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Devonshire Capital Bank of Ayudhya $540 million equity private placement Extract from the Financial Intelligence Asia Magazine (FIA), Summer 1999 Many investment banks and fund management companies have been downsizing during the past two years of economic turmoil in Asia and in some cases the decision has been made to pull out lock, stock and barrel. While some of the big, bulge bracket firms have decided the region does not warrant the time or investment afforded to domestic markets, a lesser known, smaller operation has stood firm in its commitment to Asia - Devonshire Capital
A privately owned investment and merchant banking organisation operating primarily in southeast Asia, Devonshire Capital has been established since 1996 with branch offices in Kuala Lumpur and Bangkok and representative offices in Hong Kong and New York. The company's business scope includes direct investment, corporate finance, fund management and corporate advisory services. A usually media-shy company, Devonshire Capital has found itself in the spotlight of late as a result of its successful Bank of Ayudhya $540 million equity private placement - one of the largest in Thailand's corporate history - at the beginning of June. According to Devonshire's CEO, Philip Newson, the success of the placement was not merely the result of the company's smooth distribution and execution capabilities, but of years of building relationships and assimilation with the local markets. "The relationships we have established in southeast Asia do not just happen overnight," asserts Newson. "In a strange way, the Asian crisis has been of benefit to us. When many firms were deciding to pull out of the region during the crisis we stood firm in our commitment to our clients. Our constant communication allowed us to understand their needs and structure solutions accordingly." Newson points out that this made all the difference. "Although we are smaller in terms of human resources [than the larger European and US investment banks] this has actually acted to our advantage," he says. "I think many corporations in Asia, currently undergoing similar restructuring processes, want to know that you're tailor-making solutions to suit their needs, not just pushing the many existing products you may have in the shop." An Interface for Corporate Asia and International Institutional Investors However, Devonshire's strength lies not only in its relationships with corporations in local Asian markets but also in its power of distribution to the international investment community. The Bank of Ayudhya placement is proof of this. Devonshire was able to secure the mandate and place the entire deal within 17 days of commencement. Over 48 percent was sold to investors outside of Thailand of which 36 percent was accounted for by European investors, 6 percent by investors form the United States and 58 percent from Asian investors. There was clear domestic support for Bank of Ayudhya, demonstrated by the fact that 52 percent of the issue was taken by local investors. Devonshire's Managing Director, Andrew Affleck, attributes the speed of the deal to the professionalism of his sales team and to the depth and quality of the company’s client base. Affleck also stresses that the deal sold itself due to its simple structure - an equity capital raising exercise was the ideal way to entice foreign investors back into the market, offering considerable potential upside on one of Thailand's most respected blue-chip banks. "I have believed all along that when the time was right, Asia's best managed, quality companies would once again be in favour with foreign investors," he says. "That's exactly what we've seen begin to occur in Thailand. The timing of the Bank of Ayudhya placement was perfect. Here we had a top corporate issuer with a story to tell and international investors were eager to listen." From the Bank's perspective the exercise was a tremendous success. Chairman and Chief Executive Officer Khun Krit Ratanarak was impressed with Devonshire's execution and ability to raise the bank's profile, ensuring the most efficient method of raising capital. "We were pleased to work with Devonshire on this placement," comments Khun Krit. "They proved to us that the appetite [from international investors] for quality companies in Thailand will always exist at the right price." Henry Cheong, Chairman of Worldsec International Limited in Hong Kong, international placement agent for part of the placement, believes the strength of the managers lay in their ability to discern the needs of the Bank and at the same time bring together investors from all over the globe interested in the Asian restructuring story. "It was extremely fulfilling to play a role in the success of one of Thailand's largest equity private placements to date," says Cheong. "However, in order to place $540 million worth of stock coming off the back of the crisis required a quality issuer, efficient pricing and precision of execution." Devonshire's mission is to act as an interface between local corporations in Asia and foreign institutional investors. Its offices in Bangkok and Kuala Lumpur have been successful in doing just that for the Thai and Malaysian markets respectively. Philip Newson explains that this has largely been due to management's understanding of the unique business cultures of each country. "There are two fundamental requirements to conducting business in Asia : integrity and discretion," he states. "Integrity is a function of commitment and delivering what you promise. Discretion is vital in Asia as markets in the region all have their individual characteristics and sensitivities." Tailor-made Solutions The Bank of Ayudhya placement represents one deal successfully completed in Thailand. However, Devonshire has used the same principles to win business all over Asia, most notably in Malaysia. Underlining the management's point that solving clients' problems is more important than selling existing products is the Patimas ADR program instigated by Devonshire and sponsored by the Bank of New York. A second-board Malaysian information technology counter, Patimas's domestic plans to finance its expansion program were put on hold when Malaysia introduced capital controls in 1997. Even though the company's balance sheet was strong and its strategic business partners included the likes of IBM, international investor sentiment at the time dictated that all Malaysian companies were 'off-limits'. However, Patimas has managed to keep a good profile with investors in the United States via the ADR programme set up with help from Devonshire. Devonshire's objective was to make certain Patimas is in a position to access international markets as and when appropriate. The solution, according to Affleck, was simple. "Patimas is a quality second board counter in an industry with excellent growth potential," he explains. "Affected in the short-term by capital controls, our job was to ensure it would not suffer in the long-term. With this in mind we persuaded the company to embark on an ADR program with a view to possibly raising capital on Nasdaq in the future, via a level two or level three program." Raymond Yap, Patimas's Managing Director was pleased with the results. "We managed to keep a decent profile with US investors at a time when most other companies were simply ignored," recalls Yap. "We were very grateful to Devonshire for finding the solution to a difficult problem for us." Into the New Millennium This demonstration of commitment to clients and the region for the future is part of Devonshire's long-term strategy. "Where other firms saw the Asian crisis as a signal to exit the market, we saw it as an opportunity." reflects Newson. "Going forward, our business philosophy and strategy remain unchanged. We will continue to promote quality companies in Asia and to introduce them to the international institutional investor community."
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