Ex-Top UBS Banker Sets Up Fixed Income Firm With China's TCL

(Bloomberg) -- A former top Asian debt banker at UBS AG is heading out on his own, setting up a fixed-income house targeting Chinese clients that he sees as under-served by the main global banks.

Patrick Liu, who left the Swiss company as its co-head of Asia debt financing in 2016, has hired three senior bankers and has 11 people in total, as he seeks to build Admiralty Harbour Capital Ltd. into a debt-focused boutique investment bank, he said in an interview in Hong Kong. The firm, which moved to new offices in central Hong Kong in late August, is a joint venture with Chinese white goods manufacturer TCL Corp.

Admiralty Harbour will have three business types, according to Liu and his co-founder Alec Tracy, a former partner at U.S.-based law firm Skadden, Arps, Slate, Meagher & Flom. They are primary issuance, secondary trading and asset management. The firm is seeking to provide customized debt issuance and restructuring services to Chinese companies that wouldn’t be able to find such offerings at the major banks, they said.

We want to “try to offer more tailor-made credit services,” Liu said. We “see more defaults and distressed cases on the way. Therefore, this is a natural market for our future core business.”

Chinese borrowers have been the driving force for the region’s fast growing dollar bond issuance. They’ve been rushing to the market, bringing offerings this year to $119 billion, or more than 60 percent of Asia-ex Japan’s dollar note sales.

At the same time, Chinese companies are facing a reality check after years of ramping up borrowing. China’s deleveraging campaign that began in 2016 to curb risks in the nation’s financial markets has cracked down on shadow financing and tightened rules on asset management. As a result, firms are having a tough time raising new funds for debt repayment, leading to a record amount of bond defaults this year.

Expansion Plans

Liu and Tracy plan to hire as many as 15 people this year and up to 25 by the end of 2019. The debt capital markets side of the business will see the bulk of the recruitment at first, with the asset management side being smaller, according to Liu. Prior to joining UBS in 2009, Liu was leading the China debt capital markets origination team at Merrill Lynch and had worked at Credit Suisse AG before that.

Admiralty Harbour is a joint venture with TCL, the $5.4 billion conglomerate that sells everything from television sets to refrigerators. Liu declined to say how much capital the new bank will have available. A call to TCL’s main line seeking comments went unanswered.

“There has been a lot of paper pushed out without a lot of thought, because there was a ready market to absorb it,” Tracy said. “As credit tightens globally, it will become more challenging for the new credits to get funds and for some names to be able to refinance. I think a lot of these banks are not particularly well-placed to put together sophisticated, thoughtful responses to the individual characteristics of these credits.”

The firm recently got its first debt restructuring mandate from a Chinese high yield issuer and it also secured a joint bookrunner role on two upcoming dollar bond deals, Liu said.

Traditionally, the region’s distressed debt-related services have been offered by global boutique advisory firms, according to Liu. "While these firms have global deal credentials and experienced non-Mandarin speaking professionals, they may not have enough local knowledge or good access to the Chinese client group," he said. "We see a potential growing market with a clear gap to be filled."

©2018 Bloomberg L.P.