Morgan Stanley is top ECM bank, as momentum builds for 2011

By Denny Thomas and Clare Baldwin

HONG KONG/NEW YORK (BestGrowthStock) – Equity capital markets bankers are bracing for a busy 2011 during which fund flows into Asia will further cement Hong Kong’s global IPO dominance after a year of blockbuster deals.

Alongside activity in Asia, private equity exits, government divestments, bank recaps (recapitalizations) and issuance by life insurers are expected to drive the agenda globally in the new year. Increased M&A activity could also spur more stock offerings.

Increasingly, the U.S. stock exchanges are attracting more technology-related floats, while natural resources companies, industrials, luxury retailers and financials are being lured by Hong Kong’s liquidity and exposure to China.

“We expect the trend of global companies seeking a Hong Kong listing to gain momentum next year,” said Ken Poon, Citigroup’s (C.N: ) Asia-Pacific head of global capital markets origination. “What we see is a large amount of institutional money trapped in the developed markets that wants to come to Asia and emerging markets,” he added.

While the number of deals next year is expected to surpass the tally in 2010, it is unlikely they will top the $835.6 billion raised so far this year.

Globally, Morgan Stanley (MS.N: ) (Read more about the money market today. ) was the top underwriter this year, with a league table credit of $80.8 billion from 322 ECM deals, replacing JPMorgan (JPM.N: ), which slipped to a No. 3 post ion with 346 deals worth $62 billion, according to Thomson Reuters data.

Goldman Sachs (GS.N: ) stood second ($65.7 billion, 237), Bank of America Merrill Lynch (BAC.N: ) was No. 4 ($55.5 billion, 285) and UBS (UBSN.VX: ) was No. 5 ($47.4 billion, 263).

Morgan Stanley netted $1.5 billion in fees to grab the No. 1 position from JPMorgan, which earned $1.4 billion in fees.

Goldman Sachs was third ($1.3 billion) and Bank of America Merrill Lynch ($1.2 billion) and UBS ($962 million) were fourth and fifth, respectively.

Asia Pacific accounted for 60 percent of the total initial public offerings (IPO) activity so far in 2010, boosted by big deals such as Agricultural Bank of China’s (1288.HK: )(601288.SS: ) $22.1 billion listing and AIA Group’s (1299.HK: ) $20.5 billion float.

Despite the optimism all around, some bankers are more cautious about China in the short term.

“This year and next, you’re going to have periods where the market stalls and the market has to digest,” one Hong Kong-based banker said. “China is going to have to tap the breaks, but I do think there are two long term trends that are in favor of cap markets business — the economic growth and the liquidity story,” the banker said.


Asia could see more than ten IPOs in the $3 billion to $7 billion range in 2011, predicts Deutsche Bank’s global co-head of equity capital markets, Mark Hantho. He sees a number of IPOs over $1 billion in the United States and a handful of $1 billion to $2 billion IPOs in Europe.

But the proceeds raised by this year’s deals, which included the world’s biggest ever capital raise — a $70 billion stock sale by Brazilian state oil firm Petrobras (PETR4.SA: ) — and three $20 billion plus IPOs, is a feat many believe is unlikely to be matched for a long time.

“The real growth isn’t going to come in the number of mega deals, it’s likely to come in the form of regular-sized ones that are funding and capitalizing companies,” said Dan Cummings, global head of equity capital markets at Bank of America Merrill Lynch.

“(Asia) was once very lumpy with big deals but we believe the composition will be far more diverse in the year ahead.”

U.S. issuance this year was dominated by the IPO of top U.S. automaker General Motors Co (GM.N: ). Including the common and preferred shares and overallotments, GM raised $23.1 billion and was the biggest-ever IPO globally.

Next year GM’s follow-on offerings, which will allow the U.S. Treasury to continue selling off its stake, will be among the biggest share sales in the United States.

As for IPOs, private equity-backed hospital operator HCA Inc, which has filed to raise up to $4.6 billion and TV viewership ratings company Nielsen Holdings BV, also backed by private equity firms, hope to raise around $2 billion.

Chinese companies debuting in the United States — though much smaller — are also likely to attract significant attention. After the sizzling debut of Youku (YOKU.N: ), sometimes called the YouTube of China, a handful of other Chinese tech companies, including social networking sites Renren, TaoMee, and Kaixin001 are readying IPOs.

“They (Chinese companies debuting in the U.S.) are seeing huge demand from investors and trading at dramatic multiples from their debut because they are scarce resources right now, and in many cases are at stages of growth we saw in similar companies in the US several years ago,” said Morgan Stanley global equity syndicate head Mohit Assomull.


In Europe, billions of dollars worth of IPOs were pulled, postponed or restructured due to sovereign debt worries and investors want certainty before committing more money.

“Investors either want the dividend yield in a safe-haven jurisdiction such as Norway, or they want growth, such as you find in emerging markets,” said Craig Coben, head of EMEA equity capital markets at Bank of America Merrill Lynch.

Poland is one such market, with the government’s $8.4 billion privatization program providing two of the biggest deals of the year — insurer PZU’s (PZU.WA: ) $2.7 billion IPO and a $1.3 billion listing by utility Tauron (TPE.WA: ).

“Emerging markets are back in business,” said Nick Williams, head of EMEA equity capital markets at Credit Suisse (CSGN.VX: ), predicting privatizations, including those in Russia, would be a big driver of supply next year.

Asset sales required as part of state bailout packages, such as Dutch group ING’s (ING.AS: ) planned IPOs of its European and U.S. businesses, which could happen as soon as the end of next year, could also drive interest in the IPO market.

But, for now, Asia, remains the focus.

“With growth in America and Europe languishing, most money is going to head toward emerging markets, especially in Asia,” said Kester Ng, JPMorgan’s co-head of capital markets in Asia Pacific.

(Additional reporting by Kylie MacLellan in LONDON; Ben Berkowitz in NEW YORK and Michael Flaherty in HONG KONG; Editing by Muralikumar Anantharaman)

Morgan Stanley is top ECM bank, as momentum builds for 2011