Growing the real economy in Asia

Innovation and flexibility in structured finance have allowed Intesa Sanpaolo to thrive in the hothouse of Hong Kong

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Robert Galbraith

17/07/2018

Hong Kong has one of the highest concentrations of banks in the world, with around 70 of the 100 biggest groups operating there.

It is the financial gateway to China, the largest offshore renminbi centre and well placed to benefit from the huge One Belt One Road infrastructure and investment project throughout Asia.
It is also a fiercely competitive environment. The hub itself is engaged in a prolonged battle with Singapore, which hopes eventually to take the “Gateway to China” title.

Inside Hong Kong, banks are in fierce competition for corporate business where keeping costs low and services attuned to the changing demands of the market are essential.

In the hothouse that is Hong Kong, Intesa Sanpaolo has proven that it can take a world view and that a distinctive franchise based on innovation, specialisation and flexibility can thrive.

Intesa Sanpaolo has a fully operational hub branch operating in all major currencies, primarily focusing on large corporate and structured transactions in infrastructure, power, energy and transportation. It has significant underwriting capacity for key clients, playing an important supporting role in eight project finance transactions in the past three years for an aggregate $1.58 billion of funding.

Asia is now a strategic priority for the bank. “It is estimated that by 2030, $26 trillion will have been invested in Asia in areas such as infrastructure, roads and highways, airports, ports and energy plants,” says Gianluca Cugno, head of Intesa Sanpaolo’s International Department of the Corporate and Investment Banking Division.

Not all markets are the same, though. “Indonesia has an annual growth rate of 5 per cent per year, 250 million inhabitants and an expanding structural system. Countries such as the Philippines, Thailand and Japan are different because the national banks are so strong,” Cugno observes.

Nonetheless, Intesa Sanpaolo believes it has encompassed that diversity and become a “truly Asia-Pacific regional player in structured finance”. Japan and Australia account for more than a quarter of the assets while Indonesia, India, Mongolia, PNG, China, Singapore and Hong Kong have fewer than 15 per cent.

Structured finance is an example of how the bank uses homegrown skills to compete with much bigger players on the world stage. Its specialist unit Banca IMI was the leading bank for transaction value in Italy between 2007 and 2017, as mandated lead-arranger and book-runner in the Italian structured finance market.

It offers a complete range of products and services, including origination, underwriting and distribution of syndicated loans. It also provides advisory and arrangement activity for projects, helping draft the business plan, identify the optimal mix of financing and deciding on the right corporate and legal structures.

 

‘It is estimated that by 2030 $26 trillion will have been invested in Asia in areas such as infrastructure, roads and highways, airports, ports and energy plants’
Gianluca Cugno, head of Intesa Sanpaolo’s International Department of the Corporate and Investment Banking Division

All this is now available on international markets through Banca IMI’s International Structured Finance desk in London and the Intesa Sanpaolo branch hubs in Hong Kong and New York.

Intesa Sanpaolo’s business plan, unveiled in February, foresees strengthening its presence in specific areas of the world. Australia, where the bank already has a representative office, was mentioned as a priority.

“This is a mature market with an Anglo-Saxon law system that gives legal certainty,” says Alessandro Vitale, head of the Hong Kong hub. “It is also one of the economies that is investing most with project financing, something that the group follows carefully, supporting the large Italian companies that are in the front line.”

In Australia, Vitale highlights the Victoria government’s AU$2 billion High Capacity Metro Trains project as an example of the success of its approach.
Intesa Sanpaolo was one of eight banks that provided private financing, some of it senior debt, for the project. The funding was used for building 65 new high-capacity trains and the construction of maintenance facilities.

Of those eight banks, Intesa Sanpaolo was the only one to come from outside the Asia region.
According to the Italian group, the success of the financing was the result of an innovative and flexible approach.

“Our thinking was that we could use a dynamic funding arrangement that would allow us to be part of the deal and put us in prime position to take advantage later of the associated cross-selling opportunities such as interest-rate swaps,” explains Graham Jang, head of Intesa Sanpaolo’s Structured Finance Desk in Hong Kong.

According to Vitale, this kind of strategy allows the bank to build a reputation and open up new opportunities in one of the world’s most important and competitive financial hubs.

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