HONG KONG INVESTMENT BANKER: MONGOLIAN COMPANIES SHOULD “JUST DO IT” IN HONG KONG
Frontier Securities attended “Hong Kong as an Attractive Capital Raising Destination” Forum on 26th April, 2012 organized by Centillion Group and FIFTA of Mongolia. As a service to Mongolian companies, Frontier Securities interviewed some of the notable presenters asking specific questions that hopefully will be of interest for the companies. Following is the brief interview with Andrew Wong, Managing Director and Global Head of Investment Banking, BOC International.
Why there has not been a major Mongolian IPO-s since MMC in 2010?
I think one of the primary reasons was related to the fact that the commodity prices were in general negatively affected by the weak world market and many natural resources companies wanted to wait until valuation recovers. Because of that, I think a number of Mongolian companies which were considering a major international IPO have postponed their plans. Last year not many large- sized Mongolian companies have pushed forward with their IPO plans.
I also think that bonds are easier sell than equity at the moment.
Why should Mongolian companies consider raising capital in Hong Kong through BOCI?
I think our firm has many distinctive features and, because of those, I think Mongolian companies that are contemplating of raising capital in Hong Kong should consider us.
First of all, we specialize in Hong Kong market. Hong Kong/China is our only market basically and in fact it is our home market. We were established in Hong Kong 33 years ago. Mongolia is very much related to China as China is Mongolia’s largest trading partner both in terms of exports and imports. HK is the off-shore center of finance for China. Mongolia, China, Hong Kong. There is natural and logical synergy here.
Second particular strength that BOCI has in addition to a strong relationship with international institutional investors (we have established strong relationships with them because of our strong deal flow) is our strength in Hong Kong retail money. Hong Kong is very unique from other financial centers such as New York in that retail investors do have significant portion of the market and often retail money is the market mover. Retail investors can and often do create momentum in the market. Our group company, Bank of China (Hong Kong) is a currency issuer in Hong Kong and has a huge network of branches in the territory, I believe, more branches than any other banks in Hong Kong. I can say to Mongolian companies that BOC Hong Kong is “Khanbank” of Hong Kong (smiles) We, BOC’s investment banking arm, have over 400 thousand retail, private and corporate accounts in Hong Kong. Both BOCI and BOC(HK) also provide margin financing. This retail factor could be a particular advantage for Mongolian companies. Let me explain why.
Recently we had some metals and mining issues back in Hong Kong. I was not particularly impressed by those projects. Reserve size is not that big, earnings growth, cash flow forecasts were not that robust.
Basically, these were a tough sells. But they were still able to raise money. Compared to them, a lot of Mongolian projects have great commodities, assets, reserves and revenue and earnings projections. If the asset and the company are good and there is a good growth story related to China and I think in terms of minerals much are destined for exports to China anyway, there would be a very positive reaction from Hong Kong investors. I think all will agree that money is not an issue in HK if there is great investment opportunity and great growth story. On top of it all, if we add up accumulation of value created by becoming a public company in HK, and what progress it brings to the company in terms of corporate governance and many other factors I think we have rare kind of win-win situation for Mongolian companies and Hong Kong investors.
Our third competitive advantage is our strength in Chinese institutional funds i.e. QDIIs (qualified institutional domestic institutions). By charter, nearly all QDII’s can only invest in the HK market. Some of these funds such as Social Security Fund of China and China Investment Corporation are actually our shareholders. Often times these institutions become cornerstone investors and cornerstone investors are critical for market confidence in the company during IPO and after. I think this special relationship feature makes us very unique.
Moreover, I think relationship with us could be beneficial for Mongolian companies in terms of starting long term relationship with our investment banking group and our parent group that includes many businesses such as commercial banking, global commodities etc. and they would be happy to consider any mutually beneficial cooperation with Mongolian companies.
