HONG KONG (Reuters Breakingviews) – Investment bankers will have a great chance in 2021 to apply their well-honed skills to talking about opportunities and downplaying rankings. The easiest money to sell Chinese stocks in New York is doomed to disappear. And profitably growing further on the continent will be hard work.
Goldman Sachs was delighted in December to be the first to strike a deal to own 100% of its Chinese onshore operations. Others are also leveraging their 51% holdings, just as many local businesses are looking for new capital. More than 800 of them are queued to go public, KPMG reports, while others sell additional stocks to strengthen their balance sheets. It is no coincidence that Beijing has expanded access just as it encourages greater use of markets and less reliance on bank loans.
The most lucrative job, however, is in New York City, where fees average around 5% of the amount raised. These opportunities are increasingly threatened by hostility from Washington, including efforts to deregister Chinese companies that do not allow US regulators to review audits. The new geopolitical order has helped make the Shanghai STAR Board the fastest growing stock market. However, the initial public offerings in this country require sponsors to financially support their clients – an additional layer of risk that launches US and European companies.
According to Refinitiv, banks made around $ 6.5 billion in 2020 by selling shares of Chinese companies like financial technology company Lufax. Foreigners collected around a third of the amount, according to Breakingviews’ estimates. Despite their dominance in Manhattan and competition in Hong Kong, they claim only about 5% of the market in mainland China. Morgan Stanley’s joint venture worked on chipmaker Semiconductor Manufacturing International’s $ 7.7 billion Shanghai listing, but that was only enough to put the bank in 13th place in the preliminary ranking of late national stocks. years to dominate its foreign peers.
One of the old big ideas for expanding in China was to use their international networks to help companies find acquisition targets overseas. This work is increasingly constrained by protectionist governments. It means finding new ways to enter the market. For now, it will be a more difficult task for less money as the Chinese gravy train makes fewer stops on Wall Street.
– This is a Breakingviews prediction for 2021. To see more of our predictions, click here
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