LEX Seldom has a head start looked quite so advantageous. When UBS and Goldman Sachs secured licences to underwrite issues in China, mainland markets were rocking: last year issuers tapped domestic equity markets for a whopping $66bn. By contrast, Credit Suisse, which received the green light over the weekend, steps into a tumbling stock market where equity issuance is expected to be half that this year.
Of course, these deals are all about the long term. On that basis, no self-respecting bank can afford not to be in China, as demonstrated by fees garnered so far this year. Even in a non-boom year, China’s $1.3bn of investment banking fees are just a whisker below those available in Japan, according to Thomson Reuters. The question is how much of this foreigners will be able to tap. UBS has won a number of trophy mandates, including the listing of PetroChina on the renminbi-denominated “A” share market – a hugely popular listing that briefly awarded the oil major a market capitalisation of over $1,000bn. But competition is tough, with maybe four or five brokerages slugging it out for the big deals and up to a dozen on the mid-sized ones. That grinds down initial public offering fees, already hovering at a relatively thin 1-2 per cent, or a shade higher where advisory fees are included.
Credit Suisse is pioneering the template model approved by China and will hold 33 per cent of its joint venture. The upside may be quicker execution – UBS and Goldman Sachs were both subjected to long delays. The downside is that the licence is purely for primary underwriting; Credit Suisse cannot, for now, engage in secondary trading. Nor has it secured management control, and the experience of multinationals in similar situations has never been inspiring. No matter. When it comes to China, just being there counts for everything – which is why the queue of investment banks behind Credit Suisse remains as long as ever.
