When China’s Ant Group filed its listing prospectus with the Hong Kong Stock Exchange on August 25, there was much to mull.
The eye was drawn, not so much to the banks named as joint sponsors on the Hong Kong leg of an IPO that could value the technology firm at north of $300 billion, but to the list of notable and absent friends.
Citi, JPMorgan and Morgan Stanley were all there, next to CICC. A simultaneous listing on Shanghai’s year-old Star Market will be led by CICC and China Securities.
But there was no room at the top table for Goldman Sachs or Credit Suisse, two banks that know the fintech giant very well.
Goldman is believed to have snagged a lesser role on the Hong Kong sale as a joint lead manager. Its work raising capital for Tencent-backed Pinduoduo, a rival of Ant affiliate Alibaba, likely worked against it.
Credit Suisse’s omission will have stung more. It has handled several deals for Ant and invested $100 million in the firm in 2018. The Swiss bank made the IPO’s Hong Kong leg, but only as a joint global coordinator.
But look closer, and there’s a deeper absence at work.
Ten years ago, European banks were mainstays on stock sales such as Ant’s. A blockbuster mainland IPO in Hong Kong would typically include a Chinese brokerage, plus a couple of American banks and one or maybe two European names.
All that has changed. The love affair between US banks and China issuers is as ardent as ever, while mainland underwriters have turned Hong Kong into a second home.
For all the pain of the pandemic, this has been a stellar year for Chinese listings in Hong Kong. Mainland underwriters dominate proceedings, according to Dealogic, with CICC and Citic Securities leading the way.
Morgan Stanley is fourth on the list, completing seven IPOs for Chinese firms, worth $658 million, in the year to September 24, with Citi eighth and Goldman Sachs 14th. The first European bank is UBS in 18th, with Credit Suisse down in 45th place.
What is Europe? It’s an old place with boring industrial firms. Why would you hire one of its banks?
Hong Kong banker
Neither is this just a single bad year. Comparing the performance of banks using a single metric – in this case, primary Hong Kong listings by China firms – might seem specific, but this is a competitive and lucrative corner of the capital markets.
If you take the 2010s, cut it in two, and compare the first half of the decade to the second, you find that most US banks held steady as the decade wore on. BofA Securities even gained ground.
By contrast, every big European had a worse second half of the decade. Between the start of 2010 and the end of 2014, European banks accounted for 43% of the capital raised in Hong Kong via IPOs by mainland firms – excluding China and non-China Asia underwriters. US banks made up the remaining 57%.
In the second half of the decade, according to Dealogic, the European share of China-Hong Kong IPOs slipped to 39%, with the US share rising to 61%. It’s possible that slide will be reversed in the 2020s, but unlikely.
Active Swiss
Not every European name is on the wane. Both big Swiss banks are still very much active. UBS was a joint sponsor on JD.com’s $3.87 billion secondary listing, with Credit Suisse one of three global coordinators on game developer NetEase’s $2.8 billion follow-on sale. Both were completed in Hong Kong in June.
But where is everyone else? The travails of Deutsche Bank’s investment banking franchise are well documented, but many European names have either retrenched in recent years or have fallen off the radar altogether.
Perhaps this shouldn’t be a surprise. Europe’s recent story hardly inspires.
“My experience with senior management at China’s most innovative firms is they won’t think of incorporating a European bank” on their IPO, says a Hong Kong banker.
“US banks are always working with shiny new firms, and the Nasdaq is still the tech market to emulate. What is Europe? It’s an old place with boring industrial firms. Why would you hire one of its banks?”
It’s harsh, yes, and it’s likely to hurt. But then the truth usually does.
