HSBC Malaysia is keeping a sharp eye on the investment banking scene, especially for any potential early opening up of the sector to foreign banks.
“Right now, we are not allowed to have an investment bank. We just have the commercial bank and a research unit,” said Zarir J. Cama, deputy chairman and chief executive officer of HSBC Malaysia.
“When that aspect of the market opens up, we will definitely look at putting a presence on the ground. If there is an opportunity, HSBC Malaysia will make sure that it will look very sharply at putting up a full-fledged presence,” said Cama.
Taking HSBC Malaysia to the investment banking arena would be the next quantum leap for Cama in Malaysia where much of the “deal-making'' is done under corporate banking.
Cama sees opportunities in the opening up of the Indian economy where large privatisation deals were already being undertaken by the investment banking division of HSBC India where he was the former country CEO.
Keen to build on the significant growth in Malaysia and India business, he sees emerging interests in infrastructure, property development and sectors like oil and gas, food technology and IT.
Of course, while the foreign banks are edging for a slice of the action, local investment banks are also quickly getting their act together by merging their merchant banking, securities and other units under investment banking, while some larger ones are already looking at getting business overseas.
HSBC India's head of investment banking Naina Lal Kidwai views that the role of an investment bank actually starts before a commercial bank steps in. In her experience, globalisation implies that global and multinational companies also like to deal with global banks that have worked with these companies elsewhere and understand the issues that they face.
“If a Malaysian company wants to go to India, it should seek advice from a global bank,” she said.
In her observation, opening up of markets is not a threat. “It has only benefited India, whose foreign exchange reserves had dropped to zero in 1991 and today picked up to US$100bil.
“When countries open up, people react to it by making themselves more efficient and proactive. It creates job opportunities and different skill sets.
“The overall benefit is physical as well as improving the capacity of people to deal with change,” said Naina, who was formerly vice-chairman of JM Morgan Stanley and head of the investment bank in India.
Ten years ago, India was very inward looking and the people benchmarked themselves against each other.
“Now, the benchmarking is global and so, we need global input provided by the investment banks,” said Naina.
Bigger Indian companies and banks have gone for listing on global stock exchanges such as the Nasdaq in the last three to four years, many of which were encouraged by the investment banks to go.
“All the top Malaysian companies should be listed on global exchanges,” she said.
For investment banking to proceed, these ingredients are vital: a healthy stock market, good companies and a healthy stream of restructuring which would drive the mergers and acquisitions (M&A) business.
From these elements, we get a strong corporate finance business. On the other side of investment banking which is the equity broking business, you need quite a healthy market.
“I hear there is a healthy asset management business in Malaysia. You do have a very interesting element here - 20% of pension funds are allowed to be invested in the equity capital markets,” said Naina.
She sees the development of a healthy venture capital market as another vital area.
“As the industry grows, you want venture capitalists to co-invest with entrepreneurs before they list on the exchange as they should have a track record,” she said.
In India, HSBC was lead co-bookrunner for the largest issue raised for Government-owned Maruti in a joint-venture with Suzuki.
The Government allowed Suzuki to be a major partner and sold the rest of its stake in the Indian market through an initial price offering (IPO).
“That was a big success and opened up the retail market for India,” said Naina.
“We priced it at above opening price and today it is performing extremely well.”
HSBC also arranged the privatisation of IBP, which was one of the largest privatisations last year.
Currently, it obtained the mandate as Government advisor for a US$1bil stake sale of the Hindustan Petroleum Corp Ltd, a very big refining and marketing company with 8,000 retail outlets. Petronas and major oil companies are said to be bidding.
Two months ago, HSBC announced a deal to sell Hindustan Levers' hydrogenated cooking oil, under the household name of Dalda, to a big American company Bungee for its first investment to India at US$100mil.
In corporate finance, HSBC India has 21 staff members, of which 14 are key executives. In equity broking, it has a staff of 108 and is a big market share player, especially active in secondary broking, on the Indian Stock Exchange.
“We have sales people just selling Indian equities in London, New York and Singapore,” added Naina.
One of first few brokers in India to introduce futures and options, HSBC also has a nascent futures and options business that's just kicked off and doing very well.