Why the China rainmaker just won’t go away I The ins and outs of mandate hunting
Lee Zhang: at the top of the Deutsche tree I Zhang Liping and Janice Hu: quietly getting deals done I Henry Cai: a new breed of dealmaker
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Fang Fenglei: wields incredible clout |
Ever keen to distance itself from the pack, Goldman Sachs boasts not one China rainmaker but two – Fang Fenglei and Fred Hu. On the face of it they couldn’t be more different.
Hu, Goldman’s China head of investment banking, is the steadier of the two: white-collar and urbane, described by one colleague as "brilliant, intense, erudite, a model China banker with relations across the [financial institutions] sector". Fang, chairman of the bank’s landmark mainland securities partnership – Goldman Sachs Gao Hua (GSGH) – is the blue-collar banker with a common touch: mercurial, legendarily stubborn, a whirling dervish who clicks immediately with hard-bitten directors of state-run enterprises and privately owned corporations. Both are, in their own ways, hard to control, yet they head what is probably the best investment banking team in China today.
The cerebral Hu took the more oblique route into investment banking. Boasting a masters degree and a doctorate in economics from Harvard, and a stint at the IMF, he was hired by Goldman in 1997 as its chief economist for greater China. A young star that rose fast, Hu was soon advising government officials, regulators and company chiefs on the overseas listing plans of China’s state-owned enterprises. Before long, he was dragging in deals by his mere presence, parlaying a sprawling network of contacts into direct profits for his employer, and slowly morphing into a first-tier investment banker.
Over the past two years, Hu has written himself into Goldman folklore. He was the point man on probably the most lucrative deal ever cut by any corporation in China – the $2.6 billion that Goldman’s private equity funds sank into Industrial and Commercial Bank of China (ICBC) before its $21.9 billion October 2006 initial public offering. That deal alone has returned more than $4 billion to Goldman and its investors in the past 12 months. "It was Fred Hu’s relationship that got that deal done," says a mainland source close to Goldman. "No one has done that in the history of modern China – to make billions of dollars like that."
No less impressive was the way Hu led the team that secured the mandate to co-sponsor Bank of China’s $11.2 billion July 2006 IPO. Although the US bank underwrote the $2.8 billion stock sale of BOC’s Hong Kong division in 2002, it was still lying in sixth place after the beauty parade for the main BOC offering. Enter Fred. "Bank of China chose Goldman because of Hu," says a source close the bank. "It was Fred that [won us that deal] and it was Fred that [won us] the ICBC investment," he says. "He can walk into the room and people recognize him and want to do business with him. He’s a star, which isn’t really the Goldman way, but so long as he gets deals done like this, no one complains too much."
This year has started just as well in China, with Goldman winning a role underwriting the Shanghai stock sales of Ping An Insurance, Bank of Communications and Ningbo Commercial Bank, a city lender in eastern Zhejiang province. Hu’s relations with each were instrumental in securing each deal. The Ningbo IPO was a classic piece of rainmaking – Goldman Sachs wasn’t in the running until Hu showed up, notes one banking source. When he did, the bank’s chairman, Lu Huayu, was so flattered that it helped Goldman win the contract, sources say.
Fang Fenglei has always been more of an old-style deal maker – colourful, quick-witted and direct – the sort of banker who continuously works the room making new contacts. There are few regulators, leading officials and heads of major Chinese corporations he doesn’t know – Fang was a key banker at China’s leading investment bank, CICC, until 2000, and worked for several years at rival brokerage BOC International before joining Goldman to head GSGH.
Fang’s contacts in the energy sector are particularly robust, sources say. He is close to PetroChina, and in 2005 he was instrumental in promoting oil major CNOOC’s attempted $18.5 billion acquisition of US company Unocal in 2005. Fang was the point man advising CNOOC on the $2.5 billion acquisition of offshore oil blocks in Nigeria in 2006. It’s a little known fact that when Citigroup was bundled off the ticket to underwrite China Construction Bank’s landmark October 2005 $9.2 billion Hong Kong initial stock sale, the bank’s new chairman, Guo Shuqing, turned for help to an old friend – Fang Fenglei.
Sources say Goldman agonized over which IPO to plump for, Construction Bank or Bank of China (mainland politics made it nigh-on impossible to attempt both). In the end, BOC’s longer history with Goldman finally swayed the decision but it was Fang who had put the US bank in the position to compete.
The only issue for Goldman is how to control two such combative characters. Hu’s ego was described by one source close to the bank as "Alpine if not Himalayan", and the economist in him continues to court the media, much to the dismay of Goldman’s communications team. Fang has his own shadows. He is stubborn, wilful and itchy-footed. As the majority owner of GSGH he also wields incredible clout, and Goldman has worked hard to keep him reined in. So far, however, it’s working, and as one banker at a rival institution in Hong Kong puts it: "In Fred and Fang, Goldman has two giants of investment banking, probably the two best guys on the street."