asem KDB to Make a Leap Forward as Global IB
By Yoon Ja-young
Staff Reporter
Investment banking (IB) has become the keyword for local securities firms and banks today. Seeking new income sources other than traditional savings and loans businesses or stock brokerage, they are trying to stretch into IB.
Few would doubt that Korea Development Bank (KDB) is far ahead of other local players when it comes to this. Based on its strong infrastructure ranging from its highly developed trading system, risk management and research, to its track record for big deals and network with investors overseas, the bank wrote most of the chapters for IB history in this country.
The First, the Best
Though it still falls behind global IB giants, KDB has often been first in Korea. For example, it was the first Korean financial firm to issue international bonds back in 1974. It was also the first to issue Yankee bonds in the U.S. capital market. Its vast experience overseas helped it set up networks with overseas investors.
The bank was the first here to deal in international bond issuance. It advanced into the overseas public offering brokerage market in 2005, which had been dominated by global IBs until then. It built up its competitive edge by brokering bonds of major conglomerates and the government's currency stabilization bonds. It has had twelve such cases so far.
The bank leads the domestic corporate bond issuance market. It contributed to the set up of the non-guaranteed bond market and helped the capital market cope with the LG Card crisis. KDB also developed new markets, taking over BBB rate corporate bonds and issuing collateralized debt obligation (CDO) for businesses with low credit ratings. Dealogic, an international market research company, named KDB the top broker of Korean won bonds in 2007.
KDB was also a pioneer in derivative finance. It was the first to handle commodities derivatives, and the first to launch an independent quant team. The bank was selected as the best derivative financier in the country by Asia Risk in 2004, 2005 and 2006, and was designated as one of the top ten derivative financiers in Asia in 2006 and 2007.
The state-run bank recently showed its ability in project financing (PF). According to Dealogic, it was the top broker of PF in Asia Pacific, excluding Japan, in 2007. As a state-run bank, it also has been actively engaged in financing startups, boasting the best screening process in the country.
Handling M&As since 1996, it has the best track record in the country. It has provided one-stop service, from giving advice to financing M&As, thanks to its long-term relationship with customers and the ability to do financing brokerage.
Strength in Manpower
The bank cites its manpower, network, and capital as the core strengths of its IB operation. Having over 50 years' experience as a corporate financier, the bank boasts an abundant pool of qualified experts. The Asian financial crisis back in 1997 enabled its staff members to learn a variety of operations, including corporate restructuring. They advanced into various sectors of IB, including M&A, PF, and private equity fund (PEF).
Its vast network with corporate customers is another valuable asset. As a corporate financing specialist, it has had various corporations as its customers. KDB has satisfied the diverse needs of local businesses that have grown enormously and are going through globalization. The changes led to new customer needs such as comprehensive financing and risk management, and KDB has provided financial solutions for them.
Its reputation overseas and global sales network, which links the bank with its branches overseas and global IBs enabled the bank to deal with cross-border M&As.
Achievement
KDB has made remarkable achievement in IB, especially in overseas market last year. The bank plans to continue focusing on the overseas IB market, especially emerging economies such as China and Southeast Asia, so as to grow into a global IB.
The bank, which has been top broker of foreign exchange syndicated loans since 2002, had deals total $5 billion last year, taking 32 percent of the market. It also started support of overseas resource development projects, investing $500 million in four such cases.
Last year, it helped chipmaker Hynix issue overseas convertible bonds (CB), and SK Shipping's kimchi bond issuance. The state-run financier also took over 6.3 trillion won corporate bonds last year, and issued low credit rating CDO worth 350 billion won, while also setting up a 36.3 billion won fund with Daewoo Shipbuilding and Marine Engineering. The bank is financing innovative small businesses.
In the project financing market which the bank has led, its brokerage totaled 5 trillion won last year, taking 55 percent of the market. The bank also handled $300 million worth of overseas projects, including SK's lube base oil plant construction project in Indonesia. The bank is scheduled to advance more actively into the overseas project financing market, especially Southeast Asia and the Middle East where infra is being built up actively.
KDB said it is now focusing on cross border M&A, based on the know-how it acquired in the domestic market. Last year, it helped Doosan's acquisition of the U.S. Ingersoll-Rand's three businesses, worth 4.9 billion, the biggest overseas M&A ever by a Korean business.
Its derivative products transaction totaled 225 trillion won as of September last year, growing 20 percent from the end of the previous year, and the bank's PEF investment totaled 376.3 billion won last year, twice the 169.6 billion won of the previous year. The bank plans to increase PEF investment to 600 billion won, and set up a KDB Asia Fund to invest in cross border M&A and in companies overseas.
Core Business
KDB plans to focus on the sector where it has strength, to make a leap forward as a global IB. ``Goldman Sachs, for example, focuses on principal investment, making use of its competitive edge in trading, while UBS concentrates on becoming the world's most renowned wealth manager. Citigroup is expanding trading thanks to its competitiveness in consumer financing,'' a KDB spokesperson explained.
He said KDB would make use of its expertise in corporate financing. The bank would be focusing on areas where it has competitive edge, such as syndicated loans, bond issuance brokerage, PF, restructuring and derivative products.
The bank also plans strengthening ties with KDB subsidiaries. For example, KDB cooperated with Daewoo Securities and KDB Asset Management, successfully issuing collateralized debt obligation (CDO) worth 350 billion won on corporate bonds with low ratings. It is preparing to set up a joint risk management system with subsidiaries, and to cooperate in product development and research, for joint advancement into markets abroad.
KDB hopes it could become a regional player in Asia in five years, and eventually a global IB. It is already different to other commercial banks, focusing on the retail banking of expatriates, and businesses such as money transmitting, foreign exchange, lending and receiving credit. As it expand its business in Central Asia and Latin America, starting with Uzbekistan and Brazil, KDB will get closer to its dream of becoming a global IB giant.