You may have heard this earlier than. Australia is rising from a world disaster extra swiftly and in higher form than virtually wherever else on the earth, giving its banks and the corporates they advise a transparent benefit in a barely recognizable ‘new normal’.That sentence might equally have been written concerning the international monetary disaster a decade in the past or the Covid-19 pandemic proper now. Whereas, on the time of writing, the US has suffered 120,000 Covid-19 deaths from 2.23 million circumstances and the UK 42,150 from 300,000, Australia has had 102 deaths from 7,000 circumstances. Area people transmission has just about stopped. And whereas Australia’s financial system has unquestionably been badly hit, going through recession for the primary time in three many years, with closed worldwide borders and a fraying relationship with China, there may be already a way of restoration. Alongside New Zealand, it’s the solely market the place persons are already speaking about Covid previously tense. From the angle of the various worldwide funding banks that populate the Sydney and Melbourne metropolis centre towers – and whose employees are steadily returning to them – Covid has created quite a lot of work. But it surely additionally required a willingness to adapt in a short time. Anthony Sweetman,UBS“Up until mid or even late February, 2020 was shaping up to be similar to last year,” says Anthony Sweetman, joint nation head and head of world banking, UBS Australasia. “Strong levels of M&A driven by confidence and strong economic conditions, with a reasonable level of equity capital markets activity linked to that M&A and to other growth plans.“That all changed very abruptly.”It was the identical for everybody else.“Like every other investment bank, we tore up our pipeline in late February – and we had a fantastic pipeline,” says Tony Osmond, head of Citi’s banking, capital markets and advisory operate for Australia and New Zealand.Richard Gibb, chief govt of Credit score Suisse Australia, additionally speaks of a pipeline in the beginning of the yr that was “largely upended by Covid-19. We pivoted to where our clients had the greatest need.”And thankfully, from the banks’ standpoint, there was loads of want. Many Australian corporates wanted cash and rapidly. So rapidly, in actual fact, that the world epicentre of fairness capital elevating in April was not New York or London however Sydney. A minimum of A$24 billion ($16.6 billion) of fairness was raised there between the beginning of March and early June, and it occurred this manner as a result of there was no different selection.“A lot of these capital raisings were mission critical for the clients involved: literally in some cases – they would not have survived without them,” says Tim Joyce, co-head of Macquarie Capital for Australia and New Zealand. “It was by no means straightforward to raise that equity.”Corporations and banks had discovered themselves with an issue they only hadn’t seen coming: the financial system was shutting down, they have been working into hassle servicing their debt and it was extraordinarily troublesome to type any type of conclusion about how lengthy the issues may final. However a plunging stock market gave the impression to be guiding them that the issue was right here for the long run.Share costs have recovered considerably, steadiness sheets are recapitalized and firms are returning to their pipelines, with M&A that includes fairly prominently – Tony Osmond, CitiOsmond at Citi says his pipeline “was replaced with clients’ immediate needs: liquidity, dealing with bank covenants and near-term bank refinancing.” The questions he and his colleagues have been being requested by shoppers boiled all the way down to: might they lend them cash and will they assist them increase cash?“Because the crisis happened so quickly and because our clients had to shift from being on the offensive in orderly markets to being on the defensive, all of a sudden we had to shift our focus,” says Osmond. “All of the investment banks, Citi included, were faced with this wall of intensity: a race to try to understand what balance sheets looked like and how to get capital most efficiently. We did six months of work in a couple of months.”In some sectors, an organization’s complete viability was on the road. “There are some clients in the impacted industries such as travel, tourism, leisure and hospitality that needed to recapitalize and restructure their balance sheets,” says Simon Rothery, chief govt of Goldman Sachs Australia. Examples embody Webjet, which Goldman helped to restructure its steadiness sheet by the general public market. Structural helpOne results of the Covid-19 disaster was to show simply how a lot fairness might be raised right here in a brief area of time, if it’s completely important to take action. “Structurally in Australia we have a real advantage: the ability to do placements which can be in and out of the market in one day; we have the rights issue path; and we have regulators that have been very willing to help,” says Rothery. On the regulatory facet, a key second was the choice by the company regulator, the Australian Securities and Investments Fee (Asic), and the stock exchange, ASX, to carry the cap of 15% of issued capital that may usually be raised in a single placement to 25% in recognition of the difficulty forward. Every elevating