Why Daniel Wong fits in nicely with Macquarie Capital's infrastructure

Macquarie Capital is not your typical investment bank. Since its inception, the arm of Australian merchant bank Macquarie Group has been seeking to build expertise in select areas – with regards to both the products it provides and the regions it is active in – to offer the best possible service to its clients rather than trying to be what Daniel Wong, the head of Macquarie Capital Europe (excluding Germany, Austria and Switzerland), describes as “everything to everyone”.

Established in late 1969, Macquarie started operating under the name Hill Samuel Australia before becoming Macquarie in 1985, the year it obtained its Australian banking licence. For the past two decades the bank has had a particularly strong focus on infrastructure projects, stemming from a deal in 1994 when it underwrote and placed the publicly listed equity for the Hills Motorway in Sydney – a deal that was to shape the bank’s business for years to come.

Indeed, the bank’s infrastructure focus may well have been one of the reasons why Mr Wong was appointed as the head of Macquarie Capital Europe in May 2014. By then, Mr Wong had been with Macquarie for 15 years, 10 of which were in London, with five heading its European infrastructure finance division.

“The infrastructure business is one of the leading businesses within Macquarie Capital that encapsulates our merchant banking business model,” says Mr Wong. “My role is not only to lead that and to see the business continue to prosper, but to take this culture and approach and apply it across the other sectors that we are covering – real estate, oil and gas, metals and mining, as well as financial institutions – which are [smaller in size] than infrastructure, but growing businesses.”

Mersey Gateway Bridge

In his time as the head of European infrastructure and real estate finance for Macquarie Capital, Mr Wong worked on some of the bank’s signature deals, including 2014’s financing of the £700m ($1.07bn) Mersey Gateway Bridge project in the UK. Macquarie was involved as the lead equity sponsor, financial advisor and debt arranger, as well as provider of mezzanine debt, a construction liquidity facility, interest rate swap and insurance captive.

Aside from the infrastructure angle, the Mersey Gateway project underlined one of the other strengths Macquarie can bring to the table: its balance sheet. The Mersey Gateway project is being delivered by the Merseylink consortium, consisting of sponsors Macquarie Capital, as well as infrastructure groups FCC Construcción and BBGI.

“Our merchant banking model doesn’t mean we invest for the sake of investing, but we do have a balance sheet that we are encouraged to use and offer to clients in whatever way they need,” says Mr Wong. “That means that we are able to co-invest into deals alongside clients as equity, but we can also lend.”

While most other investment banking businesses provide syndicated loans and other such senior debt products, Macquarie Capital is more interested in offering companies junior debt – mezzanine, payment-in-kind (notes that pay the holder additional notes as interest rather than cash), convertible loans or unitranche senior construction finance – the kinds of deals “where you have to work a bit harder” as a lender and where “clients are finding it a little bit more difficult to raise the capital or are looking to find capital that understands their business”, says Mr Wong.

Furthermore, the Mersey Gateway public-private partnership was the first greenfield project in the UK to be eligible for the government’s Infrastructure UK guarantee scheme, which is aimed at kick-starting the country's infrastructure projects.

A growing franchise

Over the past 10 years, Macquarie Capital's European operations have developed from an advisory business with one important client (Macquarie Funds Group) to providing most of its advice to third-party clients, with less than 10% going to Macquarie Funds, according to Mr Wong. Across the group, Macquarie Capital has more than 1200 staff, about 210 of whom are based in Europe, the Middle East and Africa.

“Our approach to business is incremental growth, focused on the sectors that we are specialist in, and not wanting to be everything to everyone but being the best at what we do,” says Mr Wong. “There is good opportunity for growth; we are heading for the best year in five years at Macquarie Capital Europe with revenues and profits forecast to be well up when we report full-year results at the end of March.”

To support the growing franchise, Macquarie is looking to add staff in specific areas. Over the past two years in particular, Macquarie has committed to hiring senior personnel both from inside the financial industry and from trade to improve its coverage in these areas. One of the bank’s most recent areas of focus in Europe has been equity capital markets (ECM), according to Mr Wong.

“Macquarie Capital globally is an excellent equity capital markets house and the securities group, which is research, sales and trading, is also a very significant global business. In Europe we are growing this area,” he says. “We have about 10 people on our ECM desk, we have more than a dozen corporate broking clients, and we are winning more and more work. I can see ECM being an important part of our business going forward.”

One of Macquarie Capital’s ECM deals of 2014 was the follow-on raising of renewables company NextEnergy’s solar fund. NextEnergy raises and invests equity and debt in solar power plants across Italy and the UK among others through its closed-ended NextEnergy Solar Fund.

Renewable energy

Macquarie is increasingly targeting projects in the green energy space, such as solar, wind, geothermal and other renewable energy sources as projects tend to require utilities to find partners to finance large capital expenditure commitments in a similar way to the construction sector.

“About five years ago, we positioned our business to be working with utilities and developers of renewable and conventional power with a focus mainly on the greenfield side,” says Mr Wong. “In that way, utilities can recycle their capital but still be responsible for getting the project done. That has been an enormous growth driver for our business in the past two to three years.”

One such project is Baltic 2, a 288-megawatt offshore wind farm located in the German Baltic Sea. In January 2015, Macquarie agreed to partner with German energy supplier Energie Baden-Württemberg and acquired a 49.89% interest in Baltic 2 for about €720m – a venture Mr Wong is particularly proud of. The project is under construction and expected to be completed in June.

“We are active in offshore wind and UK solar but also in biomass, waste-to-energy and onshore wind, and we are backing developers of new technologies such as gasification and tidal power,” he says. “It is important to our business that we are positioned as experts in new sectors in a way that is relevant to the market. Off the back of that we have deployed hundreds and hundreds of millions of dollars of capital into the space and I can only see that accelerating in the years ahead.”

Oil opportunity

Mr Wong says that the plummeting of the oil price to less than $50 a barrel is presenting Macquarie Capital with opportunities, as the large oil energy majors are having to ration their balance sheet for new capital expenditure, which is leading to midstream and downstream assets in these companies increasingly being separated from the businesses.

“We are already starting to see assets such as oil pipelines, gas pipelines, undersea pipes and petrochemical storage, which are very significant pieces of capital expenditure, being sold by the energy majors, and we are definitely in a good position to support our clients across the space,” says Mr Wong. “That is also one of the areas in which we are looking to hire.”

He expects to see growth in Macquarie Capital’s corporate broking clients from the natural resources industries, including oil and gas, but also metals and mining, which have been experiencing a turbulent environment.

“Because of the challenged environment in the resources space, we will really have to step up from a balance-sheet point of view because access to alternative capital, private capital, will increasingly be relevant,” says Mr Wong. “The culture and current state of the firm is one where all leaders are encouraged to use the balance sheet – there is no specific allocation and the capital is flexible.

“In Europe we have been working on finding ways of helping our existing client base through offering them that balance sheet, while hiring people to find new clients and expanding the way in which we can offer our capital, all the way from equity through to debt.”