New Silk Road Finance Awards 2019: Overall winners
Defining Belt & Road offering is not easy, given the initiative’s scale and lack of clear definition. To do so across geographies is harder still. Here are the banks getting the BRI right – the overall winners of our New Silk Road Finance Awards
Best overall Chinese bank for BRI: Bank of China
For Chinese banks, the Belt and Road Initiative has long gone beyond simply providing funding for overseas infrastructure projects. In the process of redefining the project, Bank of China is contributing its own understanding of BRI as a Chinese bank.
|Liu Liange, Bank of China
In the words of an executive at one of the ‘big four’ Chinese banks: “Bank of China is living up to its name.”
With a presence in 57 countries, including 24 BRI countries, Bank of China has the largest footprint worldwide of the Chinese banks, giving it a natural advantage when it comes to introducing China to the world and bringing foreign institutions to China.
The bank has an unshakable position in renminbi clearing services; it has 12 offshore renminbi clearing bank licences, or nearly half of the total of 25 such licences in the world. In April this year, it opened a clearing centre in Japan through its Tokyo branch. Rival ICBC manages only seven.
Bank of China says it has supported 600 BRI projects and provided more than $130 billion of funding to BRI countries as of the end of May.
As an issuer, the bank also sold two BRI-themed bonds, covering eight tenors and six currencies through branches in 13 locations.
As the BRI enters its second phase of connecting people, trade and culture, Bank of China has evolved from being a mere fundraiser to helping connect institutions and investors. It set up what it calls its ‘Bank of China global medium and small corporations cross-border matching services’ to help smaller companies in the BRI countries raise funds. In 2018 alone, these meetings attracted 721 corporations from 30 BRI countries.
Last but not least, Bank of China’s leading position in the panda bond market is such that other banks, not just Chinese ones, will take years to catch up. The Chinese government is promoting panda bonds as part of its path to renminbi internationalization. For the moment though, the many regulatory hurdles, such as different accounting standards and the difficulty of repatriating proceeds offshore, are keeping foreign issuers away. Instead, so-called ‘red pandas’, Chinese companies incorporated in Hong Kong, are filling the space.
Bank of China, however, has become the go-to bank for foreign issuers. During the awards period, it was involved in 13 of the 19 panda bonds issued by foreign issuers.
By August, the bank had helped issuers from five BRI countries to issue a total of Rmb9.5 billion ($1.3 billion) of panda bonds; of these, three (Portugal, Hungary and Italy) were first-time issuers.
Best overall international bank for BRI: HSBC
No other international bank commits to the Belt and Road Initiative as HSBC does.
|Mukhtar Hussain, HSBC
The bank became the first international bank to hire a head of BRI, Mukhtar Hussain, in April 2018.
Under Hussain, BRI-related revenue grew 13% in 2018 from an already large base. HSBC also claims to have mobilized almost twice as much capital as its closest competitor.
The bank’s wide presence in 66 countries and territories, including a majority-owned joint venture in Shenzhen, makes it a natural fit to help Chinese companies going abroad as well as bringing foreign companies into China. Half of the bank’s revenue comes from cross-border businesses.
During the awards period, the bank dominated BRI-related financing by arranging $166 billion of cross-border debt and equity capital markets and loans deals, easily the top player among the international banks.
HSBC is well aware that in terms of serving large Chinese state-owned enterprises (SOEs), it cannot compete with the big four banks in China, who have deep relationships with the regulators as well as SOE clients. However, with 26 wholesale China desks overseas, HSBC managed to serve privately owned enterprises well. The majority of its outbound Chinese commercial banking clients are privately owned enterprises, including Vanke and Fosun.
A leader in project finance, the bank has been brought on board by the Industrial and Commercial Bank of China to assist in entering a new market – Egypt. The two are co-arranging a construction contract for a Chinese SOE to build the New Administrative Capital project, covering 700 square kilometres; this will provide housing for up to 6.5 million people as well as host some Egyptian government institutions. In addition to lending $843 million, HSBC was also tasked with helping ICBC’s documentation preparation to meet international standards.
Another eye-catching project is helping the Sri Lanka government to improve the country’s hospital facilities. In March, HSBC acted as the sole mandated lead arranger and lender for a Sinosure-supported $72.25 million facility to finance the upgrading of health facilities at a number of hospitals in Sri Lanka.
With its international reputation, HSBC played an important role in persuading the Italian government to become the first G7 country to formally support the BRI in early 2019.
Overall BRI project or initiative of the year: Astana International Financial Centre (AIFC)
Kazakhstan is at the heart of the Belt and Road Initiative, both geographically and strategically. The project was first announced by China’s president, Xi Jinping, in the country’s capital Nur-Sultan in 2013; two of the six trade corridors pass through the country.
|Kairat Kelimbetov, AIFC
Kazakhstan is currently implementing 55 joint BRI-linked projects with China in industry, transport and logistics, and trade between the two countries has reached $30 billion in the last three years.
Policymakers in Kazakhstan want to build on this strategic relationship to create a regional centre in order to facilitate investment and financing for BRI projects: to further that goal, former president Nursultan Nazarbayev opened Astana International Financial Centre (AIFC) in the country’s capital in July 2018.
The AIFC, currently under the leadership of Kairat Kelimbetov, is one of the most ambitious initiatives in the BRI universe; the intention was to create a leading financial centre combining state-of-the-art technology with international standards of governance.
It includes the first court under English common law in the former Soviet Union, which has jurisdiction over all AIFC activities and is presided over by British judges led by Lord Woolf. It also has an International Arbitration Centre. An independent regulator, the Astana Financial Services Authority (AFSA), is chaired by the UK’s Lady Barbara Judge.
