Investment Bank Fees Hit Low Amid Listing Competition
HONG KONG (Reuters) – The investment bank that managed the largest listing in the world this year is set to earn underwriting fees significantly below industry standards. Advisors are prepared to accept slim margins in an effort to regain business after a prolonged slump in listings.
The nine underwriters involved with battery giant CATL, based in Shenzhen, anticipate receiving up to $238.7 million, according to a disclosure from the company on Monday, which highlights that this estimate depends largely on the success of the transaction.
This year’s largest fixed committee listing in Hong Kong is just 0.2% of revenue, a stark contrast to the usual industry average. For instance, appliance maker Midea paid only one-third of what banks would typically receive for a listing last year, raising nearly $4.6 billion. This amount represents a quarter of the 0.8% underwriting fee awarded to SF, China’s largest express delivery company, for its $792 million listing last November.
CATL indicated in its filing that it might offer a discretionary fee of 0.6% as an incentive.
The diminished fees highlight the tough circumstances facing banks in Asian financial hubs. Trading volumes and new listings may be increasing, but prospects for a recovery in large-scale Chinese issuances remain uncertain.
“Though fee revenues barely offset costs, banks are pursuing discretionary fees, hoping that securing roles in these transactions will keep them in the loop for future deals,” said a source familiar with the pitch process.
Typically, banks are compensated between 2% and 2.5% of the total revenue raised from initial public offerings in Hong Kong, although amounts over $500 million can see this reduced to as low as 1%. For CATL’s underwriters, fees may reach up to 0.76%.
Dealogic has ranked Hong Kong among the lowest-paying financial centers worldwide.
JPMorgan, Bank of America, China International Capital Corporation (CICC), and China Securities International are the lead sponsors for CATL’s trading.
According to data from Dealogic, each sponsor is projected to earn $300,000 for their involvement, approximately half the market average over the last five years.
CATL has not yet responded to requests for comments.
Signs of Recovery in Transactions
International and Chinese banks have faced a prolonged period of reduced contracts in Hong Kong. However, the recent uptick in transactions has sparked optimism for a comeback in major issuances.
CATL’s offering has attracted strong interest, being oversubscribed since its launch on Monday, with significant demand from sovereign wealth funds and longstanding global investors, according to communications sent to investors on Tuesday reviewed by Reuters.
Some underwriters are indeed opting to battle for roles in transactions, accepting lower fees than usual, as noted by three sources familiar with the situation.
Goldman Sachs, Morgan Stanley, and UBS are co-global coordinators for CATL’s listing, with BNP Paribas and Guotai Junan in junior roles.
Interestingly, while Goldman Sachs and UBS have previously collaborated on some of CATL’s stock transactions, sources indicate they have chosen not to pursue senior roles in these new listings.
Both banks previously assisted with a 45 billion yuan share placement for CATL in 2022 and provided advice in 2023 for raising over $5 billion through Swiss global deposit receipts.
($1 = HK$7.7932)
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($1 = 7.2011 Chinese Yuan)