had its personal complexities and challenges, and getting buyers to step up in March was in no way simple – Tim Joyce, Macquarie CapitalMany corporates in Australia have taken benefit of the change.That’s fantastic, however buyers nonetheless needed to be satisfied to pour cash into firms in a drastically declining market – the rebound we’ve seen in asset costs since March was in no way a foregone conclusion again then. “A number of companies moved quickly to raise equity at what, in hindsight, has turned out to be near-market lows and during the highest period of volatility,” says Sweetman. Fairness points such because the NAB placement, a $three billion institutional placement accompanied by a $1.25 billion share buy plan to retail buyers, confirmed how issuers have been “very conscious of making sure existing shareholders are rewarded for their loyalty,” says Rothery. Goldman Sachs and Macquarie ran the bookbuild. “If you look at NAB,” Rothery continues, “the support came from their existing shareholders: long-only Australian asset managers, industry super funds, sovereign wealth funds. We did see huge hedge fund demand as well, but hedge funds have been getting smaller allocations in these deals.”Notably essential has been Australia’s pension sector, worth A$three trillion ($2 trillion) earlier than the Covid disaster hit valuations; it’s among the many largest asset swimming pools on the earth regardless of Australia’s comparatively small inhabitants. Simon Rothery,Goldman Sachs“Through our compulsory superannuation scheme there is a huge pool of savings here in Australia that has been going into these transactions,” says Rothery. “Every single one we have done has been heavily oversubscribed. There is a huge wall of money.”Joyce at Macquarie agrees. “There was a period six weeks ago when more equity was being raised by Australian listed companies than in any other market in the world,” he says. “That spoke to the fact that we have the fourth largest superannuation system globally and the 10th largest equity market. There is an efficient system for raising equity quickly, and that combination of things meant that investors stepped up and supported equity raisings for companies that needed the money.”That doesn’t imply that any of those offers have been foregone conclusions. Flight Centre Journey Group, a retail journey company, was among the many first firms to be hit, seeing its share price fall from A$40 to A$9. The A$700 million placement and rights problem it launched in April by Macquarie Capital and UBS was required to ensure that it to outlive. “I don’t think it has been as vanilla or straightforward as it might have looked,” says Joyce, talking of capital raisings broadly relatively than simply Flight Centre. Macquarie has been concerned in A$10 billion of the A$24 billion of fairness issuance for the reason that starting of March. “Each raising had its own complexities and challenges, and getting investors to step up in March was by no means straightforward.” Nonetheless, not each capital elevating was about survival. Seeing the willingness of buyers, others have simply taken their probability. Alternative strikes“The interesting thing is half the equity raisings have been recapitalizations, companies that needed to raise or would have breached covenants; and the other half has been for opportunistic or growth purposes,” says Rothery. “Boards and management teams recognize this is going to be a difficult period but there will be a lot of opportunities for their business.”Additionally, equities will not be the one sport on the town. Bankers have reported quite a lot of advisory work – the sale of Virgin Australia is a working example, with Goldman advising Bain Capital on a bid, Moelis & Co advising BGH Capital and Macquarie advising Brookfield, whereas Morgan Stanley is advising administrator Deloitte. However debt is equally energetic and maybe considerably underneath the radar.Tony Osmond,Citi“From our point of view we have been just as busy, maybe busier, doing debt raisings than equity,” says Osmond at Citi. “That doesn’t get as many headlines.” That is partly for corporates but additionally for presidency, the place Citi has helped to boost A$19 billion for the federal authorities and has issued bonds for each state in Australia, most of them not less than twice.“Australian investors have a greater aversion to debt than many other countries,” says Osmond. In Australia most listed firms don’t have debt larger than 3 times ebitda, whereas within the US, as much as 5 occasions is commonplace. Correspondingly, the early moments of the disaster in Australia have been characterised by assist from Australian fairness buyers to recapitalize steadiness sheets, whereas the US noticed a larger proliferation of debt raisings and convertibles. The exercise in DCM may be very welcome, however usually funding banking revenues are much more tightly linked to ECM and M&A exercise than debt. So what of M&A? Is that useless within the water? Opinions differ. Home M&A can clearly go forward, however logically the closing of borders (an Australian minister mentioned in June he didn’t anticipate worldwide flights to renew to Australia for the remainder of 2020, barring trans-Tasman flights to New Zealand) would appear to rule out any chance of cross-border M&A. “Predicting M&A activity is difficult given the uncertain economic outlook