Chinese deals drive record investment banking fees
Debt capital markets’ transactions account for biggest underwriting fees in 2020
11 Jan 2021 | Chito Santiago

Capital markets’ activity in Asia-Pacific, outside of Japan, in 2020 bucked the challenges posed by Covid-19 as manifested by the higher investment banking fees in the region, which amounted to an estimated US$28.5 billion, representing an increase of 23.4% from a year ago. Driven by a surge in Chinese capital markets’ issuances, this is the highest annual amount for Asian fees since records began in 2000, and exceeded the European fees for the first time ever.

Figures released by Refinitiv on January 8 show that equity capital markets (ECM) fees hit an all-time high of US$9.7 billion after posting a 79.8% increase in 2020. Underwriting fees from debt capital markets’ transactions also rose 15% to US$13 billion, while fees generated from completed M&A deals fell 2.8% from a year ago to a five-year low of US$3 billion in 2020. Syndicated loan fees also dropped 15.5% to US$2.8 billion during the same period.

Equity and equity-linked related transactions reached record levels and raised US$409.9 billion worth of proceeds in 2020, up 66.5% from a year earlier – surpassing the previous high of US$342.5 billion in 2010. Asia also witnessed the busiest period ever in 2020 as the number of issuances climbed 40.2% from the previous year.

Initial public offerings (IPOs) jumped to a decade high as proceeds amounted to US$114.7 billion, up 68.6% from 2019, as the number of deals rose 28.8%. This was underpinned by Chinese IPOs, which accounted for 81.7% of the IPO proceeds in the region and 41.6% of the proceeds worldwide.

The Beijing-Shanghai High Speed Railway IPO raised US$4.4 billion in January, making it the biggest IPO globally in 2020. The highly-anticipated Ant Group’s IPO, which was supposed to raise US$37 billion, would have been the biggest in history, but it was suspended in early November due to regulatory concerns days before its planned dual listing in Shanghai and Hong Kong.

Follow-on offerings likewise hit record levels as proceeds rose 92.5% to US$237.7 billion in 2020 from the preceding year on the back of an all-time high issuances during the period. Semiconductor Manufacturing International Corporation raised US$7.6 billion via a secondary listing in Shanghai’s Star Market in July, making it the largest ECM deal in the region in 2020.

Bond offerings

Asia-Pacific convertible bond offerings also broke records and saw its fifth consecutive annual growth with proceeds of US$57.5 billion, representing an increase of 5% from 2019. The number of deals likewise grew 35.1% during the period.

Primary bond offerings from issuers domiciled in Asia-Pacific reached a new record volume of US$3 trillion for the first time in 2020, according to Refinitiv. Bond proceeds totalled US$3.1 trillion, up 24% from US$2.5 trillion in 2019. China accounted for 75.8%, or US$2.3 trillion, of the bond proceeds from the region – up 24.7% from 2019, while South Korea and Australia accounted for 6.1% and 6%, respectively. Investment-grade bonds amounted to US$1.7 trillion in 2020, up 14.7% from a year earlier.

The value of announced M&A deals involving Asia-Pacific companies, excluding Japan, reached US$1 trillion in 2020, which was 10.3% higher than in the previous year as deal-making activity picked up in the second half. The region saw the lowest first-half start in 2020 since 2013 as major economies imposed lockdowns and travel restrictions to curb the spread of the Covid-19 virus. At least 23 mega deals – those valued at US$5 billion and up – were announced in 2020 worth US$213 billion, representing increases of 70.9% by value and 76.9% by number of deals from a year ago.

Majority of the deal-making activity targeted the energy and power sector, which accounted for a 16.9% market share worth US$173.6 billion – almost double in value from 2019. Technology captured a 13.7% market share, or US$140.4 billion.

State-owned China Oil & Gas Pipeline Network Corporation (PipeChina) acquired the pipeline assets of PetroChina Company for an estimated US$49.1 billion. The deal is currently the largest on record involving Asia-Pacific entities, surpassing the previous record by Cheung Kong, which acquired Hutchison Whampoa for US$45.4 billion in 2015. It also topped what used to be China’s biggest M&A deal in history – the US$44 billion ChemChina-Syngenta transaction in 2016.

As China consolidated its oil and gas pipeline, PipeChina also acquired pipeline assets from Sinopec with a total of four deals valued at US$25.6 billion. This brings PipeChina’s acquisition of PetroChina’s and Sinopec’s oil and gas pipeline assets to an aggregate total of US$74.8 billion. In December, PipeChina likewise agreed to buy a 75% interest in PetroChina Dalian LNG Company and 60% interest in PetroChina Beijing Natural Gas Pipeline Company from Kunlun Energy Company for a combined value of US$6.2 billion.

Among the deal arrangers, CITIC Securities earned the biggest underwriting fees in 2020 with US$1.53 billion, followed by Bank of China with US$1.33 billion, China International Capital Corporation US$996.2 million, Morgan Stanley US$857.2 million, and Industrial and Commercial Bank of China US$851.4 million.