The AIFC has a new stock exchange, Astana International Exchange (AIX), which was launched in November and has the Shanghai Stock Exchange, Nasdaq, Goldman Sachs and the Silk Road Fund as its strategic partners.
The exchange’s infrastructure allows trading in securities, commodity and derivative instruments denominated in tenge, roubles, dollars and renminbi.
Trading on AIX began with the $450 million IPO of state-owned Kazatomprom, the world’s largest uranium producer. The exchange will be the main platform for the planned privatization of a further $70 billion of Kazakh state assets.
The AIFC also aims to become a regional hub for renminbi clearing and settlement. The centre has received approval for qualified institutional investors from China to buy renminbi-denominated products on AIX and for China’s brokers to become trading members of the exchange.
The AIFC branch of Altyn Bank, which is a subsidiary bank of China Citic Bank, has the capacity to provide cross-border renminbi clearing services to all current AIFC market participants. Two leading brokers from Hong Kong – China International Capital Corporation and Shenwan Hongyuan – are AIX trading members.
Other recent initiatives include the establishment in January of the Belt and Road Market (BRM) for entities that want to raise financing for BRI-related projects; it has already attracted support from Chinese investment banks, lawyers and credit rating agencies.
An inaugural renminbi-denominated bond issue is scheduled for the third quarter of this year, although the borrower has not been announced yet, while IPOs from local and Chinese companies are also in the works.
Best overall bank for advising Chinese institutions on BRI: Citi
Citi’s presence in 105 of the Belt and Road countries – particularly in Europe and Latin America – puts it in a perfect position to connect Chinese clients.
Beibei Li, Citi
For Chinese clients wanting to expand in BRI countries, the Citi BRI team, headed by Beibei Li, head of banking and origination for Belt and Road, offers them a complete set of solutions, from opening local bank accounts for funding and liquidity repatriation to getting more local visibility through the Citi Global Platform, an online banking platform that showcases clients’ achievements to global investors.
One project that stands out is Bank of China’s $3.8 billion, eight tranches and five currencies BRI senior bond in April. Citi acted as the left-lead bookrunner on the transaction, in charge of overall coordination, documentation and marketing execution. It is also the only non-Bank of China bookrunner on all tranches.
The ambitious deal scored the most branches, currencies and tranches ever involved for a Belt and Road deal and the first dollar bond transaction from one of the big four Chinese commercial banks in 2019.
Selling a deal originated by a Chinese bank to a diverse group of international investors is not easy. However, the €500 million tranche at BoC’s Frankfurt branch was 3.5 times oversubscribed, with more than €1.75 billion of interest. Although the Frankfurt tranche was not the largest in size, it attracted 110 investors, almost twice as many as the next one. In the final allocation, 83% of the deal went to European investors, 15% in Asia and 2% to the US.
Citi is also willing to follow its clients into BRI regions with strict regulatory regimes. In January 2019, Citi helped PowerChina, the state-owned water, electricity and hydropower company, to obtain regulatory approval in Bangladesh for opening a special dollar account. Thanks to its local expertise and relationship with the central bank, Citi could help the client prepare all the documents required. The whole process took a year.
Citi also leads in M&A activities. It acted as the sole global coordinator, joint bookrunner and lead manager in a deal for Beijing Gas Group. The deal marked the state-owned enterprise’s inaugural acquisition and financing in the offshore market.
With a $500 million bond and a $390 million club loan, the firm successfully acquired a 20% stake in Verkhnechonskneftegaz, a subsidiary of the Russian integrated energy company Rosneft, for a total of $1.1 billion.
Best overall research house for BRI: CICC
China International Capital Corp’s research on the Belt and Road Initiative is comprehensive, rigorous and most importantly, honest.
Liang Hong, CICC
Some 100 research analysts led by Liang Hong cover more than 40 industries and nearly 1,000 Chinese stocks listed both onshore and offshore.
Set up as a joint venture between China Construction Bank and Morgan Stanley, CICC has always believed that great work needs different viewpoints and collaboration. The securities house has established multiple connections with academic institutions such as the NUS Business School in Singapore and the National Chengchi University in Taiwan, as well as stock exchanges such as Astana Stock Exchange in Kazakhstan and Moscow Exchange in Russia.
Some of its research has been published in book form. In June 2018, CICC published a 255-page book covering everything about the Belt and Road from investment risks to a detailed analysis of a selected group of 24 BRI countries.
Six months later, it published a 287-page book on China’s state-owned enterprises, covering their reform and opening-up process. The latter was published in both English and Chinese.
CICC’s high-quality research takes a bottom-up approach. To investigate the willingness of Chinese corporations to participate in BRI, it conducted face-to-face interviews with senior management and collected responses to questionnaires from more than 100 companies.
The resulting report looked at host country market potential, political and business environment risk, as well as examining which geographic areas Chinese companies are interested in.
CICC also found that overseas expansion may not be profitable. Among the 103 companies that participated in the survey, 91.3% already have a presence overseas, but the revenues generated from abroad are relatively low: for 37 of them, overseas earnings were less than 10% of total revenues. That said, Chinese companies remain optimistic about the future; 61.6% of those interviewed said they expect to have more than 25% of their revenue generated overseas in the next five years.
Just before the second BRI forum, CICC published a special report called ‘BRI in numbers’. The firm found that the opportunities brought by BRI included increased foreign investment and exports volumes, as well as a blossoming in tourism.