China Turf Grab
Liz Moyer, 09.28.05, 6:00 AM ET - Forbes
NEW YORK - Wall Street's scramble to grab a ground-floor stake in China's blossoming financial sectors has spilled over to Europe. It's a tribute to the fact that China is nearly ready for primetime when it comes to international investors--even speculators.
UBS (nyse: UBS - news - people ) said Tuesday it will inject $500 million into Bank of China in what it calls a "partnership" to develop investment banking and securities products and services for Chinese customers in China. That comes just a day after reports that the Swiss giant would take a 20% stake in Beijing Securities for an estimated $210 million.
This sets up UBS with a base in the mainland Chinese stock market, which, while still believed to be highly volatile and chaotic, is thought to be headed--within a few years--toward the kind of stability that could attract numbers of Western investors. "It's the wild, wild West of the securities area, I wouldn't even call it an industry there," said Michael Holland, chairman of New York-based Holland & Co.
In recent months, there has been a veritable stampede among investment banks to invest in Chinese financial institutions. Goldman Sachs (nyse: GS - news - people ) teamed up with Allianz (nyse: AZ - news - people ) and American Express (nyse: AXP - news - people ) on a $3 billion stake in Industrial and Commercial Bank of China, the nation's largest bank, while Bank of America (nyse: BAC - news - people ) took a $3 billion stake in China Construction Bank--with an eye to amassing up to 20% of that company.
Last year, HSBC (nyse: HBC - news - people ) took a 19.9% stake in Bank of Communications, and two years ago, Citigroup (nyse: C - news - people ) began amassing a similar-sized stake in Pudong Development Bank. Credit Suisse First Boston was said to be mulling its own stake in China Construction Bank, only to back off--though a Zürich-based spokesman would not comment on the reports.
China's attraction is a banking market estimated to hold $1.5 trillion in personal savings, and an emerging middle class suddenly seen as eager to invest in local businesses. By its agreement with the World Trade Organization, China must further open its doors to foreign investment next year, a potential boost to its economy and stock market.
Foreign investors are cautiously entering the mainland. China Fund, a Boston-based closed-end fund founded in 1992 to invest in companies that derive much of their business from China, started taking A-share stakes in Chinese domestic companies in April, buying shares of energy company, Shenergy, and of Shanghai Airlines. A letter to the fund's shareholders in August said the fund is "excited about the prospects for the remainder of the year." Still, its shares closed Tuesday at $25.01, down from $35.25 last December.
For the investment banks, there are other motives, led by bragging rights and fees from lucrative advisory assignments.
UBS--along with Goldman Sachs--won the mandate to arrange Bank of China's initial public offering. The two companies have a long history with the Bank of China, including helping to restructure its Hong Kong bank several years ago. A listing is anticipated, and in August a Bank of China executive told reporters in Malaysia that the IPO could come as early as the end of this year, depending on market conditions.
The decision to choose UBS and Goldman foiled the ambitions of other banks that had hoped to win the IPO assignment. Royal Bank of Scotland in August led led a consortium that included Merrill Lynch (nyse: MER - news - people ) and a wealthy private investor, Hong Kong's Li Ka Shing, which took a 10% stake in Bank of China worth $3 billion.
Reports in the Asian press in late August said Merrill and some of the other banks were so incensed they lost out on the Bank of China IPO mandate that they planned to protest. Other bidders were said to have included Deutsche Bank (nyse: DB - news - people ) and JPMorgan Chase (nyse: JPM - news - people ).
"We regard this agreement as a natural development of our long-term relationship with Bank of China," said Peter Wuffli, UBS's chief executive, in a statement Tuesday about its $500 million investment in the company.
The IPO of China Construction Bank has also been closely watched. Earlier this month, Credit Suisse First Boston was added as an adviser on the deal, which is being led by Morgan Stanley (nyse: MWD - news - people ) and China International Capital Corp. and could come by the end of next month. Citigroup (nyse: C - news - people ) was originally part of the China Construction Bank adviser team, but it dropped off the deal in June after declining to take a stake in the company.
That opened the door for Credit Suisse First Boston to lobby for a piece of the IPO, which is expected to generate some $150 million in investment banking fees. To get a sense for how hot this IPO could be, it is believed to have the potential to raise $7 billion, making it one of the biggest ever on the Hong Kong exchange.
What may have set the tone for those IPOs is the listing of Bank of Communication in June, a $1.9 billion IPO arranged by Goldman Sachs and HSBC.
