By EMILYN YAP

2008 has been choppy for investment banking in Singapore - while the financial storm washed out much equity-raising activity, large loan deals closed in the earlier part of the year managed to provide some lift for the sector.

And until markets stabilise, 2009 is unlikely to herald the return of big business. Nonetheless, some pockets of activity could emerge from refinancing and merger and acquisition (M&A) deals.

'2008 was a challenging year for capital raisings,' said managing director of Credit Suisse Edwin Low, and Thomson Reuters data as of Dec 10 reflects this. As share prices headed south, total deal value in Singapore's equity capital market plunged 66 per cent from a year ago to US$2.81 billion.

'There were fewer big IPO deals this year,' explained Philip Lee, JPMorgan's chief executive and head of investment banking in South-east Asia. 'Valuations have come off significantly for companies looking to raise new equity, and many potential institutional and individual investors have not been keen to add on to equity positions.'

Just five firms managed to obtain more than $100 million from their IPOs this year, while close to 20 did so last year.

But some firms have been raising funds through rights issues. 'Companies need to refinance although credit markets remain very tight and the cost of credit has gone up,' said UBS's joint head of investment banking in Singapore and Malaysia, Sutha Kandiah.

'Some companies want to address their capital structure. In some cases, their current leverage may not be sustainable.'

Just last week, DBS Group launched a massive S$4 billion rights issue, fully underwritten by five banks including UBS and JPMorgan. Companies such as Parkway Holdings and Olam International also used rights issues or preferential offerings to boost their coffers.

Singapore's debt capital market was also hit, but by a smaller extent. As Thomson Reuters data shows, total deal value in this sector dropped 7 per cent from a year ago to US$7.91 billion.

'Spreads continue to widen quite dramatically throughout the year,' said Parvati Banati, UBS's other joint head of investment banking in Singapore and Malaysia.

With less credit in the market to support M&A, the value of such deals involving Singapore firms as either the target or buyer also fell by a slight 5 per cent from last year to US$60.62 billion. Nevertheless, 2008 saw some huge transactions.

According to Thomson Reuters, Temasek's sale of Tuas Power, Senoko Power and PowerSeraya fetched a total of US$8.2 billion, and the three deals made it to its list of top five M&A deals in Singapore this year.

'The M&A market was characterised by cashed-up corporates who took advantage of quality assets being available due to the current crisis or due to regulatory and policy requirements,' added Credit Suisse's Mr Low.

Salvaged by the high level of activity in the first six months of the year, the loan business in Singapore was the only one to show a rise in deal values, jumping 94 per cent from a year ago to US$33.9 billion. Some US$6.9 billion went to the Marina Bay Sands and Resorts World at Sentosa integrated resort projects.

But 'the last few months have been very tight as banks are not committing financing for transactions', observed UBS's Ms Banati.

Thomson Reuters data paints a bleaker picture for investment banking in Asia this year. Including Australia and excluding Japan, deal values fell across the board for equity capital markets, debt capital markets, M&As and loans.

And the difficulties of this year are likely to continue into 2009. 'In most years there is a lot of visibility on the outlook but next year is going to be difficult to predict,' said Ms Banati, who does not expect large debt issuances to return until markets stabilise.

But she added: 'I think our deal pipeline is reasonably good. We are engaged with clients on the themes mentioned, like M&As and rights issues.'

Other investment bankers also believe that more M&As could emerge. 'We are likely to see consolidation within domestic markets as corporations look to gain scale and drive down unit costs,' said Goldman Sachs Singapore's co-president, Tim Leissner.

Falling valuations make this proposition more attractive but with credit staying tight, JPMorgan's Mr Lee points out that buyers need 'to have access to capital markets or already have the balance sheet for such activities'.

On the whole, investment banking activity should be 'relatively muted' next year, he said.

But looking on the bright side, investment bankers can now afford to claim the leave that they have been accumulating. As one said: 'We've gone through the heyday when everybody was running around and working very hard ... It's a good time to rest.'

This article was first published in The Business Times on December 29, 2008.