Yuan-sided argument for change

While today, BOCI is truly a well positioned leading investment bank in the China and Hong Kong markets, Bank of China’s investment banking efforts have come a long way since being a small player just a couple of years ago.
Marshall Nicholson, MD and Global Head of Equity Capital Markets at BOCI, says new leadership at BOCI has brought those changes – and the benefits are clear to see: the bank has fine-tuned its strategy and core product offerings. “The new leadership, headed by CEO Wang Yan “Max”, along with parent support from BOC, made significant changes in strategy, personnel and product offerings adding to areas like structure finance, private equity, derivatives and private banking. BOCI has worked very hard to upgrade our entire platform to follow a strategy of building a fully integrated investment bank with lending and advisory capabilities like Deutsche Bank or JP Morgan.”

And while many of its competitors were wheeling from the impact of the financial crisis during 2008 and 2009, BOCI – with little exposure to the sub-prime mess – was able to continue to build and thus consolidate its business model further.

“Its taken time of course,” says Nicholson. “With no ECM transactions in 2005, we started with and executed only IPOs in 2006 and then, in 2007, we added equity placements to our ECM platform capabilities and combined with our strong IPO capabilities, finished #4 and #5 for ECM overall in Hong Kong and China respectively. From an institutional sales distribution perspective, in 2007, we’ve started to look increasingly like a Western bank, developing very strong investor relationships not just in China and Hong Kong but also in the UK, Singapore, Europe and the Middle East and then the US markets.” It should be noted many of the largest US institutional investors are already located in Asia, particularly in Hong Kong and Singapore, which BOCI already covers.

BOCI clearly takes a diversified approach to its sales efforts: institutional funds (Western and Chinese); corporate investors (Hong Kong and China), an award winning private bank and very large Hong Kong based brokerage arm. There also remains a lot of Chinese money held offshore, for which BOCI is a natural repository.

Building relationships
Strong corporate relationships are essential to BOCI’s revival. Nicholson says BOCI has the strongest corporate relationship access of any Chinese investment bank due to its parent’s stature as one of the largest commercial banks in China. This access is useful for IPO issuers as well as global institutional investors.

Although 2008 was a bad year for many banks due to the global financial crisis, BOCI’s consistency of building its platform and offering a wide range of services for its clients, positioned BOCI well when markets came back. “While the markets have been volatile over the past years, in the Hong Kong market, we have remained consistently ranked for IPOs (#3) and combined, IPO and placements (#4) over the past four years. Also, over this same time period, BOCI clearly became the leading Chinese investment bank for ECM in Hong Kong, surpassing its leading historical rival, CICC not only in capital raising but substantially executing more transactions (BOCI (47) vs CICC (18)). And, as the financial crisis starting to end, BOCI ECM in 2009 ranked #5 overall for proceeds raised and #3 in terms of overall transactions handled. We were in the right position so everything really came together for us. It clearly helps that we have a big sales distribution platform that is both English and Chinese backed up by dual language research report system capability for Hong Kong and China listed equities– not everyone provides that.”

BOCI’s renaissance path is all the more impressive considering it didn’t have to let go any staff during the global credit seizure. So this Chinese investment bank has much reason to feel confident. “People trust us,” says Nicholson, “we have a fine investment bank with top tier ECM capabilities and offer a full range of other services; we know how to leverage our strengths. While we don’t win every deal, we are a leader executing successful deals including many large IPOs and equity placements on a sole basis. The old saying use to be ‘hire a Chinese investment bank for restructuring or PRC work and one or two international banks for sales distribution’. Today, we don’t need the international banks as we have built in some cases, an even larger equity sales distribution platform capability than the international banks. We’re truly successful at what we do.”

Flexibility, speed and privacy
There’s no issue about BOCI’s future place in the market either says Nicholson. “We are absolutely relevant. We have a lot to offer. We’re very smart about the way we use our relationships and allocations, for example. Our sales distribution platform is extensive and we are now #2 for trading volume in the Hong Kong market. That’s impressive.”

A key strategy is BOCI maintaining large trading volumes in all size companies. That’s really a benefit, explains Nicholson. “For many it’s much better for our clients to trade through BOCI to achieve better average buying or selling costs as an investor wants to trade through a firm that has a lot of volume. With BOCI having one of the largest platforms of sales and trading, it is easier to hide your movements. “Our size protects you as an investor. Essentially better average buying or selling costs for that institution or individual,” says Nicholson.

BOCI has assiduously worked hard at reaching out for new institutional relationships asserts Nicholson. “Our CEO made it a priority to be a lot more Western in terms of overall advisory and execution capabilities. To truly be a top tier ECM house in Hong Kong, you need to bring more deals to market and you need a strong sales distribution platform; the combination is a circular process that makes us stronger.

Winning deals is a relationship and/or capabilities assignment and our investment bank and capital markets units usually take the lead. Our market share continues to grow and all areas of our investment bank and diversified sales distribution platform benefit.”

Looking ahead
The pressure is on though for places like Hong Kong. Shanghai may well open an international board for companies like China Mobile and HSBC in future. And while Hong Kong is under pressure, Nicholson believes progress with a Chinese international board will go slower than many people think. “Priorities may be given to HK-listed Chinese companies”, predicts Nicholson. Companies with large China exposure or operations, like HSBC – which has 144-year-old roots in Asia – will inevitably return home to China, keen to raise its profile with retail investors. For companies that don’t have a China angle to play, “it could be many years from now when that happens and priority would naturally be given to high quality large cap global names,” says Nicholson.

Hong Kong’s future
Marshall Nicholson says that Hong Kong has an assured future as a financial and investment centre. Nicholson says, “While Hong Kong has to be concerned about China, it’s also about the opportunity to go out there and continue to build itself as Asia’s leading regional stock exchange. Hong Kong has an established infrastructure base of institutional investors, private equity, investment and commercial banks, lawyers, accountants and research support. This is not easy to replicate.”

“Hong Kong is an international investment hub. There are plenty of companies and opportunities out there ? a strong Chinese business, an Asian angle or even a global business (commodities, shipping, etc) will find Hong Kong attractive” Nicholson says. “But Hong Kong will have to work hard to capture these opportunities. I am quite positive both China and Hong Kong can co-exist.”

That’s born out by the figures. In 2009 $100bn was raised in IPOs globally – but almost 50 percent of that amount was raised in Hong Kong and Shanghai stock exchanges. An impressive achievement at a very uncertain time.

Although much of China money flows internally, what does go offshore goes mostly into Hong Kong. “While there are plenty of other stock exchanges, Hong Kong, due to its proximity to the mainland, its large stock exchange and breadth of services, tends to attract more business than other Asian stock exchange,” says Nicholson. “I truly believe Hong Kong and BOCI have a very solid and exciting future ahead.”

BOCI in brief:
– Experienced financial professionals with a broad institutional and retail sales distribution network
– Comprehensive global management operation
– Offers a genuinely wide range of investment banking services to clients including…
– Securities underwriting, mergers & acquisitions, financial advisory
– Equity securities sales trading and research, equity derivatives, fixed income, asset management
– Wealth management, private equity investments, leveraged & structured finance

About BOCI
BOCI, headquartered in Hong Kong, specialises in investment banking and is a wholly owned subsidiary of Bank of China Limited (“BOC”). Founded on 10 July 1998, its presence can be traced back to 1979 when China Development Finance Company (HK) was established to offer investment-banking services to its clients in Hong Kong. BOCI has subsidiaries in China, Hong Kong, London, New York and Singapore.

For more information contact: marshall.nicholson@bocigroup.com; tel: +852 2230 8205