While the overseas expansion drive of China’s investment banks has made some headway in Hong Kong, they still lag well behind their Wall Street’s bulge bracket firms in the Asia-Paciifc.
According to Bloomberg’s Nisha Gopalan China’s investment banks now dominate the Hong Kong IPO scene, ousting Western rivals such as Goldman Sachs and Morgan Stanley to take out all of the top five spots for leading Hong Kong underwriter in terms of deals over the past two years.
Chinese banks continues to lag their Western peers when it comes to broader equity capital market performance across the Asia-Pacific.
“Broaden the perspective to the whole Asia Pacific region, including China, Japan and Australia, and the only Chinese bank to make it into the top 10 as an underwriter of equities and equities-linked deals is Citic Securities Co.,…in sixth place,” writes Gopalan.
“Morgan Stanley reigns in Asia Pacific equity and equity-linked trade advice, followed by Goldman Sachs…the Chinese tech deals that created a Hong Kong IPO frenzy in 2017..all had western banks on the underwriting slate.”
Bloomberg data indicates that sector leader Morgan Stanley took an 8.1% share of the equity underwriting and equity-linked deals market in the Asia Pacific last year.
Goldman Sachs came in second place, with a share of around 7.5%, followed by Nomura and UBS.
Goldman Sachs was the leading adviser for Asia-Pacific deals in 2017, followed by Morgan Stanley.
While Chinese investment banks possess ample cash and are notorious for grabbing merger mandates by splashing out on loans, Gopalan points out that they still lack the experience and ability to deal with complex foreign regulatory environments. .
“The Committee on Foreign Investment in the US…is hard enough for Western banks to read, as Citigroup Inc. found in advising Ant Financial on that failed bid for MoneyGram International Inc,” writes Gopalan. “A mainland bank would really have its work cut out.”
The competitiveness of Chinese investment banks is further hampered by fickle lending and capital control policies on the part of Beijing, who cracked down on fund outflows in 2017 after encouraging banks to support overseas acquisitions.
They also lack the connections and institutional access of Western banks who are capable of supplying funds to companies in a beleaguered condition, as evidenced by Goldman Sachs management of Toshiba Corp’s emergency share sale in November, in which saw Greenlight Capital and Third Point took major stakes.