The full answers

Author: | Published: 1 Nov 2007
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Asian Bankers' Counsel Poll

This poll is being carried out on an anonymous basis. Analysis of the results will appear in the November 2007 edition of IFLR. No reference will be made to respondents' names or firm names. No respondent bank will be referred to in relation to specific answers.

The poll is intended for general counsel and transactional lawyers in investment banking.

Follow-up interviews shall take place should you wish to provide more detailed answers. These will be conducted by telephone, also on an anonymous basis.

i. Structured products

1) What will be the next generation of structured products in Asia?

Common responses:

More, in emerging markets

Equity and credit-linked retail structured products

Hybrid, multi-asset structured products, offering cross-asset class exposure

Highly structured hybrid loans with limited syndication

2) Do you see Asia as an innovator in this respect or simply following products and trends in Europe and/or the US?

Innovator: 32%
Following the US: 68%

Most respondents in the 'Following' category insisted that there was "no reason why Asia couldn't be an innovator" or that Asian issuers do have "unique needs".

"There's no easy answer. There is a wide gap between the most sophisticated markets in Asia and the developing markets. But in the more developed markets there is an enormous appetite for cutting-edge products."

3) Are you worried about a lack of knowledge from retail investors involved in structured products in Asia?

Yes: 100%
No: 0%

4) Do you think that banks and external counsel are doing enough to raise awareness among investors of the risks?

Yes: 44%
No: 33%
No, but it's the job of the regulators: 23%

"We (the banks) are teaching the regulators the rules. As products become more complex, we have to show them the ropes."

5) Which countries are you most concerned about?

First: China
Second equal: India, Indonesia
Others: Malaysia, Hong Kong, Singapore, Korea, Pakistan, Taiwan

And why?

"Countries with higher wealth will be targeted for more sales – but it will be irrespective of the level of financial education and understanding of the general investing population."

Some thought this view disingenuous, or rather too general. Most agreed that China was a worry. One response complained that "investors in China buy into an issue not because of their understanding of the issuing company, but because it is popular."

"There's a lot of liquidity, a lot of hungry issuers, but very little knowledge. We run the risk of paying the price for that."

"Taiwan regulators want to hold foreign product providers responsible for suitability issues. And there seems to be a more prevalent practice for disgruntled investors to lodge complaints with the regulators when performance of certain products is low, due to market factors, even if full and proper disclosure was made in the first place."

ii. Covenant-lite loans

6) Are you worried about covenant-lite loans in Asia?

Yes: 57%
No: 28%
Not applicable anymore because of the credit markets: 15%

One general counsel summed up the situation: "As a lawyer, taking a covenant-lite approach seems antithetical to the whole risk management procedures we're carrying out here."

"The lack of a developed credit rating agency market increases risk."

7) If so, do you think the risks are more pronounced in Asia than the US and Europe?

Yes: 40%
No: 60%

iii. Local market transparency

8) What are your biggest fears when dealing with local intermediaries in Asia?

Lack of knowledge/experience including foreign regulations: 44%
Corruption: 33%
Know Your Client checks: 23%

"In some small/medium cases, intermediaries haven't cleared their clients. With a bulge bracket firm, you can take a lot of comfort in knowing that they will. Smaller intermediaries also have a lack of understanding of foreign regulations."

9) Which country is the biggest cause for concern?

First: China
Second: Indonesia
Others: India, Korea, Taiwan

10) Are you worried that your in-house team could fall into local market practice in certain Asian jurisdictions?

Yes: 83%
No: 17%

iv. Hedge fund regulation

11) Do you think there are problems with the Hong Kong system?

Yes: 73%
No: 27%

If so, what are your biggest concerns?

Consensus was: lack of black and white regulation

12) Are the regulators looking to the banks to internally regulate them?

Yes: 60%
No: 0%
Unsure: 40%

Many complained that while the regulators were indeed looking for the banks to internally regulate hedge funds, if they (the regulators) felt so strongly they should come up with proposals themselves.

10) What form should hedge fund regulation take in Asia?

No one had any suggestions, citing a lack of global examples of successful hedge fund regulation.

v. China (IPOs) – dual listings

11) Are you happy with the disclosure made by Chinese companies generally (on issues not lead by your bank) when listing?

Yes: 55%
No: 45%

"I'm never happy with any of them"

12) If no, what areas do you think need further disclosure/improvement?

"We need an increased understanding by Chinese companies and a tightening of regulations."

"Chinese companies need to get some honesty in them."

"Company management needs to understand the importance of disclosure."

13) Would a smoother mechanism for dual listing increase simultaneous A+H listings?

Yes: 66%
No: 17%
Unsure: 17%

"Yes, that and granting more licenses to international investment banks and being less formalistic about the process."

vi. M&A transactions

13) Which countries in Asia do you see as primary growth markets for your M&A transactions group?

First: China, India
Second: Taiwan, Korea
Others: Indonesia, Japan, Hong Kong

14) If any, which industry sectors stand out in terms of increased M&A activity?

First: banking
Second: oil and gas, telecoms
Others: technology, media, environmental

15) Which obstacles do you face when conducting M&A; or do you see as potentially hindering M&A transactions in Asia?

Varied responses included:

Underlying assets
Increase in management buyouts
No uniform competition regime
Some local rules unclear
Regulatory hurdles in certain sectors
Tax structuring
Regulatory uncertainty across the whole region
Insider dealing risks
Lack of transparency

vii. Dispute resolution and litigation

16) What kind of disputes do you face or expect to face?

Generally, respondents agreed that were few disputes now, but going forward the most likely areas for litigation are:

Private debt finance
Prime brokerage business with defaulting hedge funds
Structured product suitability disputes
General credit issues arising from market volatility
Third party/investor claims
Employment law matters

17) Do you have contingency plans for particular products or countries?

"Yes, too many."

"We've got no fixed policy."

"It depends on the products."

viii. Regulatory

18) Compliance is needed in 15 different jurisdictions. Is your team stretched?

Yes: 86%
No: 14%

19) How likely is European-style, overarching legislation? And why?

Unlikely: 93%
Likely: 7%

Nearly all respondents said it was unlikely, citing the lack of homogeneity.
Sovereignty and transparency standards are also big obstacles.

20) Do Chinese regulators put too much responsibility on the sponsors on holding Chinese state-owned enterprises accountable?

Yes: 83%
No: 17%

"Yes, but they should do."

ix. Risk management

21) What do you regard as the key risks to investment banks in Asia?

First equal: legal risk, reputational risk, market risk/volatility
Second: political risk
Third equal: loss of investment banking staff, credit risk
Others: regulatory impediments, syndicated loans