FINANCIAL SERVICES | Karen Mesina, Australia

6 in 10 Australian corporates eye raising equity in 2014

Are better days finally coming?

UBS, Macquarie, JP Morgan, BBY, Patersons Securities and Record Point dominated East Coles’ Investment Banking (IB) Research Results for 2013.

The study, which has been running for over 10 years, aims to identify which investment banks and bankers corporate Australia values the most highly across investment banking services overall, mergers & acquisitions (M&A), equity capital markets (ECM), debt capital markets (DCM) and equities research.

72 corporates were surveyed including amongst others AGL, Aristocrat, Carlyle, Coates Hire, Energy Australia, Fortescue, Gindalbie, Hastings, Infigen, KKR, Lynas, MacarthurCook, Metcash, Monadelphous, Orica, Origin, PanAust, QUBE, and Stockland.

UBS topped five out of nine categories in the research. It was also hailed number one Best Investment Bank, M&A, Equity Capital Markets, and Debt Capital Markets banking categories. Barry Sharkey,Executive Director &co-Head of Capital Marketsat UBS, was also voted as the Best Debt Capital Markets banker.

JP Morgan joined the list of top-notchers as its Executive Director Jason Steed got the highest rating in Equities Research. JP Morgan Investment Banking Head of ECM David Gray topped the Best Equity Capital Markets banker category again this year.

Patersons Securities, on the other hand, excelled in the Best Independent Equity Capital Markets investment banks where they finished 2nd, and also finished 4th for Best Independent Investment Banks. Meanwhile, executive director Aaron Constantinereceived a significant rating in the Best Investment Bankers category where he came in at 10thspot. In addition, Patersons Securities Director of Corporate Finance Tim Hosking grabbed the 6th place in the Best Independent Equity Capital Markets banker list.

BBY and Record Point ruled the number one spot in the independent categories. BBY, among other independent banks, got the highest ratings in four categories: Best Investment Bank, Best Equity Capital Market Bank, and Best Equity Capital Banker. Senior Energy AnalystScott Ashton also snagged the Best Equities Research Analyst title.

Record Point gained the top spot for five categories in East Coles’ research: Best Investment Banker, Best M&A Bank, Best M&A Banker, Best Debt Capital Market Bank, and Best Debt Capital Market Banker.

Record Point’s Managing Director Michael Firmin excelled by gaining the top spot in the best investment bankers category.

Nicholas Coles, Managing Director of East Coles, said that the past few years have been terrible for investment bankers, with many being forced to leave the industry from the major banks. This year is different as there appears to be a wave of activity, particularly in the ECM pipeline and sentiment is definitely more positive. He added that UBS and Macquarie have weathered the bad times well and are still the dominant banks.

“Comments from corporate respondents indicated a high degree of satisfaction with their investment banking advisors, with 89% saying their advisors added value to their business. 64% of respondents felt they would be raising equity in the next year or so, which is a promising sign for Australia’s investment banks. 76% also said they had solid or significant growth ambitions, which again is a very positive sign. 61% felt global economics conditions would improve, so all in all the future is bright for Australia’s investment banks and bankers,” he said.

Coles also commented that market conditions have been very poor for the investment banking industry, mainly due to a lack of activity in the M&A and ECM spaces, making it challenging at times to gain traction with potential corporate respondents for this type of research. “Given the economic backdrop and investment banking inertia we were well pleased with the quantity and quality of the data sample.”

Singapore Business Review interviewed some of the awardees and they shared their insights about their successes in East Coles’ investment banking research.

SBR: What qualities should a banker have to be successful in this field?

Michael Firmin, Managing Director, Record Point:

“As an independent advisor, our role is to objectively assist with the strenuous demands placed on boards and management. This means being trusted, committed and most importantly investing the time over months and years to truly understand the requirements of our clients, their industries and key stakeholders. In today’s market, there is definitely no substitute for the relationships that are built through working together throughout the entire business cycle. In both good times and bad, we’ll give genuine, impartial advice and we believe our clients appreciate that.”

