10 International Financing Review September 8 2018Top news
GM to ignite Kangaroo market
n Bonds Car giant looks to reopen Australian market for corporate America
BY JOHN WEAVERSAustralia’s corporate bond
market may be poised to shift
into higher gear, with General
Motors preparing to market a
potential new issue that would
end a 13-month drought of
Australian dollar issuance from
US companies.
GENERAL MOTORS FINANCIAL (Baa3/
BBB/BBB), the wholly owned
captive finance subsidiary of
GM, has mandated Deutsche Bank
and Westpac to arrange fixed
income meetings in Australia
and Singapore commencing on
September 17.
The vehicle maker’s first
Kangaroo benchmark would be
the first major Aussie dollarissue from the US corporate
sector since the passage of US
tax reform last December.
By slashing the tax rate on
repatriated profits from 35% to
around 15% and cutting the
standard corporate tax rate to
21% from 35%, the reform
removed a major driver behind
the run of US corporate bond
issues in Australia.
To avoid high tax rates on
repatriated overseas profits, US
firms had been incentivised to
keep profits offshore, instead
issuing bonds in foreign currencies
and swapping the proceeds back to
US dollars to help pay dividends
and finance stock buybacks.
Apple’s groundbreaking
A$2.25bn (US$1.6bn) four-yearand seven-year debut in August
2015 underlined the Aussie
market’s place as a significant
funding option for global
issuers. A second Apple
Kangaroo and debuts from Intel,
Coca-Cola, Verizon and AB InBev
(through its Australian
subsidiary) raised a combined
A$7.4bn over the following two
years, the last trade being in
August 2017.
The tax changes called into
question this strategy, with
Apple, for example, promptly
announcing it would make
about US$38bn in one-time tax
payments on its overseas cash.
Now, after a 13-month US
hiatus, a benchmark from GM
would show the renewed appealof the Australian dollar as a
funding currency for some of
the world’s biggest corporate
issuers.
Even under the new US tax
regime, American companies
derive diversification benefits
from Kangaroo issuance,
especially when achievable
volume and pricing levels stack
up, which they seemingly do at
present.
“GM can take advantage of the
strong bid for short-term paper,
perhaps to fund local operations,
while the flat and elevated cross-
currency basis swap curve
means you can raise funds in
Aussie dollars and swap them
back into US dollars at
significantly better levels thanBNP Paribas makes UK push
as Brexit distracts rivals
n People & Markets French bank sets up corporate broking business as UK springboard
BY GARETH GOREBNP PARIBAS is hiring staff and
boosting resources in the UK, as
it senses an opportunity to grab
market share in Europe’s most
lucrative investment banking
market while many of its rivals
are distracted by the country’s
imminent exit from the
European Union.
The French bank recently set
up a corporate broking unit,
hiring Lewis Burnett and
Andrew Forrester from Credit
Suisse to run the business,
which it plans to use as a
springboard to deepen
relationships with existing
clients and foster new ones.
Corporate broking, a
peculiarly UK phenomenon
that involves being the equity
market eyes and ears for a
corporate – often at a loss – in
the hope of winning future
business, is a tried-and-tested
method of building market
share.Barclays, the current number-
one investment banking fee
earner in the UK market, made a
big corporate broking push after
falling to a lowly number eight
in the UK league tables in 2008.
JP Morgan, now fourth, steadily
rose up the ranks after buying
Cazenove and its broking
relationships a decade ago.
Matthew Ponsonby, who
joined BNP in the newly created
position of head of global
banking UK a year ago, said the
corporate broking push would
help boost awareness of the
bank in the UK, where it
employs over 9,000 people in 30
locations.
“Given the size of the UK
market frankly you can’t be a
serious bank in Europe without
being strong there,” he said. “We
have more of a substantive
presence in the UK than any of
our European peers, but that
isn’t the perception. We aim to
change that, through deeper
engagement with our clients.”LUCRATIVE MARKET
In terms of investment banking
fees generated from
underwriting and advisory, the
UK is almost twice as lucrative as
France, the next biggest
European market. Banks
gathered US$6bn in revenues
from companies domiciled in
the UK in 2017, according to
Thomson Reuters data. After the
US and China, it is the third
most important market in the
world.
All the major banks have a
presence in the country. But
with the UK’s departure from
the EU next March looming, and
acute uncertainty about what
the impact of Brexit might be,
many have put a brake on
investment. Some have begun to
shift staff out of the UK to other
European centres.
Ponsonby believes that,
despite the uncertainty, now is
the time to make the push.
“The UK is uniquely rich in
international companies withsophisticated banking needs, and
they will continue to have those
same needs no matter what
happens as a result of Brexit,” he
said. “Business has already
planned for the worst, and what
they are doing now is getting on
with running their businesses.”
The bank, which is neck-and-
neck with HSBC as biggest
European bank in terms of
assets, certainly has the
potential to do better. It
currently ranks a lowly 18th in
the overall UK league table,
behind much smaller players
like RBC, Investec and Numis,
and hasn’t ranked above 12th in
the last decade.
What all those smaller houses
have in common is corporate
brokerships – Numis boasts 43,
Investec 23 and RBC 14. BNPP
has none. While BNPP could
have bought a rival – it has
shown a willingness to acquire
to grow in other markets such as
Germany – Ponsonby believes
that organic growth is better.4 Top news 2250 p4-11.indd 10 07/09/2018 18:27: