HONG KONG, May 16 (Reuters) Goldman Sachs and UBS will split the lion's share of roughly US$250 million worth of fees for Bank of China's US$9.8 billion IPO, one of the last big Chinese privatisations in the foreseeable future.
Goldman and UBS are working with Bank of China's own BOC International investment banking unit on the June 1 listing, which could potentially be the largest Chinese IPO ever and carry underwriting fees of around 2.5 percent, rival bankers say.
The deal would also cement Goldman's position as the top stock underwriter in non-Japan Asia Pacific this year and push UBS up one spot into number two, according to Reuters calculations based on data provided by Dealogic.
Industrial&Commercial Bank of China (ICBC), the mainland's top lender, aims to raise US$12 billion in a listing later this year and it has already tapped its underwriters as Beijing wraps up its latest privatisation programme.
With Chinese state-backed banks, insurers, telecommunications and energy companies all listed on exchanges in Hong Kong, New York and London, investment banks have already been hunting through China's private sector for a new pool of IPO candidates.
''We are interested in second-tier (IPO) markets, for instance, the Tianjin Port IPO ... we can still make profits in the second-tier markets,'' said Rob Morrison, CEO of CLSA, the investment banking arm of French lender Credit Agricole.
Tianjin Port Holdings is raising up to US$139 million through CLSA and ABN AMRO.
FEE STRUCTURES Those firms have established unique Asian franchises by looking for opportunities outside multi-billion dollar privatisations, a market where Goldman, Merrill Lynch, Morgan Stanley and a few others have fought furiously to win business.
A case in point was the recent battle to woo ICBC, which eventually went to China International Capital Corp. (CICC), Credit Suisse, Deutsche Bank, Merrill and ICBC's own investment banking arm.
Morgan Stanley, which worked on last year's US$9.2 billion China Construction Bank IPO, is also in the mix as part of a consortium with CICC.
Fee structures on such deals can get complicated. Bank of China, for example, has drawn in ''strategic investors'' including Hong Kong's Wharf Holdings and Hutchison Whampoa Ltd. to the tune of nearly US$2.2 billion.
Listing companies will frequently scrape it out with their underwriters over how much fees to pay for strategic investor stakes, arguing that they should be priced below typical market rates of 2.5 to 3 percent of deal proceeds.
However, bankers not involved with the Bank of China deal expected the fees to fall in a respectable 2.0 to 2.5 percent range.
And to be sure, big investment banks don't live on ''elephant'' deals like Bank of China alone.
Hong Kong's IPO pipeline currently includes lots of smaller offerings like the US$800 million Champion REIT listing, the $1 billion IPO of Shui On Land and a REIT from Sun Hung Kai Properties expected to fetch around $400 million.
REUTERS PV GC1439