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ANALYSIS-A Chinese Nomura? Not just yet

Published 11/07/2010, 09:48 PM
Updated 11/07/2010, 09:52 PM
GC
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* Closed capital markets, yuan controls clip Chinese banks

* China global top fee payer after United States

* ICBC only Asian bank to be part of Petrobras record shr sale

* No Chinese banks in global top 20 fee recipient list

By Soo Ai Peng and Clare Baldwin

SHANGHAI/NEW YORK, Nov 8 (Reuters) - Chinese lenders' ambitions of making a big mark on the global investment banking stage and taking on names such as Goldman Sachs may take years to fructify, keeping them reliant on lending for their growth.

The lack of a global distribution network and China's closed capital markets are major hurdles as the nation's lenders embark on expanding overseas equity fundraising, research and M&A-related work.

Top Chinese bank ICBC's selection as joint bookrunner in Brazilian oil giant Petrobras' record-setting $79 billion September stock offer -- the only Asian bank to be picked for the offer -- and its takeover of a small U.S. brokerage this month have sparked hopes that a mainland version of Nomura may be in the making.

Those hopes may, however, prove premature.

"If your question is if Chinese investment banks are going to go out and participate a lot on the London exchange or the New York exchange, I think that's gonna be a tough business," said Marshall Nicholson, managing director of BOC International.

"It is very difficult to be an entrenched player, unless you truly have a big global platform."

Petrobras and others may like Chinese investment banks for their strong connections in developing markets and in their own backyard Hong Kong, which was host to the world's two largest share offerings before the Brazilian company's deal.

ICBC said it arranged investor meetings for Petrobras management in Asia, and expectations ran high before the offer that a big Chinese investor might sign on, even though none did in the end.

But an executive at one of ICBC's rivals pointed out that the top Chinese bank already had a major lending relationship with Petrobras which may have helped it land a role in the offer.

"A big issue for a Chinese bank like ICBC versus Nomura is that China has a closed capital markets structure. It's not as if Chinese investors -- even if they want to -- can go out and invest in stocks around the world," said Jay Ritter, a University of Florida professor who advised Google on its IPO.

LEAGUE TABLES

China is on track to be the world's top IPO market this year, with mainland companies raising more than $70 billion in IPO proceeds on domestic A-share markets in the first nine months of the year -- about half the world's total.

Yet the Chinese investment banks that dominate the domestic IPO business haven't been able to leverage their experience onto the global stage.

Chinese names were absent from the top 20 investment banks in the first nine months of 2010 in terms of fee revenue earned, even after Chinese firms paid more than $1 billion in investment banking fees -- the second most after the United States, Thomson Reuters data showed.

Nomura was ranked 12th on the list.

Other Chinese investment banks including CCB International, the investment banking arm of No.2 lender China Construction Bank (CCB), and BOC International, owned by No.4 lender Bank of China, are honing their global skills closer to home in Hong Kong.

BOC International was named a joint bookrunner in UC Rusal's $2.2 billion IPO in Hong Kong earlier this year, and ICBC International played a similar role last month in the $20.5 billion IPO for AIA, AIG's main Asia unit.

China International Capital Corp (CICC), a venture of Morgan Stanley and considered China's premier investment bank, has also done numerous big deals in Hong Kong.

Closer to home, Chinese investment banks may soon get more exposure to foreign companies with China's expected launch next year of an international board for overseas firms in Shanghai.

"The real opportunity really is to look at the Hong Kong stock exchange or foreign companies coming into the Shanghai stock exchange when they have the international board," said BOC International's Nicholson. (Editing by Doug Young and Muralikumar Anantharaman)

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