David Gray, Head of ECM, JP Morgan:

“Clients are seeking tailored advice from those that have relevant experience, proven track record and are committed to achieving the client’s objectives. Most importantly it’s necessary to be able to offer clients a good platform and team who are capable of delivery.”

Glenn Rosewall, Chairman, BBY:

“Our success in this field derives from our BBY vision statement – to remain Australia and New Zealand’s largest non-bank owned stockbroker and to provide the very best capital markets and investment solutions for our clients.

We firmly believe that the fulfillment of this vision and the overall generation of our money making ideas comes down to our willingness to continually invest in the strategic expansion of our research team and database.

Over 2013, BBY has made a number of high profile hires and this has allowed us to expand our stock coverage by almost 50%. Having recently included Transport, Infrastructure and Utilities, we now have analysts covering all sectors. Our commitment to providing honest straight-forward feedback and research to our corporate, retail and institutional customers is another factor that has significantly contributed to our business success over the years. Our presentation of research in a simple and reader-friendly manner is a repeat compliment that we get from a lot of clients.”

Scott Ashton, Senior Energy Analyst, BBY:

“BBY provides an excellent environment in which the analyst has the latitude to properly understand and analyse a Company's business model, assets and management. This allows the analyst to identify correctly mis-priced stocks or identify those stocks or sectors with early first mover advantage. Key qualities include the ability to generate quality research, a tenacity to thoroughly drill down into the facts, diligently question every detail, conduct oneself with integrity, while at the same time being commercially relevant. Implicit with this skill set is building lasting relationships and respect from key participants.

Whilst at BBY I have consistently rated number stock picker (2006 and 2012) with StarMine.A key quality for an analyst is attention to detail, a predisposition to questioning numbers, statements and a having confidence to back your own view or call."

Barry Sharkey, Co-head of Global Capital Markets, Australasia, UBS

“In 2013 alone, Australian and NZ companies have issued in 15 different debt markets or currencies around the world. Given this choice, at UBS we focus on providing thoughtful, agnostic advice across all markets, and flawless execution when the time comes to issue.”

SBR: 89% of the research respondents felt that their investment banking advisors added value to their business. What skills do you think are essential for banking?

David Gray, Head of ECM, JP Morgan:

“Today, it’s more about being a corporate advisor than just a traditional “banker”. When you build a long term relationship with a client, the relationship evolves from corporate finance advice to strategic advice, communications advice and even understanding the psychology of the people on the other side of the table. The modern advisor needs to be innovative and add value through the entire process from start to finish. Of course a core part of that is creating real shareholder value and growth, but we increasingly find that helping our clients reach their objectives is as important as the end goals themselves.”

Michael Firmin, Managing Director,Record Point:

Strong client relationships have become increasing important given the challenging market conditions for ECM bankers over recent years. Clients have greater expectations that advisers will have not just a good knowledge of their product and market insights but also a good understanding of the clients business. Clients are seeking tailored advice from those that have relevant experience, proven track record and are committed to achieving the client’s objectives. Most importantly it’s necessary to be able to offer clients a good platform and team who are capable of delivery.

Glenn Rosewall, Chairman, BBY:

“Maintaining positive relationships through honesty and by accommodating client requests is essential in generating repeat customers, but you also need to have the right experience to identify and solve their problems. I have been involved in the Australian, New Zealand and US capital markets since the mid-1980s, primarily in senior management positions within investment banks. Whether it be in defending BHP at Morgan Stanley, merging BHP and Billiton at OrdMinnett, or funding Andrew Forrest at Fortescue Metals, myself and BBY have the experience in this industry to be able to handle clients and deliver their desired results. BBY has a strong local and global sales presence across Australia, New Zealand, UK, US and Asia, and our teams are well positioned to service the local and global capital information needs of our clients. Here at BBY, we continouslyutilise this global distribution to advantage our clients in marketing deals and obtaining results. Maintaining a strong relationship with the regulators is vital. My recent appointment to the ASICMarkets Disciplinary Panel has further extended BBY’s positive relationships with the regulators, and we continuously seek to maintain these relationships through our no-exceptions approach to compliance.”

