* CCB expected to mandate a dozen for capital-eligible bond
* Practice has become a norm as Chinese reward relationships
* Investors complain of lack of accountability for failures
By Christopher Langner and Neha d'Silva
SINGAPORE, Nov 15 (IFR) - One of China's biggest lenders is
set to name a jumbo group of bookrunners as it prepares to top
up its regulatory capital in the overseas markets.
China Construction Bank is likely to name over a dozen
bookrunners for a planned Tier 2 issue, according to people
familiar with the discussions. That would test the record for
any Asian bond issue, rivalling the 12-strong syndicate on
Sinopec's US$3.5bn global offering in April.
CCB has picked Goldman Sachs and HSBC as joint global
coordinators, alongside its in-house investment-banking arm CCB
International, while other banks are jostling for position in a
far larger syndicate, the people said. The line-up is not final
and may change as other banks join the deal.
Bank of China is also working on a similar deal but has yet
to confirm its line-up of bookrunners.
CCB's move underscores what has become almost a norm for
bond mandates in China. The practice, however, has started to
draw criticism from investors, while bankers have been
complaining about it from the start.
"At first glance you think that a large number of
bookrunners means there will be plenty of support for the bonds
in the secondary, but now we know that is not the case," said a
portfolio manager in Singapore. "I just don't see the value in
having so many bookrunners, we'd rather see only a few and be
sure about who is doing what."
Investors turned a blind eye to the swollen syndicates on
jumbo issues from China's state-owned enterprises earlier this
year. Plenty have come to market with eight or more lead
managers. CNPC hired 11 bookrunners for its US$2bn issue in
April, while Citic Securities picked 11 and State Grid Corp
chose nine the following month. More recently, Haitong
International named 10 leads in October.
Investors, however, complained about the confusion of
dealing with 11 joint bookrunners during the pricing of the ICBC
Asia Tier 2 Basel III compliant bond in October, questioning who
was in charge of allocations or providing secondary liquidity.
"It was chaos," said one hedge fund manager.
ICBC's Tier 2 bonds priced at 315bp over Treasuries and
widened 20bp as soon as they started trading. Bankers argued
that a savvy, small bank line-up would have allowed ICBC Asia to
achieve much tighter pricing and still ensure secondary
A subsequent Tier 2 deal from Citic Bank seemed to support
that theory. The transaction was led by a syndicate half the
size of ICBC Asia. It achieved a better result in pricing - in
relative terms, Citic's bonds came tighter to its old-style
subordinated bonds - and performed better in secondary trading,
as the bonds rallied almost US$1 on the break.
Bankers have long complained that the trend towards inflated
syndicates distorts league tables and squeezes fees.
"This is a sign of immaturity - a bond mandate is not a
medal you give your classmates for effort," said one banker.
"Naturally with a large group the fee that is paid to each
individual bank will be very very small. That creates less
incentive for the sales force which works on a sales credit
basis. The lower credit they get the less incentive they have to
push investors to come into that transaction both on size and
price which creates a motivation problem for them," said another