Thursday, March 10, 2005
Unfortuantely, the IPO process in China remains extremely murky. In the case of an SOE IPO, the CSRC and the State Asset Supervision and Administration Commission (SASAC) both conduct "due diligence" in addition to the underwriters. If the SOE is formerly controlled by the local government, it needs approval and support by the local government, which lobbies the CSRC on behalf of the company. If the company that wants to list is controlled by a ministry (like a major bank), then the central ministry will lobby for the IPO and have a say over the underwriter. In a recent case, the planned IPO of the Bank of Communication, for example, will go to China Galaxy, Goldman Sachs, and HSBC. The State Council and the PBOC had a say over who the underwriters would be. In this case CICC will not be involved, even though it is expected to be a major offering.
CICC is by no means the only player, as many western and domestic ibanks lobby the CSRC to get the next IPO deal. Goldman, for example, paid an ungodly sum to start an ibank joint venture in China. Citibank and Deutsche Bank are likewise very aggressive. One should also remember that the domestic ibanks (like Nanfang Securities) are run by people who used to be government officials, so they have an inside track with the CSRC and other agencies. Because the network of personal relationship is so dense and complex, you are unlikely to see a dominant player emerge in the near future. All the lobbying (i.e. wining and dining) will only get you a slice of the action, but not the entire pie. I think CICC had an advantageous position in the mid to late 90s, but I am not sure if it is still the case today. Again, many investment banks have spent a lot of money buying "talent" for themselves. This "talent" comes in the form of well-connected princelings or former cadres in the government.