Barry Sharkey, Co-head of Global Capital Markets, Australasia, UBS:

“Innovation, commitment... and a sense of humour!”

SBR: Only 8% of our respondents felt the Australian economy would be strong for the foreseeable future, with 57% saying it would be steady and 35% feeling it would stagnate - what challenges does that outlook pose for you in maintaining positive relationships with your clients?

David Gray, Head of ECM, JP Morgan:

“As I mentioned, we’ve worked for years with many of our clients, so we hope that there isn’t any difference in our relationships, regardless of the market. We work across the spectrum of financial advice including traditional M&A, debt and equity capital markets, strategic reviews and capital management, so there’s often just a shift in our focus rather than the relationship being put on hold.

Outside that, we still see the Australian economy as being strong relative to the rest of the world and are receiving solid interest from multinational firms, particularly out of the US and Japan. Global credit markets are still looking reasonably strong, making this an attractive time for businesses to selectively acquire assets or review their strategic direction.”

Glenn Rosewall, Chairman, BBY:

“Regardless of the state of the Australian economy, the market is inefficient and there are always situations where mispriced companies are being overlooked by investors. Here at BBY, we have the courage to look at their stories from a fresh perspective. We take on these situations and unlock them into high-potential opportunities for our clients. If you look back to 2005 for example, no other broker in Australia or anywhere in the world could anticipate the potential in supporting Fortescue Metals Group (FMG). Since our first buy recommendation, FMG has returned over 4,700% for investors at its peak and it is the number 1 performing ASX stock of this millennium. It is stories like this that enhance our business success in the eyes of our clients. We see the core strengths and the viability within companies, and we pass on this knowledge to our clients in order to consistently add-value to their portfolios. We are also making continual improvements to our Client Sales & Solutions department, having doubled the size of this team over 2013 to better service our clients. More than ever in a tough economy that has an even tougher outlook, maintaining quality client relationships is extremely important to us. BBY strives to make certain that we are our client’s partner of choice for the long-term and we are 100% committed to achieving our clients’ investment objectives.”

Barry Sharkey, Co-head of Global Capital Markets, Australasia, UBS

“Our challenge is to identify the risks and opportunities created by a changing market landscape, and how our clients can best position themselves.”

SBR: 64% of our respondents indicated they would be raising equity in the next year or so – in terms of investment banking mandates what’s your outlook for the next 12 – 18 months?

David Gray, Head of ECM, JP Morgan:

“If things go to plan, we’re seeing a pretty strong M&A pipeline in the short to medium term. 2013 has been challenging and as we move towards 2014, we’re starting to see indications that there are a number of transactions ready to happen in the new year. On the equity side, the ASX 200 is down 5% from the yearly high, after strong gains in Q3; with an estimated c. $8 billion in IPOs ready to launch. However, as we have seen, investors have remained wary of high profile IPOs this year, and that has been reflected in their performance. Sectors to watch in 2014 are probably financials, information technology, healthcare and agriculture.”

Michael Firmin, Managing Director, Record Point:

“Activity has increased significantly through 2013 with the IPO market reopening through 2H13 and this should continue into 2014. Improving economic outlook and business confidence in Australia is likely to see companies pursuing growth which is likely to see an increasing level of M&A activity as well as a pickup in equity issuance to fund growth. Investor appetite for issuance remains robust with support for well structured transactions. Therefore with the outlook for equity issuance continuing to improve, 2014 could deliver the highest level of issuance since 2009.”

