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FOR bankers, Ant Group Co.’s initial public offering was the kind of bonus-increasing deal that can fund an expensive splurge on a car, boat, or even a vacation home. Hopefully, they didn’t go ahead.
Negotiators at firms such as Citigroup Inc. and JPMorgan Chase & Co. were willing to feast on an estimated fee of nearly $ 400 million for handling the Hong Kong portion of the sale, but instead were left reeling after the sale. trading there and in Shanghai abruptly derailed. days before the scheduled commercial debut. Senior executives close to the transaction said they were shocked and were trying to figure out what to expect.
And behind the scenes, financial professionals around the world marveled at the surprise drama between Ant and China’s regulators and the chaos it was unleashing within banks and investment firms. Some joked gloomily about the threatening payday. The silver lining is the sea change is so unprecedented that it is unlikely to spell broader issues for underwriting stocks.
“It was not delayed due to lack of demand or market problems, but was suspended due to internal and regulatory concerns,” said Lise Buyer, managing partner of the Class V Group, which advises companies on initial public offerings. the implications for the domestic IPO market are minimal. “A senior banker whose signature was on the deal said he was surprised to learn of the decision to suspend the IPO when the news was made public. Speaking on the condition that he was not told. name, said it did not know how long it might take to fix the problem and that it could take days to assess the impact on investor interest.
Meanwhile, institutional investors planning to buy Ant described reaching out to their bankers only to receive legalistic responses that objected to providing useful information. Some bankers even dodged inquiries on other issues.
The four banks leading the bid were likely poised to benefit the most. Citigroup, JPMorgan, Morgan Stanley and China International Capital Corp. were sponsors of the Hong Kong IPO, putting them in charge of acting as a liaison to the exchange and ensuring the accuracy of the offering documents.
Sponsors get the best in-prospect billing and additional fees for their issues, which they generally charge regardless of the success of a deal. Added to these fees is the windfall profit generated by receiving orders from investors.
‘No obligation to pay’ Ant has not publicly disclosed the fees for the Shanghai portion of the proposed IPO. In its listing documents in Hong Kong, the company said it would pay banks up to 1% of the fundraising amount, which could have been as much as $ 19.8 billion if an overallotment option was exercised.
While that was lower than average rates tied to Hong Kong’s IPOs, the scale of the deal ensured that going public with the ant would be a bonanza for banks. Insurers would also charge a 1% brokerage fee on the orders they handle.
Credit Suisse Group AG and CCB International Holdings Ltd. of China also played important roles in Hong Kong’s offering, working to oversee the marketing of deals as joint global coordinators alongside Citigroup, JPMorgan, Morgan Stanley and CICC. Eighteen other banks, including Barclays Plc, BNP Paribas SA, Deutsche Bank AG, Goldman Sachs Group Inc., and a host of local firms, played more secondary roles in the sale of shares.
While it is unclear exactly how much will be paid to insurers for now, it is unlikely to be much more than compensation for your expenses until the deal is reactivated.
“Generally speaking, companies have no obligation to pay banks unless the transaction is completed and that is how it works,” said Buyer. “Are they discouraged? Absolutely. But are they going to have trouble keeping dinner on the table? Absolutely not.” For now, bankers will have to focus on saving the deal and keeping investor interest.
Demand wasn’t an issue the first time around – the double listing attracted at least $ 3 trillion of orders from individual investors. Requests from the retail side in Shanghai exceeded the initial offer by more than 870 times.
“But sentiment is certainly hurt,” AllianceBernstein analyst Kevin Kwek said in a note to clients. “This is a wake-up call for investors who have not yet assessed the regulatory risks.” – Bloomberg
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