Morgan Stanley outpaces Goldman as China stock sales soar


When Morgan Stanley CEO John Mack flew to Beijing on June 29, he met with the heads of China's banking and securities regulatory commissions and with Zhou Xiaochuan, governor of the People's Bank of China, the central bank. The visit was Mack's third since he took over Morgan Stanley in June 2005. Morgan Stanley's attentiveness to China has paid off. The New York-based investment bank was the No. 1 underwriter of Chinese initial public offerings in the 12 months ended June 30, according to data compiled by Bloomberg, beating Goldman Sachs Group Inc., Bank of China Ltd. and UBS AG. Morgan Stanley advised on half of the 10 biggest stock offerings by Chinese companies in that period, including the $9.2 billion IPO of China Construction Bank. Morgan Stanley helped back stock offerings valued at $4.72 billion and took in $135 million in fees. „Mack's visit will help create business opportunities, and the objective is very clear,” says Liang Zhanchong, director of Hong Kong-based Global Fortune Investment Research Center, which advises Chinese companies that want to list overseas. „China is the biggest source of revenue for investment banks in Asia, and anyone who views this as a second-priority market is mistaken.” As Chinese companies grow and become more ambitious, an increasing number are selling stock overseas. „The pipeline for China deals is like a fire hose, and it keeps flowing,” says Jack Chow, a partner at consulting firm KPMG LLP in Hong Kong. „Chinese companies are facing tighter liquidity because of government lending curbs, and you'll see them continue rushing to the Hong Kong capital market to raise funds.”
Companies that have said they plan to go public include China National Coal Group Corp., the nation's second-biggest coal producer, and Beijing Automotive Industry Holding Co., which makes vehicles in China with DaimlerChrysler AG and Hyundai Motor Co. State-owned China Southern Industrial Auto Co. also plans to sell shares in Hong Kong next year, according to company officials and bankers at Bank of China and Goldman Sachs, which will underwrite the offering. In the year ended June 30, 75 companies, including banks, property developers, technology firms and manufacturers, raised $28.1 billion through share offerings on Hong Kong and US stock exchanges, according to Bloomberg data. That was almost double of the $14.7 billion raised by 115 companies in the 12 months ended June 30, 2005. This year's deals generated about $788 million in investment banking fees, compared with $459 million a year earlier.
The biggest transactions by far were bank listings. Construction Bank's $9.2 billion offering last October, with Morgan Stanley as lead underwriter, set the standard. It was then surpassed by the $11.2 billion listing of Bank of China in June. „The past 12 months have been great for our business,” says Michael Berchtold, Morgan Stanley's Hong Kong-based president and investment banking chief for the Asia-Pacific region. „The opportunity in China is bigger today than it has ever been.” Other banks that made the top 10 included China International Capital Corp. at No. 5, followed by Zurich-based Credit Suisse Group, New York-based Merrill Lynch & Co., Paris-based BNP Paribas SA, Singapore-based HL Bank and New York-based Citigroup Inc. Beijing-based CICC is 34% owned by Morgan Stanley. It's run by Levin Zhu, son of former Chinese Premier Zhu Rongji.
Morgan Stanley again lost out when China Citic Bank, the country's seventh-largest lender, chose banks that hadn't handled earlier Chinese bank deals for its own planned $2 billion IPO, which is scheduled for early next year. Among those chosen were London-based HSBC Holdings Plc and New York-based Lehman Brothers Holdings Inc. Morgan Stanley tops the ranking in the latest year despite management turnover in its Chinese unit.
Along with Bank of China and Merrill Lynch, it will help arrange an as much as $2 billion IPO for China Communications Construction Group Ltd., the nation's biggest port, airport and road builder, that's scheduled for the fourth quarter of this year. UBS will also handle a $2 billion overseas stock sale by China Merchants Bank as early as September, along with JPMorgan Chase & Co. and CICC. UBS has also been hired by China Pacific Insurance Co., the nation's third-biggest insurer, to help the company restructure its assets in preparation for a $1 billion IPO next year.
Investors are growing wary of China and other developing markets, says l, who helps manage $4 billion in Asian and other emerging-market stocks at Comgest Far East Ltd. in Hong Kong. Interest rates are rising around the world, and for the past few months, emerging-market investors have been fleeing to safer ground, he says. (Bloomberg)

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