Case study: Sino Suisse Capital Pte. Ltd. single-stock lending
While Greater China’s successful entrepreneurs have earned substantial wealth in the recent past, often it is concentrated in the companies they have founded. Lawrence Lee Liang Wei, CFA, FRM, Chief Investment Officer of Singapore-based Sino Suisse Capital Pte. Ltd., explains how single-stock lending helps to unlock that wealth.
What type of financing instruments are your clients most interested in?
Generally Lombard loans are the cheapest and hence the most common financing instruments in this part of the world. However, increasingly we see more of our clients using single-stock financing and also structured lending on the back of more complex collateral. I think a bank should offer both standard Lombard loans and non-standard structured financing instruments. These are usually bespoke and involve financing on the back of more exotic collateral, which are usually illiquid and complex.
Why do you think there is growing demand for single-stock loans?
I wouldn’t say it is a new product. It has been offered in this part of the world for some time. But we do see increasing demand for it and are getting more enquiries. I believe our clients think there are greater reinvestment opportunities out there because of the increased volatility in the market. A good portion of our clients are entrepreneurs with most of their net worth tied up in their businesses. By extension, there is a greater need for single stock lending.
What percentage of your clients use single-stock loans?
My clients use Lombard loans, single stock and collar financing. I would say that 50%-60% of my clients use single stock loans.
What size of financing do your clients typically look for?
I would say the ballpark figure is USD100m-300m. We have a diversified base of clients who tend to look for more medium-term single stock loan for investment purposes.
What are the typical purposes?
There are three main purposes. Firstly, for reinvestment, to leverage and enhance returns from existing assets. Secondly, for diversification as single stock loans can be used to buy assets that are less correlated to a client’s source of wealth. Lastly, they can be used for liquidity purposes. The purpose depends a lot on a client’s specific requirements and risk/return objectives. We see a variation in the use of the loans; from investing in property to creating a more diversified financial asset portfolio.
Do you clients use put-protected single stock loans?
Put-protected stock loans protect the downside and allow clients to achieve what they want in terms of obtaining financing. Hence, depending on market outlook and conditions, they are definitely an option for clients.
What kind of people are your clients who use these loans?
Sino Suisse has a focus on Greater China – most of our clients are from there. Most of our clients who uses these loans tend to be entrepreneurs from Greater China.
What are the most important criteria for your clients when it comes to choosing financing instruments?
I think cost and the loan-to-value (LTV) ratio are the two most important criteria when it comes to choosing a bank for single-stock financing. Cost and LTVs can vary significantly from bank to bank, especially when you are dealing with very complex and niche collateral.
How many banks do you work with?
Up to 10 banks. We definitely always consider Julius Baer for all financing matters. Ultimately, the choice of bank comes down to the cost, LTVs and the flexibility of the financing terms.
Why did you choose Julius Baer as one of your panel of banks?
I think Julius Baer offers a very established and holistic platform for external asset managers (EAMs) like Sino Suisse. Trade execution has been quite seamless so far. There is also a very good collaborative culture where they work very closely with EAMs to find solutions for the clients.
What types of loans should Julius Baer add to the existing product shelf?
Bridging loans for pre-IPO financing would be a good product for Julius Baer to consider.
Looking forward how will structured lending evolve in your part of the world?
I think there is a growing trend for these products. Hence, greater variety of structured lending will definitely be welcomed as we will then be able to tailor financing solutions to meet the different needs of different clients. Beyond single stock financing, I think banks should start to offer more structured financing based on other collateral, like aviation or marine assets. I think the landscape is definitely evolving to one where clients are becoming more cognisant of the opportunities they can get from structured lending. This will definitely result in greater demand for such products in the near future.
Lawrence Lee Liang Wei, Chief Investment Officer of Singapore-based Sino Suisse Capital Pte. Ltd., uses single-stock lending to unlock the wealth of Chinese entrepreneurs. He sees a growing appetite for structured lending in Asia.