HONG KONG (Dow Jones Investment Banker) – In 2005, Bank of China Ltd unit Bank of China International did not lead any IPOs in Hong Kong. Five years on and it has become a major player. Philippe Espinasse speaks with Marshall Nicholson, Global Head of Equity Capital Markets and Vice-Chairman of the Investment Banking division.

Dow Jones Investment Banker: “Over the past three years, BOCI has become a top five bookrunner in Hong Kong, leading 65 equity offerings. Can you take us through how things have changed?”

Marshall Nicholson: “We did no deals at all in 2005 and only led seven IPOs in 2006. We were not even a top 10 firm then. I joined BOCI from Macquarie at the start of the following year as (BOCI’s CEO) Wang Yan came on board. He had a very clear vision of what the business should be and I had a background in equity capital markets with U.S. houses, including CSFB here in Hong Kong. I was hired with a reporting line directly to him–so I was really empowered to help engineer changes throughout the wider investment banking platform. Wang Yan has become a friend–he sets out the strategy while I execute the plan.”

DJIB: “How did it all begin?”

Marshall Nicholson: “We started with a build out of the ECM business, at the same time as improving the institutional equities franchise. Our retail business was OK but the institutional sales offering was weak, back in those days. We deliberately focused on deals in which we would act as a bookrunner. With lead-managed transactions and a pipeline of deals, we could give institutions a good reason to trade with us. We are now on the panel of some pretty major names out there, which trade with us because they see the deal flow. We also improved research and the wider investment banking client coverage platform. And the retail business has also continued to grow at the same time.”

DJIB: “Where do you stand in equity trading?”

Marshall Nicholson: “We were the No. 2 equity trading house out of 454 in Hong Kong, with a market share of 5.1% over the 2009 full year.”

DJIB: “What about your placement business?”

Marshall Nicholson: “To diversify away from the IPO business, we have made inroads by aggressively taking risk on our balance sheet, and we are now a top five firm for placements in Hong Kong. We have done 36 of these transactions, representing more than (US)$5 billion since 2007. All these deals were fully underwritten by BOCI at the outset. That is a bigger tally than Citi, [Bank of America] Merrill Lynch or JPMorgan. To be able to do that you need to be pretty confident about the level at which these blocks will clear.”

DJIB: “How different are you from the other Chinese investment banks?”

Marshall Nicholson: “We are different in that we have our fingers in every pie. A bank like CICC focuses more on the SOEs (state-owned enterprises) and on restructuring business. We do that but, overall, we are probably more balanced as we also do many deals for entrepreneurs and the private sector. We are also the only Chinese bank that has made it into the block underwriting business in Hong Kong, and with a significant on-shore capital markets and brokerage business – so yes, we are in a way unlike CCB, ICBC, Agricultural Bank of China or CITIC. We are probably closer in terms of business model to DBS in Singapore or CIMB in Malaysia.”

DJIB: “Are you looking outside of Hong Kong and China?”

Marshall Nicholson: “We have looked at Russia and we were in the Sateri deal (Sateri Holdings Ltd., a maker of specialty cellulose products with production in Brazil and China). We are also looking at some resources plays out of Africa and Canada. But the reality is that for us to become involved, there needs to be a clear China or Hong Kong angle. So we are not ready yet to roll out a fully-fledged Asia Pacific business. A number of institutional investors from the Mainland (of China) are also not able to invest outside of Hong Kong due to charter restrictions – so for the time being our focus remains there. Taiwan, however, is a jurisdiction where we might do more. But we believe that Hong Kong will remain the most active market in the region – that is where both the trading volumes and the big deals are.”

DJIB: “You weren’t in some of the recent mega-deals in Hong Kong, such as the AIA or Agricultural Bank of China IPOs.”

Marshall Nicholson: “True. Still, without having been included in these deals, we have remained a top 10 bookrunner in Hong Kong this year, ahead of Macquarie, and with 25 deals completed. We are also the only bank, whether Western or Chinese, to have been appointed as a bookrunner in Hong Kong for all the big rights issues for the SOE banks, BOC, CCB and ICBC.”

DJIB: “Has the financial crisis impacted your investment banking business?”

Marshall Nicholson: “Far less than others. We have continued the private banking build out and net new money inflows actually grew during the crisis. We have also not fired staff. Because of our balanced approach, and our aggressive stance towards risk-taking, we were able to complete 22 deals in Hong Kong in 2009. That is seven more than Credit Suisse.”

DJIB: “So what comes next?”

Marshall Nicholson: “We are continuing to build out our client coverage capabilities with more sector bankers, in particular. We have recently made senior hires, including new heads of research, equities and sales-trading. All these hires were from firms including JPMorgan, Credit Suisse, Merrill Lynch and Citi. At the same time, we are building out the wider IB platform, with private equity and asset management. We have made a lot of efforts on the fixed income front and we now also offer structured finance solutions. So we pretty much can do everything for our corporate clients these days.”

(Philippe Espinasse worked as an investment banker in the U.S., Europe and Asia for more than 19 years and now writes and works as an independent consultant in Hong Kong. Visit his website at https://www.ipo-book.com. Readers should be aware that Philippe may own securities related to companies he writes about, may act as a consultant to companies he mentions and may know individuals cited in his articles. To comment on this column, please email [email protected].)

[This article was originally published on Dow Jones Investment Banker on 16 December 2010 and is reproduced with permission]

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