BEIJING/HONG KONG (Reuters) - Four years ago, Pan Gongsheng was board secretary at Industrial and Commercial Bank of China and steered what is now the world’s most valuable bank through its $21.9 billion IPO, the largest ever.
His style then was to subject the army of bankers piecing the deal together to a strict regimen of daily report cards, grading everything from attendance to typing errors in the offer prospectus - all of which were reported back to government officials in Beijing.
Now, Pan is back.
As vice president of Agricultural Bank of China, he is the driving force behind an IPO that could raise more than $23 billion. And his tactics haven’t changed.
Unlike a company, whose founder has the final say, a state-run institution like AgBank is subject to many layers of bureaucracy. The man in charge is a government official, not an entrepreneur.
At AgBank’s headquarters near Beijing’s Wangfujing business area, there is a classroom in which all the investment banks involved in the IPO have five seats each.
The bank, founded by Mao Zedong in the 1950s as the central bank’s rural arm, holds a daily roll call to see how many people each bank sends — as a test of their commitment to the deal, according to sources directly involved in the process.
Bankers expecting to handle such a large and prestigious deal in oak-paneled rooms and with Aeron office chairs - beware.
When underwriters need more information on the bank, they are directed to the data room — a musty, gloomy, underground area, according to the sources, who work for the underwriters but are not authorized to speak publicly about the offering.
Banks are also frequently reminded that, as is the Chinese way, title counts.
One underwriter earned the ire of AgBank executives by sending two interns to an important discussion. A rival underwriter sent two managing directors to the same meeting, winning praise from management for their commitment, the sources said.
The AgBank deal is coming to a head just as investment bankers are used to taking time off for summer — or to watch the soccer World Cup. If they thought the workflow in Beijing may slow a bit in the last few weeks, they were mistaken.
Members of the Hong Kong underwriting group grumbled when they were summoned for a meeting in Beijing at 9.00 p.m. on a recent Friday.
Some AgBank executives have a habit of sending ideas to the core e-mail group very late at night, one of the sources said. Top bosses for the underwriters can sit up well into the night competing to reply in order to please the bank.
Beijing-based AgBank, whose $1.4 trillion in assets is higher than Canada’s GDP, only recently clarified which of its 11 underwriting banks would lead the mega-IPO, choosing four to act as joint global coordinator. AgBank aims to list in Shanghai on July 15 and in Hong Kong a day later.
While, for some, the prestige of being involved in what is likely to be a record IPO outweighs the pain of the tightly controlled process, the bankers still don’t know how much they’ll be paid.
Sources say the seven banks involved in the Hong Kong offering expect a fee of around 3 percent. If AgBank raises $12 billion for the H-share IPO, that would mean a fee pool of $360 million — an average of around $50 million each, though it’s unlikely each bank would be paid the same.
Top banks in Asia last year earned $150-$200 million each in estimated fees through 40-50 deals, so this single IPO would place all banks involved well ahead on their 2010 budgets.
But it’s not clear if Beijing will charge a different fee for the institutional portion of the offer than what’s charged for the much smaller retail portion, as it has before.
CICC, Deutsche Bank, Goldman Sachs, JPMorgan, Macquarie and Morgan Stanley are the banks handling the Hong Kong offering, along with AgBank’s own securities unit.
Bankers are fretting that after three months on the job, the take-home pay still isn’t clear. And that’s precisely what Beijing wants. The final fee will be based on merit, not on a pre-arranged price.
“It’s just part of the same incentive process,” said a person familiar with the deal.
“I don’t think they plan to short change anyone. They’ll pay fees based on what the market can withstand. They just don’t want to post this on the underwriters’ information board.”
Additional reporting by Daisy Ku, Editing by Ian Geoghegan