It is JPMorganÆs first bookrunner mandate for a mainland bank IPO, although it is a junior member of the syndicate for Bank of ChinaÆs pending listing. The US investment bank has also been chosen for a leading role on a number of Chinese IPOs in other sectors lately, signaling that it will play a much more active role in this part of the market in 2006.
Last year, JPMorganÆs only bookrunner role for a Chinese IPO was for China CoscoÆs $1.2 billion listing in June, while its pipeline for this year includes joint mandates for a real estate investment trust (Reit) sponsored by Great Eagle, IPOs by property developers Shui On Land and Greentown China Holdings, as well as a spin-off of China National Overseas Oil CorpÆs fertilizer unit.
Together with China Merchant BankÆs share sale, these companies may raise as much as $4 billion. JPMorgan is also believed to have a leading role on an upcoming $1.5 billion IPO by Industrial Bank and to be working on an initial share offer of $500 million to $600 million for Shanghai Heavy Truck, as well as a slightly smaller offer for a Shanghai-based high-growth technology and chemical company.
Earlier this year, JPMorgan also arranged a $130 million highly structured pre-IPO convertible bond for Greentown.
JPMorgan initially had a co-lead manager role on China Merchants Bank's IPO, which is expected to come to market in the third quarter, but will move up a step in the syndicate hierarchy and assume the role of joint bookrunner alongside China International Capital Corp (CICC) and UBS, sources said.
Merrill Lynch, which was initially manadated, was likely ousted because it also has a leading role on Industrial & Commercial Bank of ChinaÆs (ICBC) massive IPO which could come around the same time or in the fourth quarter, sources said.
Technically, Merrill Lynch is currently only suspended from the China Merchants Bank IPO, although the chance of the bank getting back on the deal at this stage is minimal, one source said. According to another source, JPMorgan bankers have already been working on the deal "for a while" and have attended at least one top-level syndicate meeting with China Merchants.
Spokespeople for Merrill Lynch and JPMorgan declined to comment.
It is believed that ICBC had been pushing for Merrill Lynch to be excluded from China MerchantsÆ IPO so that the investment bank could put all its resources into ICBCÆs listing. At the same time, people familiar with the mandating process said China Merchants Bank had been surprised to see Merrill Lynch being selected for ICBC.
ICBC is set to become the largest ever IPO out of China and could raise more than $12 billion û some reports have suggested a total deal size of up to $15 billion.
Similar concerns about investment banking 'resource-allocation conflicts' were cited when ICBC excluded Goldman Sachs from its list of bookrunners, despite the fact that Goldman, together with two partners, had made a pre-IPO investment of $3.8 billion in the bank. However, pressure from various directions - including rival banks - to cap Goldman's dominance within China ECM this year also played a role, banking sources say.
Goldman is also a joint bookrunner together with BOC International and UBS on Bank of ChinaÆs IPO, which is expected to raise $6 billion to $8 billion before the end of June.
ICBC announced in February that it had appointed Merrill Lynch, Credit Suisse, Deutsche Bank, a CICC consortium (which includes Morgan Stanley) and its own investment bank joint venture ICEA to arrange its listing. Lehman Brothers is the financial adviser for the share sale.
It is unclear why CICC is being allowed to stay on as a bookrunner for China MerchantsÆ IPO since it too is on the ICBC deal, but bankers said the issuer was presumably more focused on the role of the international banks. CICC is a joint venture between China Construction Bank and Morgan Stanley and at present it is the only mainland investment bank that can compete with international banks for large offshore underwriting mandates.
China Merchants Bank will be the first mainland bank to have a dual listing in China and Hong Kong after Bank of Communications and Bank of China both abandoned plans for simultaneous share offerings. It already has A-shares listed in Shanghai.
China Merchants is ChinaÆs sixth largest lender û albeit much smaller than the Big Four - and widely regarded as one of the countryÆs best managed banks. Its key competitive edge is in the consumer sector and it is the leading issuer of credit cards with more than 5 million cards in circulation.
In 2005 it posted a 25% rise in net profit to Rmb3.93 billion supported by strong loan growth. Total assets grew by 25.1% to Rmb733.98 billion and its non-performing loan ratio fell 0.29 percentage points to 2.58%.
According to a company statement last month, the bank plans to sell up to 2.2 billion shares, or about 15% of its issued share capital, in connection with the Hong Kong listing. Its shares have risen 10.1% this year and currently trade at 3.4 times its book value û a slight discount to Hong Kong-listed China Construction Bank and Bank of Communications, which trade at 3.5 and 3.6 times book, respectively.
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