Letter From Hong Kong: David Sullivan

Happy Chinese New Year or ‘Kung Hei Fat Choi’, as the Cantonese say in Hong Kong. It is the year of the dog, which may save some of the poor creatures from the frying pan. Most of the shops, market stalls and even expensive art galleries are currently selling ‘doggie things’. As you can imagine, we’re not seeing many statues of Alsatians or Pit Bulls – most of them are small, sweet and cuddly. I guess it’s the same theory that all fat expatriates love petite Asian woman, which of course is totally untrue.

Anyway, what is small? I recently saw an old MeesPierson client of mine in a restaurant. I remembered he had lots of diverse business interests so I later decided to pay him a visit to see if I could do anything for him. He kept on talking in ‘millions’, ‘ten million this’, ‘100 million that’. It took me a while to realise he was actually talking about Hong Kong dollars. For him ‘small’ was ‘big’ and for me, well, I was just confused. One thing he did mention was that he’d been offered a ten million letter of credit line from a bank in Hong Kong, against a pledge of property. He meant, of course Hong Kong dollars.

Being a debt advisory house, we come across all sorts of deal sizes including little ones, which, for various reasons, we try to place in the market. It could be that the small deal is a trial for a bigger contract or for a customer who has the potential to give us larger deals. It could also be for a start-up company (one of our specialties) or a customer who gives us a high volume of smaller deals and the volume justifies the income.

It’s a contrasting small and medium-sized enterprise market in Hong Kong, where at least ten local banks will finance little deals against pledges of real estate. If you want to do a small structured trade deal, depending on the type of deal it is, then you have a choice of one or two banks. Some of the margins and fees on this business are really good, but few banks want to utilise resources to handle a smaller deal in a transactional/structured way. If anybody has any equity and wants to set up a small structured trade bank in Hong Kong, there are lots of opportunities; it’s a big hole in the market.

We recently had a $1.5m ship finance deal and found one bank to do it. If the deal size is between $5m and $6m, you usually get four or five banks interested. If it is more than $10m, a lot more want to get involved. I know the old argument about utilising precious resources to handle smaller deals – and I can understand that, for instance, when you have a two hundred million Russian deal or a thirty million Chinese deal – but sometimes I think there are good reasons to do smaller transactions. And in any case I’m an old fashioned guy who thinks smaller deals make the world go around. Plus, as a banker, making a small deal work requires the full use of your skills, rather than sitting on a balance sheet, name lending, financing a big oil company and pretending you are structuring the transaction.

On a recent trip to London, I visited a few insurers. They’ve been extremely supportive of our deals, especially those thirty million China transactions. And some have even supported smaller ones. A couple of underwriters were talking about a few of our deals in the market. They asked “why this, why that?” and we answered diligently, question by question, until they concluded, “Well, the deal is too small for our re-insurance anyway.” Haven’t we all made life so interesting for ourselves?

My dictionary says: “Small: limited in size, number or importance.” I used to have an American neighbour – a tiny guy whose name was Mr Small. It often happens like that. For example, I recently saw the BBC interviewing a Dr Bird about Avian Flu. Anyway, Mr Small used to see me every morning and say, “Hey Buddy, what’s happening in the market?” I remember the first time he said this I thought he meant the Wanchai fruit market. Anyhow, his real family name was Lieborwitz, or something like that. The story goes that when his family arrived in New York to escape the Nazis during the 1930s, the immigration official couldn’t understand his grandfather. So because the grandfather was short, the immigration officer said, “You are now called Mr Small.” Now that’s important, meaningful or not.

David Sullivan is CEO of Trade Finance Corporation in Hong Kong