Wed, Jan 29, 2025 page5

• HK fee slump reflects intensifying bank competition

  JUMBO LISTING: Wall Street banks fear that rock-bottom fees will become the norm, posing another problem in a market increasingly dominated by Chinese underwriters

  • Bloomberg
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  Contemporary Amperex Technology Co Ltd’s (寧德時代) upcoming jumbo listing, which could raise more than US$5 billion, is the type of deal that can inject a much-needed adrenaline shot into a sputtering market like Hong Kong’s. But it is fast becoming a headache for Wall Street banks.

  That is because the electric-car battery giant, commonly known as CATL, recently offered a mere 0.2 percent base underwriting fee to bankers, plus possible incentives, according to people familiar with the matter.

  That is less than what others have paid recently for similar big listings, and a far cry from the 1.2 percent that data provider LSEG said Chinese issuers typically paid for certain types of share sales such as second listings in the past decade.

  

  A Star Ferry sails in Victoria Harbour in front of the central business district in Hong Kong on Nov. 26 last year. US lawmakers urged the government to rethink banking ties with Hong Kong, citing its “increasing role” in money laundering, sanctions evasions and reported funneling of banned technology to Russia.

  Photo: AFP

  For Wall Street banks — many of which have their Asia bases in the city — the worry is that rock-bottom fees become the norm, posing another problem in a market that has been in a prolonged slump and increasingly dominated by Chinese underwriters. It is also a sobering reminder of how deals in Hong Kong, and by extension China, have become less lucrative.

  “The reality is quite tough for investment bankers from Wall Street banks as Asian clients don’t like to pay fees for their work if there’s not much value added,” said Veronique Lafon-Vinais, a former investment banker of more than two decades, who is now teaching at Hong Kong University of Science and Technology’s business school. “It’s probably going to get worse, particularly for bankers at US and European firms, as competition from Chinese banks is increasing.”

  Chinese banks have reason to get more aggressive to land deals in Hong Kong. Ever since the country’s securities regulator started restricting initial public offerings (IPOs) in the mainland in 2023 to stabilize the stock market, business opportunities for the country’s investment banks have dried up at home. That has made overseas listings such as those in Hong Kong more important.

  “Chinese banks have built up their expertise and relationships in recent decades and are now fighting like never before to grab market share from Wall Street firms,” Lafon-Vinais said.

  Companies that already trade in mainland China typically pay less to add a listing in Hong Kong than in a first-time IPO. Shenzhen-listed CATL’s proposed fees still stand out. For example, appliance maker Midea Group Co (美的集團), whose shares already traded in mainland China for years, paid 0.6 percent in fixed fees, plus up to 0.2 percent in incentives for its US$4.6 billion listing in September last year.

  Bank of America Corp, China International Capital Corp (中國國際金融), CSC Financial Co (中信建投證券) and JPMorgan Chase & Co are set to work with CATL on its listing. Despite the low fees, Wall Street banks still pitched to get on the CATL deal to avoid missing out on what could be Hong Kong’s biggest stock offering this year, people familiar with the matter said.

  What is happening in Hong Kong has historical precedents in markets such as India, according to Philippe Espinasse, a former banker who has authored books on Asian IPOs.

  “Competition among senior underwriters is increasing, in turn affecting the level of fees,” he said.

  For now, the hope is that in Hong Kong, the increase in deal flow makes up for some of the reduced fees that bankers get. IPO proceeds in the city may double to more than US$22 billion this year, thanks to major floats by China-listed firms and the possibility of US-listed Chinese firms seeking second listings on the back of rising geopolitical risks, Bloomberg Intelligence analyst Sharnie Wong (黃穎珊) said.
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