The list of institutions widely reported at the end of June as comprising the cornerstone investors for the long-awaited IPO of Agricultural Bank of China says much about the new realities of post-crisis banking. While in the past China bank listings were propped up by substantial investments from western firms, such banks as UBS and RBS have long since sold their stakes in order to raise recovery capital.
Now the list of cornerstones for the ABC deal is full of top investors from the Middle East and Asia. The sovereign wealth funds of Qatar, Kuwait and Singapore are in for reported sums of $2.8 billion, $800 million and $200 million respectively, while Hong Kong tycoons including Li Ka-shing and Lee Shau-kee as well as top China state-owned enterprises such as China Life, China Pacific Insurance and CNPC are all likely to be involved.
Japan’s Nomura and Daiwa Securities Group are the only investment banking names reported so far. Among western banks only Standard Chartered and Rabobank are thought to be investing in the deal. Both institutions have announced business tie-ups with the Chinese lender.
The simultaneous A and H share listing of ABC is the key event in the year’s Asian equity calendar, expected despite downsizing from an initial $30 billion target to be the biggest IPO of the year globally and the largest ever such deal for China. The region’s leading investment banks fought a gruelling battle for slots on the deal – with the request for proposals notoriously sent out on the Friday of Easter weekend to test their commitment – and the cornerstone investors are seen as crucial to ensuring a smooth listing by demonstrating investor commitment before the deal’s launch.
It would be hard to think of a more symbolic shift in the centre of gravity in global financial markets. The year’s key Asian equity deal is to be supported by the participation of investors from Asia and the Middle East, and will demonstrate the increasing importance of investment between the Islamic world and China described in such books as RBS economist Ben Simpfendorfer’s The New Silk Road. Standard Chartered, the western bank that has most cast its lot in with emerging markets in general, and with Asia and the Middle East in particular, stands as confirmation of this trend rather than an exception to it.
Asian investors, alert to this newfound status, are becoming more demanding of issuers and intermediaries. The rise of consultancies helping them to obtain valuations on portfolios of distressed assets sold before the crisis stands as posthumous evidence of the old way.
As one senior investment banker in the region tells Euromoney in private, too often Asian investors – not the savvy sovereign funds but opportunistic buyers such as small banks and funds – were the last port of call for banks selling a transaction. They were shown the dregs of the deal, with good product already snapped up by in-house proprietary funds, hedge funds, and top western investors. They were known as “price takers”, that is, happy to accept the first price offered them. Inevitably, this is a broad generalization and most Asian investors would balk at such a characterization. Nonetheless the perception persisted in the industry that investors in the east were being shown inferior product pre-crisis.
A number of sell-side bankers in Asia confirm that local investors are much bolder in their attitudes and more thorough in their diligence than they were as recently as three years ago. This can only be a good thing for financial markets. The list of cornerstone buyers in the ABC deal stands as a clear testament to the new world order in investment, both in the rise of deals between emerging markets participants and the ascendancy of Asian and Middle Eastern buyers. The world’s issuers and sell-side firms are scrabbling to adjust.
