Published April 10, 2009

Capital markets picking up but deals are slow: Nomura

By SIOW LI SEN

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CAPITAL markets are showing more signs of life but closing deals is taking a long time as buyers remain cautious and sellers are not in a hurry, says Patrick Lee, Nomura Singapore joint head of investment banking, South-east Asia.

Topping the table: Nomura accounted for US$25 billion of the US$67.5 billion announced M&A deals in Asia ex-Japan in Q12009

'The capital market business is picking up since last month,' he said.

Nomura advised on a US$330 million convertible bond for South Korea's SK Telecom in March. And recently, it handled a small US$20 million placement for Raffles Education.

The merger and acquisition (M&A) scene in Asia is slow because buyers want to see things stabilise while sellers are still adjusting their thinking from last year, Mr Lee said.

In addition, most Asian companies are better capitalised and do not need to make distress sales.

Announced M&A deals in the first quarter this year in Asia ex-Japan totalled US$67.5 billion, down 44 per cent. Nomura topped the table for deals, accounting for US$25 billion.

Last year, Nomura also ranked No 1 with a 14.8 per cent market share, advising on deals worth US$44.8 billion.

With a slower market, banks have had to reduce fees.

'There's some fee compression on certain deals, though on capital financing, fees are moving the other way,' Mr Lee said.

Also, more banks are clubbing together to handle transactions due to capital constraints and caution, he said. Now, four or five banks will jointly do a deal, compared with three or four last year, he said.

Nomura bought the Asian investment banking business of Lehman Brothers last year and the combined team had a busy Q1 this year. 'We've been leveraging on the strength of Lehman and Normura franchises,' Mr Lee said.

In Q1, Nomura clinched a bumper transaction, advising Chinalco on a US$20 billion investment in Rio Tinto, giving it another 9 per cent stake, subject to government approval.

Mr Lee said the old Lehman team advised China's state-owned Chinalco last year when it bought US$14 billion of Rio Tinto shares on the UK stock market.

Rio Tinto is an Anglo-Australian mining giant listed in the UK and Australia. And Chinalco's acquisition has been politicised amid concerns over Chinese state investment in Australia.

Two other major transactions Nomura advised on this year were Japanese beer company Kirin's acquisition of San Miguel Brewery of the Philippines for US$1.4 billion, and a US$2.6 billion telecommunications transaction in India by the Tata group.