In this regard I would like to also note in view of recent sensitive events surrounding mergers and acquisitions in Mongolian coals sector by Chinese state owned companies. I am not going to comment in detail but I would like to point out to Mongolian companies that the HK market is not the same as the PRC Chinese market. Hong Kong is in fact an international finance center with strong investor demand and fund raising capability, free flow of capital and information, established legal system, international standards and sound regulatory framework.
Another unique and interesting Hong Kong market feature that Mongolian companies can easily identify with is Hong Kong corporate money. A lot of Hong Kong corporations do allocate some portion of their liquid assets to equity and other investments. We can and do leverage on our close relationship with Hong Kong corporates.
As for us, I think our deal execution track record (ranked 3rd by number of deals in the market during the last 5 years) speaks for itself.
What other options do Mongolian companies have in Hong Kong besides raising capital through equity?
I would like to introduce excellent opportunity for Mongolian companies that they may have overlooked. I understand that PRC is the largest trading partner of Mongolia. Many Mongolian companies import equipment and other capital goods from PRC, settle in RMB and therefore have a capital need denominated in RMB. Well, Hong Kong happens to be a major RMB offshore clearing center. Global offshore monthly RMB bond issuance volume reached over USD3billion several times during the past year. There is potential vibrant offshore RMB bond market waiting for Mongolian issuers in Hong Kong.
I would like to specifically note that in G3 Bond market it especially helps to have reputation and visibility such as for example recent issuers like Development Bank of Mongolia and Mongolia Mining Corporation.
In offshore RMB bond market, you can still do a deal if you are less visible than those with big names.
The interesting feature for Mongolian companies might be that international rating although certainly helpful is not generally required. Size, up to 200 million USD, would be sound size for a number of Mongolian companies.
In this regard, I would like to repeat that in my view debt market would be more open for Mongolian companies than equity at the moment.
However, I would like to note that like any other excellent business opportunity, offshore RMB bond market window of opportunity would not be open forever for Mongolian companies.
Overall, I think that so many reachable opportunities are waiting for Mongolian companies in Hong Kong. Mongolia is growing and holds so much potential and future and I feel it every time I come here. I think it’s time for Mongolian companies to “just do it” in Hong Kong.
Link to Andrew Wong’s presentation- http://dl.dropbox.com/u/42174832/Andrew_Wong.BOCI.pdf
Why there has not been a major Mongolian IPO-s since MMC in 2010?
I think one of the primary reasons was related to the fact that the commodity prices were in general negatively affected by the weak world market and many natural resources companies wanted to wait until valuation recovers. Because of that, I think a number of Mongolian companies which were considering a major international IPO have postponed their plans. Last year not many large- sized Mongolian companies have pushed forward with their IPO plans.
I also think that bonds are easier sell than equity at the moment.
Why should Mongolian companies consider raising capital in Hong Kong through BOCI?
I think our firm has many distinctive features and, because of those, I think Mongolian companies that are contemplating of raising capital in Hong Kong should consider us.
First of all, we specialize in Hong Kong market. Hong Kong/China is our only market basically and in fact it is our home market. We were established in Hong Kong 33 years ago. Mongolia is very much related to China as China is Mongolia’s largest trading partner both in terms of exports and imports. HK is the off-shore center of finance for China. Mongolia, China, Hong Kong. There is natural and logical synergy here.
Second particular strength that BOCI has in addition to a strong relationship with international institutional investors (we have established strong relationships with them because of our strong deal flow) is our strength in Hong Kong retail money. Hong Kong is very unique from other financial centers such as New York in that retail investors do have significant portion of the market and often retail money is the market mover. Retail investors can and often do create momentum in the market. Our group company, Bank of China (Hong Kong) is a currency issuer in Hong Kong and has a huge network of branches in the territory, I believe, more branches than any other banks in Hong Kong. I can say to Mongolian companies that BOC Hong Kong is “Khanbank” of Hong Kong (smiles) We, BOC’s investment banking arm, have over 400 thousand retail, private and corporate accounts in Hong Kong. Both BOCI and BOC(HK) also provide margin financing. This retail factor could be a particular advantage for Mongolian companies. Let me explain why.
