Foreign banks rule overseas funding for Korean firms

Foreign investment banks have once again dominated in underwriting bonds for local companies seeking to raise capital overseas.

The top 10 bond underwriters for local companies in 2018 were all foreign investment banks, with HSBC coming in first, followed by Citigroup Global Markets and Credit Agricole, according to data by Bloomberg, a financial data and news provider.

Other top-tier global banks included BNP Paribas and UBS. HSBC underwrote bonds worth $4.5 billion for local companies.

This would mean whether companies want to raise capital via dollar, yen, euro-denominated bonds, their first and only choice would be sending requests for proposal (RFPs) to those banks.

Industry sources say this was an obvious result given their global capacity to which local brokerages cannot match when competing overseas.

“With their networks, global investment banks can only handle and manage volumes in millions of dollars instantly as companies need to move fast in financing their operations both at home and abroad,” an industry source said.

The source pointed to examples such as KT raising 30 billion yen ($265 million) via so-called samurai bonds whose sales were managed by Citigroup and Daiwa Securities in November 2018.

Shinhan Financial Group also issued bonds worth $500 million through Bank of America Merrill Lynch, Credit Suisse, HSBC, JP Morgan and Mizuho in August 2018.

Another industry source agreed it was natural for top-tier foreign banks to dominate this area given their history and global outreach in tapping potential investors.

The source said Mirae Asset Daewoo may be one of the top local securities companies, but is nowhere near the capacity of its foreign peers.

“Local brokerages’ capacity extends to launching initial public offerings for local companies in the capital market here,” the source said.

The source compared local brokerages’ capacity to that of small Japanese banks in rural areas.

Mirae Asset Daewoo raised $300 million via bond issues overseas in November 2018, but it was only to serve its own purpose to use the funds to invest in future assets. Citigroup managed its bond sales.

Sources say it could be difficult for local players even to catch up to those global banks, which are getting more aggressive in sourcing deals as they get bigger.

This is why China, for instance, made it mandatory for its local companies to retain at least one local brokerage in a group of underwriters for overseas bond issues, industry sources say.

“Local brokerages’ capacity extends to launching initial public offerings for local companies in the capital market here. ”