| SINGAPORE/HONG KONG
SINGAPORE/HONG KONG 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 pop.
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 centers 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 (AV.L) and ING's ING.AS 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 (GS.N) 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 Healthcare.
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 Thomson Reuters.
One equity capital markets investment banker said Southeast Asia's deal activity has, in past periods, picked up when China slowed down.
(Additional reporting by Denny Thomas; Editing by Ryan Woo)