HONG KONG -(Dow Jones)- Volatile markets took a toll on investment banking revenue in Asia in the first quarter of 2008, but thanks to Chinese and Indian initial public offerings and China's acquisition of a stake in Rio Tinto, the region fared better than the U.S. or Europe, according to figures released Friday by data provider Dealogic.

During the quarter, investment banking revenue in the Asia-Pacific region, including Japan and Australia as well as China listings, fell 26% to US$1.80 billion from US$2.42 billion a year earlier.

In contrast, the U.S. saw first quarter investment banking revenue drop 48% to US$5.13 billion from US$9.87 billion, while European fees slid 57% to US$3.7 billion from US$8.6 billion, figures from Dealogic showed.

"Asia has been more resilient than the U.S. or Europe. Part of the reason for this is that there's been a relatively large backlog of transactions in the pipeline, which issuers wanted to complete, such as the China Railway IPO," said Mark Renton, head of investment banking for Asia-Pacific at Citigroup Inc. (C), which topped first quarter investment banking revenue in the region, excluding Japan.

"Also, Asian strategics continue to search out opportunities for outbound M&A and the pools of capital in Asia are there to support some of these industry changing transactions," he added.

Japan's Nomura Holdings Inc (NMR) topped the investment banks in the region, including Japan, for fees, with US$127 million in revenue, followed by Citigroup, which chalked up US$103 million. UBS AG (UBS) was third, with US$87 million.

Nomura was the sole bookrunner on the US$1.43 billion convertible bond for Japanese electronics retailer Yamada Denki Co. (9831.TO).

That role also brought Nomura to the top spot for fees from equity-linked products in a quarter where volumes of convertible bonds - which one banker said give some "downside protection during volatility," were the only ones to rise, adding 1% on-year.

As last year, the biggest fee earner was in the equity capital markets, though the spate of IPOs that were withdrawn at the last minute led to a big drop in revenue. Equity fund-raising deals, which include both IPOs and equity-linked transactions such as convertible bonds, contributed US$670 million in total revenue for banks, compared with US$1.17 billion in the same period last year.

The top-earning equity fund-raising deal was the US$5.46 billion initial public offering of state-owned railroad builder China Railway Construction Corp. (1186.HK), which listed in Hong Kong and Shanghai. Citigroup, Australia's Macquarie Securities Ltd., and China's Citic Securities Co. (600030.SH) were advisers on that deal.

In second place was the US$4.25 billion follow-on offering by the State Bank of India (500112.BY), in which Citigroup, Deutsche Bank AG (DB), Merrill Lynch & Co. (MER), and Calyon joined India's Kotak Mahindra Ltd. and SBI Capital Markets Ltd. as bookrunners.

Announced mergers and acquisitions volume of US$151.8 billion was the lowest quarterly result since the third quarter of 2006, when it was US$113.2 billion, and was down 14% from the US$176.8 billion worth of deals in the first quarter of 2007.

Still, weak markets may, in fact, provide good bargains for acquirers, some said. "Overall M&A activity is down in terms of volume and value but there is a good amount of activity by Asian companies, many of whom have healthy balance sheets and can benefit from strong currencies," said Jason Rynbeck, head of mergers & acquisitions for Asia at ABN Amro, which is advising private equity firm MBK Partners LP on its joint US$259 million bid with the management for Singapore's AsiaPharm Group Ltd. (A61.SG).

"Meanwhile, private equity buyers have raised record amounts, so they will use less debt when making acquisitions."

Renton said that Chinese and Indian companies will continue to look to buy overseas assets, especially in resources such as metals and mining, to feed their growth. The biggest deal of the first quarter was, in fact, Aluminum Corp. of China's (601600.SH) US$14.32 billion acquisition, with Alcoa Inc. (AA), of a 12% stake in Rio Tinto PLC (RTP), also China's biggest-ever outbound deal. That comes as Australian-listed mining giant BHP Billiton's (BHP) US$140 billion ongoing takeover bid for rival Rio Tinto PLC, continues to dominate the global M&A landscape.

"In addition, financial institutions will continue to look outward, especially Chinese financial institutions, and non-Asian issuers will look to sovereign wealth funds in Asia as investors," Renton added.

In the first quarter, China's Ping An Insurance (Group) Co.'s (2318.HK) pending US$3.47 billion buy of the asset management unit of Fortis NV was the second biggest outbound deal, after Chinalco's Rio Tinto purchase, followed by Government of Singapore Investment Corp.'s US$1.54 billion purchase of a 14.3% stake in Italian investment company Sintonia SA.

The largest acquisition of an Asian target is the pending US$5.75 billion purchase by Australian miner Oxiana Ltd. (OXFLY) of rival Zinifex Ltd. (ZFX.AU), with UBS and Citigroup among the advisers. UBS, the top earning bank in 2007 in Asia, was also the quarter's top M&A revenue earner, garnering US$43.5 million in fees.

-By Nisha Gopalan, Dow Jones Newswires; 852-2832-2343; nisha.gopalan@ dowjones.com

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  03-28-08 0023ET
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