and travel restrictions,” says Sweetman. He says there was some speak of prioritizing enterprise journey as flights steadily open up, “but I’m not sure how many executives would want to travel it if it involves two weeks in quarantine at either end. “There are some industries where you can do everything remotely, but in most cases people looking at significant transactions want to be physically present at some point looking at businesses and assets and engaging with people. I suspect it will result in M&A being somewhat limited.”Historical past repeatsMost agree. However there’s a nagging sense of historical past repeating itself right here: of Australia popping out of disaster in much better form than most of its friends, with a steadily rising forex, share costs virtually again the place they have been earlier than the disaster in lots of industries and with firms newly flush with fairness. “Absolutely, cross-border discussions are going on,” says Osmond. Most of them are issues that have been already in contemplation, he says. Are new alternatives going to be created by this disaster? “The answer is ‘yes’, but it is probably a bit early,” he provides. “But given Australia recapitalized early, most balance sheets are in pretty good condition and that will put them at an advantage.“There is now a sense of optimism,” he says. “Share prices have recovered somewhat; balance sheets are recapitalized; and companies are returning to their pipelines, with M&A featuring pretty prominently.”I might anticipate a reasonably sturdy degree of exercise out of personal fairness each domestically and regionally over the subsequent six to 12 months, however I believe we might want to see certainty on valuations and the market outlook earlier than M&A takes off – Richard Wagner, Morgan StanleySome discover that a bit untimely. “It is a little early to be saying: ‘Hey, look at Australia, we’ve done well and we have some advantages here in terms of capital and investment,’” says John Pickhaver, co-head of Macquarie Capital for Australia and New Zealand. “It’s true that the Australian system has functioned well in response to the crisis, but it is still early days, and conversations about buying assets are nascent.”Richard Wagner, Australia chief govt at Morgan Stanley, thinks the home story is ample for the second. “I don’t necessarily see a huge amount of outbound M&A opportunities,” he says. “There will be enough for companies to focus on domestically. I would expect a pretty strong level of activity out of private equity both domestically and regionally over the next six to 12 months, but I think we will need to see certainty on valuations and the market outlook before M&A takes off.”Distinctive marketCovid-19 however, Australia is an attention-grabbing funding banking market, mature however in a state of constant evolution. It’s properly lined and worthwhile, and continues to draw new gamers, comparable to Jarden, the New Zealand funding bank, which has employed among the strongest names within the business from UBS and Goldman, and the anticipated return to the business of former UBS Australia head Matthew Grounds. Jefferies has raided among the brightest minds at CLSA to create its personal launch pad. Australia can be a particular market, notably as a result of the model more and more seen in the remainder of Asia Pacific – aligning the efforts of personal banking and funding banking right into a streamlined group, a type of virtuous circle of referrals that focuses on household wealth and entrepreneurs – scarcely exists in Australia. There’s nowhere else within the area, for instance, the place UBS would willingly promote its personal banking division to its personal employees, because it did in 2015, and focus as a substitute on funding banking.“The model in Australia is very different to the rest of the world, and you don’t see many of the larger international players here having wealth management operations,” says Sweetman at UBS.As a substitute, he says, the larger change has been banks restructuring or exiting their wealth administration operations in mild of the Royal Fee into Misconduct within the Banking, Superannuation and Monetary Providers Trade. The newest instance of this was KKR shopping for a majority stake in Commonwealth Bank of Australia’s wealth administration enterprise, Colonial First State.Solely two overseas banks buck the development: Credit score Suisse and Morgan Stanley. “Our relationships with entrepreneurs and ultra-high net-worth individuals is a key differentiator for Credit Suisse across the Asia-Pacific region – and Australia is no exception,” says Gibb. “We’ve had very successful collaboration between our investment bank and private bank, and see a real benefit in being able to provide private clients with the full suite of investment banking products in addition to wealth management advice.” On this respect, it feels like another Credit score Suisse operation within the Asia-Pacific area, and Gibb can level to examples the place it has labored, notably the Homeco transaction, which concerned personal banking, advisory, financing and ECM working collectively. That transaction goes again to 2017, when a number of outstanding excessive net-worth people, a few of them Credit score Suisse personal banking shoppers, purchased the Masters property portfolio from Woolworths. These property, suitably repositioned, have been