Fed easing, pending infra-structure projects in emerging markets, and a rush to quality are fueling positive sentiment among Global Finance’s Best Investment Banks for Debt.
Debt capital markets may once again be in vogue this year; as Federal Reserve Chairman Jerome Powell is widely expected to increase interest rates more slowly, if at all, reversing the Fed’s policy for much of 2018. With slower growth and low inflation forecast as well, investors appear to be emphasizing the quality of debt, opting primarily for investment-grade products. Adding to the focus on quality is lingering political uncertainty, stoked by fears of a larger US-China trade war.
These developments lay the backdrop for Global Finance’s selection of the Best Debt Banks for 2019. One of the biggest players in the market is Singapore-headquartered DBS Bank, is the editors’ choice as Best Investment Bank for Debt worldwide. Present in 18 markets in the Asia-Pacific region, DBS bucked a decline in corporate bond issuance by issuing $500 million of five-year floating-rate green bonds in 2017 under a $30 billion global medium-term note program. That helped make DBS a leader in the issuance of government bonds and other forms of fixed income, including innovative green bonds.
J.P. Morgan, selected as Best Investment Bank for Debt in North America, continues to exhibit strong growth, with a market share of 8.3%, down slightly from 8.4% in 2017. In December, the firm noted “three very real risks … looming larger on the horizon: tariffs/US-China relations, central bank policy and geopolitics.”
“How the US administration handles a gridlocked Congress will do a lot to shape the US economy,” J.P. Morgan predicted. “Equally important will be how Europe handles Brexit, the Italian budget and the growing unrest in France. For now, it’s our expectation that policymakers are incented to manage these risks and work toward their own soft landings.”
Bank of America Merrill Lynch Investment Banking, soon to be known as BofA Securities, is this year’s choice for Best Investment Bank in Western Europe. Bank of America is still digesting its post-crisis merger with Merrill Lynch and 2018 was undoubtedly a difficult year for its investment banking division, the appointment of Matthew Koder, a fierce drill-sergeant type of leader, to lead the group was a major step toward taking a more energetic approach—some critics believe the bank became too cautious under the cloud of scandals.
Still, BoA advised on several major deals in Europe, including the £30 billion acquisition of British Sky Media by US-based Comcast. It advised RWE on its successful sale of Innogy to E.On; Liberty Global on its sell-off of Eastern Europe satellite TV operations for €180 million; and last, but surely not least, got a big boost from GlaxoSmithKline when it was retained to advise the pharmaceuticals giant on two multi-billion-dollar M&A deals.
In the rapidly expanding markets of Central and Eastern Europe, Russia’s Sberbank CIB wins Best Investment Bank for Debt. “During the last five years, the market has been growing, with compound annual growth of approximately 5% in terms of volume,” notes Andrey Shemetov, vice president and head of global markets at Sberbank, in a report. “Capacity-wise, the local market is deep enough to absorb placements in excess of $30 billion equivalent annually.”
Despite tensions, including sanctions on certain companies and individuals, the Russian debt market is maturing and now services a wide range of domestic and foreign issuers. “Blue chips can raise $500 to $1,000 million equivalent up to 10 or 15 years; however, the sweet spot remains at $300 to $500 million equivalent for three to five years,” Shemetov says. Sberbank CIB has been energetic in financial technology, piloting Russia’s first initial coin offering (ICO) and first blockchain-based bond transaction—$12 million of MTS corporate bonds with 6-month maturity. The bank also signed a $106 million deal with Sovcomflot to finance an Arctic shuttle tanker.
International regulations are shaping the market in important ways, according to Standard Bank, which took the prize as Africa’s Best Investment Bank for Debt. “With the implementation of Basel III,” Standard Bank says on its website, “the ability of banks to provide balance sheet funding is being reduced and becoming more expensive. As a result, capital-light products in areas like debt capital markets and securitization are becoming increasingly important.”
That doesn’t mean 2019 won’t be a period of expansion for the continent’s debt issuers, however. “Infrastructure development and improvement projects are a priority across Africa,” Standard Bank notes. “Capital markets are expected to drive most of those projects, with debt capital market or securitization funding generally best placed to serve this need,” the bank argues.
Conditions are favorable in Latin America too. “The predominant driver in the local Brazilian debt capital markets has been the combination of historically low interest rates in Brazil, with low inflation forward-looking projections,” says Mauro Tukiyama, head of fixed income markets at Bradesco BBI, which won the Best Debt Bank in Latin America title. “This stable rate backdrop has resulted in strong inflows into traditional asset managers and also the creation of a large number of independent fixed income funds.”
As a result, Brazil’s debt markets have grown significantly in recent years, with issuance growing from below 40 billion reais ($12.2 billion) in 2016 to almost 100 billion reais in 2018, “offering established issuers the opportunity to test longer-dated issuances, up to 10 years, and offering easier access to first time issuers,” Tukiyama says.
Bradesco is optimistic about 2019 as well. “In the international debt capital markets, the more benign US rate outlook has provided a boost to global assets across the board, with LatAm bonds, particularly Brazilian bonds, performing well since the end of 2018,” Tukiyama says. “The tailwind from the Brazilian elections, and expectations around the pension reform, have helped Brazil outperform its peers.”
Smaller markets remain closely connected with global markets, however, and consequently vulnerable to the events that shake their larger counterparts. While 2019 is widely expected to be a steadier year, with tensions diminishing on the interest-rate and trade-war fronts, global political uncertainty is intensifying as the US Congress locks horns with President Trump; the Brexit crisis drags on in the UK; and conflicts in other parts of the world resist negotiated solutions. Fixed income may become even more desirable if uncertainty prevails.
BEST INVESTMENT BANKS FOR DEBT 2019
|North America||J.P. Morgan|
|Western Europe||Bank of America Merrill Lynch|
|Central & Eastern Europe||Sberbank|
|Latin America||Bradesco BBI|