presence in the Mainland market in the years to come. 

Clifford Chance Since foreign law firms are still largely barred from practicing Chinese law, the scope of services they can provide to domestic clients is very limited. However, they can still play a crucial role in bridging the gap between foreign investors and the opaque, ever-changing, onshore financial regulations.

London-headquartered Clifford Chance, the winner of the inaugural Best Law Firm award last year, remains a standout firm.

Clifford Chance was the first international law firm to enter the China market in 1985, setting up its Beijing office first before expanding to Shanghai in 1993.

The law firm covers the widest range of regulations as well as products in the Greater China and the Asia Pacific regions. That advantage gives its team insights into various market regulatory trends, which it has leveraged on for its Mainland business. That has made Clifford Chance actively sought out by clients, regulators and industry bodies to make submissions on legislation relating to China's capital markets and financial services sector.

The team has three Greater China area offices in Beijing, Shanghai and Hong Kong. There are also some 60 lawyers with mainland China experience spread across the firm’s China-focused desks globally.

That reach has made the law firm the go-to for foreign investors accessing the Chinese market. Clifford Chance has also advised multiple international institutions including Morgan Stanley, HSBC, Standard Chartered and Davidson Kempner on structuring products based on the access schemes developed over the years.

The firm also occasionally advises international asset management clients on establishing their presence in Mainland China and helps them with their policies for trading securities and fixed income instruments onshore. 

Clifford Chance has also acted for exchanges and clearing houses on some of the largest transactions in Greater China. For example, it acted for the Hong Kong Exchanges and Clearing on the launch of the exchange’s gold futures contract, the first physically settled futures contract offered by the exchange in both dollars and offshore renminbi.

Foreign law firms in China need to plug the understanding gap between local market practices and foreign investors, translating their local expertise into legal advice. Clifford Chance has done that again and again.