| HONG KONG, Sept 19
HONG KONG, Sept 19 A recent shouting match
between senior bankers involved in Hong Kong's second-largest
IPO so far this year illustrates the competitive squeeze on
banks from Chinese companies offering incentives ahead of
lucrative initial public offerings.
At a routine Sept. 6 meeting of around 20 underwriters to
China Huishan Dairy Holdings Co Ltd's planned $1.3
billion IPO, tempers flared between two bankers from HSBC
and Goldman Sachs, said people who were at the
meeting and others briefed on the incident. One said the row
escalated to the point where the Goldman banker threatened to
have his HSBC rival fired.
Chinese companies are putting pressure on banks to woo
so-called 'cornerstone' investors - big institutional names who
agree to buy shares and hold them, thus boosting the offer's
order book and profile. To better attract these investors,
companies are increasing the incentives to banks that bring them
in before the IPO, offering underwriters the promise of bigger
financial rewards and more prominent roles on the deal.
For the company issuing stock, creating competitive tension
is meant to ensure banks earn their underwriting fees,
particularly in a market where banks are starved for choice. But
investment bankers say the tactic can backfire, and could
further jeopardize an already fragile stock offering market.
IPO volumes in Hong Kong have nearly doubled since last year
to $5.3 billion, but proceeds are well below the peaks of 2-3
years ago. Last year was Hong Kong's worst for new listings
since the global financial crisis in 2008.
"You get too many banks appointed on the transactions and
the roles of these banks, and the economics, aren't really
determined until a very late stage," said Philippe Espinasse, a
former equity capital markets banker at both UBS and Nomura.
"What happens is you have a whole bunch of banks running
around trying to get cornerstone orders without any
coordination. They all come to the issuer saying: 'Look what
we've got. We did more than the others.'"
Bankers shouting at each other is hardly new, and for the
Huishan IPO's four joint global coordinators - Deutsche Bank
, Goldman, HSBC and UBS - there's as much as
$39 million at stake in commissions and incentive fees, Thomson
Reuters calculations show.
But for the row to play out as and where it did is rare,
said the people who were there.
TOO MUCH CREDIT
At issue was the credit HSBC said it should earn for its
efforts in the cornerstone process compared to the other banks,
the people said, noting HSBC had played a significant role in
bringing in notable investors.
Typically, such credit can involve a bank being put in
charge of investor meetings, a greater financial cut, or playing
a lead role in the company's post-IPO stock trading. According
to a person briefed on the meeting, tensions were building as
bankers felt HSBC was seeking more credit than it deserved.
Words were exchanged on the matter by the HSBC banker, prompting
the Goldman outburst.
A second, more junior, HSBC banker joined in and, after
further exchanges, she said: "Do you know who my father is? Do
you know who my grandfather is?" That's the kind of talk
normally associated with the many so-called 'princelings'
employed in the financial industry, although one of those
involved with the IPO said the banker does not have family ties
to China's political elite.
HSBC and Goldman declined to comment. Neither of the bankers
was available for comment. A spokeswoman for Huishan, which
those familiar with the incident said was not present at the
meeting, did not return calls and emails seeking comment.
Huishan on Thursday priced its offer at HK$2.67 per share,
at the top of its marketing range, raising $1.3 billion in the
second biggest Hong Kong IPO so far this year, said a person
with direct knowledge of the deal.
"When business is difficult and there aren't enough IPOs
getting done, obviously it makes it all the more important for
bankers to try and grab a piece of any action," said Espinasse.