Recently we had some metals and mining issues back in Hong Kong. I was not particularly impressed by those projects. Reserve size is not that big, earnings growth, cash flow forecasts were not that robust.
Basically, these were a tough sells. But they were still able to raise money. Compared to them, a lot of Mongolian projects have great commodities, assets, reserves and revenue and earnings projections. If the asset and the company are good and there is a good growth story related to China and I think in terms of minerals much are destined for exports to China anyway, there would be a very positive reaction from Hong Kong investors. I think all will agree that money is not an issue in HK if there is great investment opportunity and great growth story. On top of it all, if we add up accumulation of value created by becoming a public company in HK, and what progress it brings to the company in terms of corporate governance and many other factors I think we have rare kind of win-win situation for Mongolian companies and Hong Kong investors.
Our third competitive advantage is our strength in Chinese institutional funds i.e. QDIIs (qualified institutional domestic institutions). By charter, nearly all QDII’s can only invest in the HK market. Some of these funds such as Social Security Fund of China and China Investment Corporation are actually our shareholders. Often times these institutions become cornerstone investors and cornerstone investors are critical for market confidence in the company during IPO and after. I think this special relationship feature makes us very unique.
Moreover, I think relationship with us could be beneficial for Mongolian companies in terms of starting long term relationship with our investment banking group and our parent group that includes many businesses such as commercial banking, global commodities etc. and they would be happy to consider any mutually beneficial cooperation with Mongolian companies.
In this regard I would like to also note in view of recent sensitive events surrounding mergers and acquisitions in Mongolian coals sector by Chinese state owned companies. I am not going to comment in detail but I would like to point out to Mongolian companies that the HK market is not the same as the PRC Chinese market. Hong Kong is in fact an international finance center with strong investor demand and fund raising capability, free flow of capital and information, established legal system, international standards and sound regulatory framework.
Another unique and interesting Hong Kong market feature that Mongolian companies can easily identify with is Hong Kong corporate money. A lot of Hong Kong corporations do allocate some portion of their liquid assets to equity and other investments. We can and do leverage on our close relationship with Hong Kong corporates.
As for us, I think our deal execution track record (ranked 3rd by number of deals in the market during the last 5 years) speaks for itself.
What other options do Mongolian companies have in Hong Kong besides raising capital through equity?
I would like to introduce excellent opportunity for Mongolian companies that they may have overlooked. I understand that PRC is the largest trading partner of Mongolia. Many Mongolian companies import equipment and other capital goods from PRC, settle in RMB and therefore have a capital need denominated in RMB. Well, Hong Kong happens to be a major RMB offshore clearing center. Global offshore monthly RMB bond issuance volume reached over USD3billion several times during the past year. There is potential vibrant offshore RMB bond market waiting for Mongolian issuers in Hong Kong.
I would like to specifically note that in G3 Bond market it especially helps to have reputation and visibility such as for example recent issuers like Development Bank of Mongolia and Mongolia Mining Corporation.
In offshore RMB bond market, you can still do a deal if you are less visible than those with big names.
The interesting feature for Mongolian companies might be that international rating although certainly helpful is not generally required. Size, up to 200 million USD, would be sound size for a number of Mongolian companies.
In this regard, I would like to repeat that in my view debt market would be more open for Mongolian companies than equity at the moment.
However, I would like to note that like any other excellent business opportunity, offshore RMB bond market window of opportunity would not be open forever for Mongolian companies.
Overall, I think that so many reachable opportunities are waiting for Mongolian companies in Hong Kong. Mongolia is growing and holds so much potential and future and I feel it every time I come here. I think it’s time for Mongolian companies to “just do it” in Hong Kong.
Link to Andrew Wong’s presentation- http://dl.dropbox.com/u/42174832/Andrew_Wong.BOCI.pdf
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