* Petronas proposed Canadian takeover is Malaysia's
* Additional $5-7 bln of Malaysia stock offerings expected
in next year
* J.P. Morgan gains from decades-long presence in Malaysia
By Saeed Azhar and Michael Flaherty
SINGAPORE/HONG KONG, July 2 In an otherwise
dismal year for Asia's investment banking industry, a ray of
hope has appeared from the most unlikely of places: Malaysia.
State oil company Petronas announced the country's
largest-ever outbound takeover last week, offering to buy its
Canadian partner Progress Energy Resources Corp for $4.7 billion
to gain control of vast shale gas deposits to supply lucrative
Asian markets. The news broke on the same day Malaysian palm oil
firm Felda Global listed its $3.1 billion IPO with a 20 percent
Bank of America-Merrill Lynch, Goldman Sachs and J.P. Morgan
are among the investment banks benefiting from the deal-making
boom at a time when fees are tough to come by. A few key
business relationships have paid off for BofA-Merrill, while
Goldman's expanded business and J.P. Morgan's decades-long
operation in Malaysia have been a boon for them.
Another $5 billion to $7 billion of Malaysian stock
offerings are expected during the next year, turning the
normally sleepy Kuala Lumpur financial hub into one of the most
active deal centres in the world.
"I would imagine we're one of the few markets where
head-hunters are paying any interest at the moment by virtue of
the fact that things are happening," said Steve Clayton, senior
country officer for J.P. Morgan Malaysia.
Clayton says that headcount at J.P Morgan Malaysia will
increase over 50 percent within the next two years. The bank's
franchise in the country dates back to 1964.
Driving the boom is a combination of government-led
divestitures, election-year politicking and steady economic
growth across Southeast Asia.
"There's an underlying ASEAN story," said a top Asia
investment banker who did not want to be identified. "The
orientation of investment banking fees was always directed more
to China. The slowdown of IPOs in Hong Kong has acutely impacted
that flow of business. So on a relative basis, ASEAN is seeing a
bigger component of the fee pool."
While credit ratings agencies are concerned about Malaysia's
budget deficit and the country is very exposed to any slowdown
in trade finance given its sizable export market, economists
remain positive as the local oil industry continues to churn out
heaps of cash for the government.
The Petronas deal, one of the biggest outbound deals from
Asia this year, will boost Malaysian M&A volume to $19.3
billion. Malaysia's share of Asian M&A volume doubled to 8
percent so far this year.
Aviva and ING's planned sale of insurance
operations in Malaysia are among the country's other M&A deals
expected to be completed sometime this year.
At nearly $5 billion year-to-date, equity and equity-related
deal volumes in the country are the most since at least 2000,
according to Thomson Reuters data, and already equal the total
for all of 2011.
J.P. Morgan is one of the top equity underwriters in
Malaysia, and is No. 3 in estimated fee rankings behind the
country's two dominant local banks, Maybank and CIMB, according
to Thomson Reuters data.
Malaysia's largest pension fund is a J.P. Morgan client,
which sources say is a key part of the bank's success there.
Goldman Sachs expanded its Malaysian business after
obtaining both a fund management and corporate finance advisory
license in late 2009.
BofA-Merrill scored the mandate to advise Petronas, the
bank's fourth M&A advisory role with the oil giant, and it also
has a role in the upcoming $2 billion IPO of Malaysia's IHH
Goldman does not have an advisory role in the Petronas deal,
but stands at No. 2 in Malaysian M&A, having worked on four
deals worth $3.9 billion.
Goldman was also the sole arranger for the $1.75 billion
private placement of 1MDB Energy, a unit of Malaysia's
government-owned investment company.
The deal was one of the biggest privately placed U.S. dollar
bonds on record from Asia. Thomson Reuters publication IFR said
in an article on the deal that Goldman may have made between
$21.8 million to $30.6 million handling the sale, dwarfing the
six-figure sums that typically come with such a trade.
If such a fee were earned, that would total the near
equivalent of what Morgan Stanley received in Asia debt sales
for all of last year, according to Thomson Reuters data.
Goldman declined to comment on the 1MDB role, though Yusof
Yaacob, chairman of corporate finance for Goldman Sachs
Malaysia, did discuss business prospects.
"The Malaysian economy has been doing relatively well
despite the global slowdown," he said. "We expect to see
continued consolidation and restructuring in sectors including
financial services and energy."
Investment bankers say whether the burst of activity in
Malaysia is sustainable depends on whether deals in Hong Kong
and mainland China pick up.
China's investment banking fees for domestically listed
stocks almost quadrupled since 2007 to $2.2 billion while
overall China investment banking fees, which include offshore
listed companies, rose 25 percent to $4.4 billion, according to
One equity capital markets investment banker said Southeast
Asia's deal activity has, in past periods, picked up when China