Investment bankers are close to earning record fees from equity deals involving Chinese companies in 2020, underscoring global finance’s growing dependency on the country even as geopolitical tensions rise.
Banks based outside China have earned $1.73bn of revenues this year from selling shares in Chinese groups on bourses in New York, Hong Kong and mainland China, up 113 per cent from a year ago, according to data from Dealogic. That puts them on the verge of surpassing the $1.77bn in fees earned in 2010.
The growth in revenues from these deals comes on the back of a banner year for primary and secondary listings by Chinese companies, which have raised a record $132.3bn, or 38 per cent of all global equity fundraising in 2020.
US banks made up four of the top five global earners from these deals, demonstrating Wall Street’s deepening ties with China despite growing acrimony between Washington and Beijing.
Goldman Sachs enjoyed the biggest haul in 2020, with revenues of more than $382m from Chinese companies, up 220 per cent from last year, Dealogic data showed. Morgan Stanley brought in about $346m this year from the deals, or up 150 per cent from the same period in 2019. Bank of America and JPMorgan recorded $197m and $166m of equity fees from Chinese businesses, respectively.
In Europe, Credit Suisse scored $163m in fees from running deals for Chinese groups. All five banks declined to comment on their earnings from China equities deals.
Among the notable equity sales by Chinese companies this year were the $3.5bn listing in Hong Kong by healthcare platform JD Health and the $2.4bn New York initial public offering by online lender Lufax.
“This is strong Chinese participation in an already strong global capital markets environment,” said Jason Elder, a Hong Kong-based partner at the law firm Mayer Brown.
Mr Elder pointed to the strong performance of consumer-focused Chinese companies, which have benefited from the country’s success in controlling the spread of Covid-19. “That’s allowed the economy to restart far more quickly . . . benefiting these companies that are coming to market.”
Investor enthusiasm for Chinese stocks, particularly tech shares, has helped power the MSCI China index 24 per cent higher this year, compared with 14 per cent for Wall Street’s S&P 500.
The bumper year comes despite Beijing’s last-minute decision to halt the $37bn IPO of payments company Ant Group in Shanghai and Hong Kong, which would have been the world’s biggest-ever stock market debut.
Banks including Citigroup, JPMorgan and Morgan Stanley had been expected to jointly bring in at least $300m in fees from the deal.
The Ant listing could be delayed until at least the second half of 2021, according to two people directly familiar with the matter, and will probably raise far less as new regulations force an overhaul of its business model.
Bankers expect the flow of deals from Chinese groups to continue up to the new year.
Udhay Furtado, Citibank’s co-head of Asian equity capital markets, said the bank was working on Hong Kong IPOs planned as late as the week before Christmas, “which is a little unusual”.
“We are going to have one of the highest issuance [years] we have ever had,” he added, attributing the fundraising appetite to the post-coronavirus boom in Chinese markets.
Deals in the first half of the year were driven by issuance of convertible bonds, said Jacob Dahl, senior partner of the Asian banking practice at McKinsey, while IPOs dominated in the second half.
Convertible bonds are debt that can be swapped for equity if a company’s shares rise enough, and are usually better received by investors during periods of high volatility. Equity sales have “been a real blockbuster this year”, Mr Dahl said.
Mr Elder, at Mayer Brown, said the flow of deals for next year also looked strong. “The pipeline into 2021 is what we’re really focusing on in terms of getting deals prepared for next year.”
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