listed in late 2019.Morgan Stanley’s entry into personal banking in Australia dates from the bank’s buy of the Smith Barney enterprise from Citi globally. Since buying that enterprise, Wagner says, “we have revamped it considerably. We have gradually moulded it to become a high net-worth, family office and not-for-profit charity-focused business.” Wagner agrees that “it’s rare to have only two global banks in a country having a material wealth management business”, however he’s acquired no complaints concerning the lack of competitors. “We have seen enormous growth in that business,” he says. “Particularly this year, post-Covid, there has been a real flight to quality in the wealth management space. Covid is a global problem, markets are increasingly global too, and we have a worldwide breadth of research to offer to clients. We have seen more than 1,000 accounts open across our platforms in the wealth business this year.” Greater than adviceOther banks have their very own strategies of differentiation. Macquarie, as a bunch, has at all times marched to the beat of its personal drum, doing issues otherwise and never a lot bothering what everybody else is doing. Traditionally Macquarie and UBS have clashed because the nation’s preeminent funding banks, however Macquarie’s mainstream ECM, DCM and advisory work has at all times been only one department on a strikingly difficult tree.It’s by no means fairly sufficient for Macquarie to be an adviser or a financier; usually it’s a accomplice, a co-investor or a developer. Today this finds its clearest expression in its work on renewables.“One of our main strategies is to look beyond pure advice to being a partner and developer of assets, whether that’s in urban development, renewables or tech,” says Joyce. “In those sectors where we see strong tailwinds, we look to participate as a partner and investor as well as an adviser.”Pickhaver explains the philosophy as shifting from a transactional to a thematic method.Transactions may nonetheless drive all of it – elevating capital, M&A recommendation, defence advisory and dealing with governments – “but we look at it in combination with themes like urbanization, resilience, technology and energy transition.”One begins to get a way of the completely different method by trying on the backgrounds of people that work at Macquarie Capital. Joyce was initially a lawyer and Pickhaver an engineer in civil infrastructure. “There are quite a lot of people in the business with a technical background like mine and who still operate in a technical capacity,” says Pickhaver. “That helps with project development and asset creation. We have quantity surveyors, mechanical engineers, civil engineers on staff.” For instance, Macquarie is engaged on the event of not solely an workplace tower however a metro station beneath it at Martin Place in Sydney. “To think of projects like that and to bid them and deliver them, we have the technical engineering resources on staff to do it,” says Pickhaver. “The blend of technical resources, commercial, legal and financial is a bit different.”One sees this in motion within the Kwinana waste-to-energy mission in Western Australia, the place Macquarie has partnered with native councils to be able to present the waste after which with different buyers and builders in bringing these property to market. Macquarie companions with the individuals who need the ability, the individuals who present the feedstock and the individuals who need to make investments. Offtake companions for the electrical energy from its wind farms embody Telstra, ANZ and Coca-Cola, all of them company relationships for the bank. On this model it has helped create wind farms, photo voltaic farms, battery storage and waste-to-energy. “We are not necessarily the long-term owner of those assets,” Pickhaver says. “We create the asset and bring in longer-term investors beside us.” That is nonetheless a fairly uncommon method in Australia – Joyce actually thinks so. “I think we stand alone in the types of partnering we can do,” he says. Some worldwide homes have principal funding or particular state of affairs companies, “but we are a bit different,” he says. “We invest in upcoming new businesses, usually technology driven, where we are quite venture capitalist in our style.”It’s not fully distinctive, nonetheless, and Goldman has a principal funding enterprise in Australia.Identified internally as PIA, it dates from the aftermath of the worldwide monetary disaster when the agency started buying non-performing loan portfolios, initially from the native arms of UK banks after which from Australians too. “That kick started the business for us,” says Rothery. Since then the bank has constructed an enormous enterprise throughout credit score and fairness investing. An instance of this division divesting a enterprise got here with its sale of a stake in AirTrunk, the information centre platform, to Macquarie’s infrastructure arm, Mira, in April.Partly 2, Euromoney will take a look at the aggressive setting that jostles to benefit from this vibrant market: the brand new pretenders, the challenges they may face, the established leaders they search to poach employees from, the shifting sands as individuals transfer round. And as Australia emerges from a disaster that also grips the remainder of the globe, it’s more likely to turn into extra engaging and aggressive than ever.