Glenn Rosewall, Chairman, BBY:

“BBY has held several Initial Public Offerings (IPOs) and other successful Capital Raisings over 2013. A recent success for BBY was the recent listing of Regeneus Limited (RGS) in September. BBY raised A$10.5 million for the regenerative cell-based medicine company and within just 2 months of floating RGS at A$0.25c, the biotech was returning more than 160%. BBY is also in the process of raising A$100 million for STAG Beef’s IPO that is to take place in early 2014. After the worst year in a decade by capital raised in the Australian market, we are seeing vast improvement to investor sentiment and the ASX is staging a remarkable turnaround. With interest rates at record lows, investors are diversifying away from less risky debt instruments and buying into Equity Capital Market opportunities. BBY is seeing a particularly strong appetite for IPO involvement within our domestic and global client base, especially in the Technology Sector. As we enter a period of better capital-raising conditions, BBY is advising unlisted Australian companies that the time to list is now.”

Barry Sharkey, Co-head of Global Capital Markets, Australasia, UBS

“If the current pre-Christmas rush is anything to go by, market activity is set to increase in 2014.”

SBR: 37% of our respondents felt the government should focus on cutting red, green and black tape, whilst 32% nominated labour market reforms – where do you think government policy should be focused?

David Gray, Head of ECM, JP Morgan:

“Cutting red tape and improving transparency is very topical at the moment. If we look at foreign investment policy in transactions like ADM/Graincorp and Yanzhou/Yancoal, it’s going to be critical for the government to convince global investors that Australia is open for business. Similarly, Holden moving all of its manufacturing capacity offshore post 2017 has heightened the tensions inherent in our labour market and has deeper ramifications for our local economy. Another important issue is energy security, specifically supply and access to natural gas for industrial users. While significant CSG/LNG developments by energy majors continue to progress, we’re seeing a growing recognition at government and industry levels that there is a significant shortfall that needs to be addressed from 2016 onwards which is going to impact growth.”

Glenn Rosewall, Chairman, BBY:

“A few months ago, I had the pleasure of having lunch with Australia’s treasurer Joe hockey in New York. Joe was telling me how he had walked out of his hotel earlier that morning and seen a man on the footpath selling five bananas for one dollar. Early last year, Australian banana prices were inflated to almost five dollars for one banana after Australia’s Cyclone Yasi devastated 95 per cent of banana crops in the Queensland region. Joe was adamant about the importance of a speedy finalisation to productive free trade agreements to prevent price wars and allow countries the opportunity to produce and export what they are most efficient at. He also stressed the need to improve the domestic competitive environment in Australia through a de-regulation agenda that will reduce the regulatory burden across all sectors of the Australian economy by at least $1 billion annually. The newly elected government’s mandate is that Australia is “open for business, open for investment and going for growth”. This is not to say that Australia has been closed to business, the door just has not been open as far as it could have been in the fostering of strong domestic and international competition and it is the job of the new Government, with the support of the business community, to open that door further. Another important area to focus on is the development of sensible infrastructure projects, which will allow Australia unlock our nation’s potential through efficiency gains.”

Barry Sharkey, Co-head of Global Capital Markets, Australasia, UBS

“Governments are at their best when making bold policy decisions that reach beyond the current electoral cycle and deliver long-term value. Areas such as infrastructure, education and medical research would all benefit from this approach, and at UBS we make an effort to generate ideas and contribute to policy debate in these and other areas.”

East Coles’ Investment Banking Research evaluatesbanks and bankers for the benefit of their subscribers and is utilised to improve their banking services for clients.

The researchers conducted the survey to rank all the investment banks and filtered the results to create separate league tables for independent banks.

East Coles’ Financial Research has ranked UBS the No. 1 Investment Bank in its annual banking awards for 2 consecutive years across several categories;

- Best ECM Bank
- Best M&A Banks
- Best DCM bank
- Best Investment Banks – Energy & Utilities
- Best Investment Banks – Financial

Moreover, the following UBS key employees are honoured for theirextraordinary contributions;

- Barry Sharkey, Best DCM Banker
- Richard Sleijpen, 2nd Best ECM Banker
- Guy Fowler, 3rd Best Investment Banker and 7th Best M&A Banker
- Tim Day, 5th Best Investment Banker
- Richard Saywell, 6th Best M&A Banker

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