Liz Moyer, 09.28.05, 6:00 AM ET - Forbes
NEW YORK - Wall Street's scramble to grab a ground-floor stake in China's blossoming financial sectors has spilled over to Europe. It's a tribute to the fact that China is nearly ready for primetime when it comes to international investors--even speculators.
UBS (nyse: UBS - news - people ) said Tuesday it will inject $500 million into Bank of China in what it calls a "partnership" to develop investment banking and securities products and services for Chinese customers in China. That comes just a day after reports that the Swiss giant would take a 20% stake in Beijing Securities for an estimated $210 million.
This sets up UBS with a base in the mainland Chinese stock market, which, while still believed to be highly volatile and chaotic, is thought to be headed--within a few years--toward the kind of stability that could attract numbers of Western investors. "It's the wild, wild West of the securities area, I wouldn't even call it an industry there," said Michael Holland, chairman of New York-based Holland & Co.
In recent months, there has been a veritable stampede among investment banks to invest in Chinese financial institutions. Goldman Sachs (nyse: GS - news - people ) teamed up with Allianz (nyse: AZ - news - people ) and American Express (nyse: AXP - news - people ) on a $3 billion stake in Industrial and Commercial Bank of China, the nation's largest bank, while Bank of America (nyse: BAC - news - people ) took a $3 billion stake in China Construction Bank--with an eye to amassing up to 20% of that company.
Last year, HSBC (nyse: HBC - news - people ) took a 19.9% stake in Bank of Communications, and two years ago, Citigroup (nyse: C - news - people ) began amassing a similar-sized stake in Pudong Development Bank. Credit Suisse First Boston was said to be mulling its own stake in China Construction Bank, only to back off--though a Zürich-based spokesman would not comment on the reports.
China's attraction is a banking market estimated to hold $1.5 trillion in personal savings, and an emerging middle class suddenly seen as eager to invest in local businesses. By its agreement with the World Trade Organization, China must further open its doors to foreign investment next year, a potential boost to its economy and stock market.
Foreign investors are cautiously entering the mainland. China Fund, a Boston-based closed-end fund founded in 1992 to invest in companies that derive much of their business from China, started taking A-share stakes in Chinese domestic companies in April, buying shares of energy company, Shenergy, and of Shanghai Airlines. A letter to the fund's shareholders in August said the fund is "excited about the prospects for the remainder of the year." Still, its shares closed Tuesday at $25.01, down from $35.25 last December.
For the investment banks, there are other motives, led by bragging rights and fees from lucrative advisory assignments.
UBS--along with Goldman Sachs--won the mandate to arrange Bank of China's initial public offering. The two companies have a long history with the Bank of China, including helping to restructure its Hong Kong bank several years ago. A listing is anticipated, and in August a Bank of China executive told reporters in Malaysia that the IPO could come as early as the end of this year, depending on market conditions.
The decision to choose UBS and Goldman foiled the ambitions of other banks that had hoped to win the IPO assignment. Royal Bank of Scotland in August led led a consortium that included Merrill Lynch (nyse: MER - news - people ) and a wealthy private investor, Hong Kong's Li Ka Shing, which took a 10% stake in Bank of China worth $3 billion.
Reports in the Asian press in late August said Merrill and some of the other banks were so incensed they lost out on the Bank of China IPO mandate that they planned to protest. Other bidders were said to have included Deutsche Bank (nyse: DB - news - people ) and JPMorgan Chase (nyse: JPM - news - people ).
"We regard this agreement as a natural development of our long-term relationship with Bank of China," said Peter Wuffli, UBS's chief executive, in a statement Tuesday about its $500 million investment in the company.
The IPO of China Construction Bank has also been closely watched. Earlier this month, Credit Suisse First Boston was added as an adviser on the deal, which is being led by Morgan Stanley (nyse: MWD - news - people ) and China International Capital Corp. and could come by the end of next month. Citigroup (nyse: C - news - people ) was originally part of the China Construction Bank adviser team, but it dropped off the deal in June after declining to take a stake in the company.
That opened the door for Credit Suisse First Boston to lobby for a piece of the IPO, which is expected to generate some $150 million in investment banking fees. To get a sense for how hot this IPO could be, it is believed to have the potential to raise $7 billion, making it one of the biggest ever on the Hong Kong exchange.
What may have set the tone for those IPOs is the listing of Bank of Communication in June, a $1.9 billion IPO arranged by Goldman Sachs and HSBC.
