HONG KONG: Every big bank in town wanted a piece of the Alibaba Group Holding Ltd initial public offering, set to be the biggest technology listing ever.
So much so that, according to Thomson Reuters data, major banks skipped an estimated $100m in combined fees they could have made from work for other clients over the past year.
People familiar with the matter say that’s because the banks didn’t want to irk the Chinese e-commerce giant by working for its rivals or acquisition targets, and risk losing out on business in an IPO expected to be bigger than Facebook Inc’s $16bn listing in 2012.
Alibaba’s giant IPO comes amid a wave of deals in China’s tech sector, putting banks in a tricky situation when it comes to backing clients in the industry. In a sector that’s red-hot, companies are sensitive about letting advisers work on deals that run parallel to those of competitors for fear of confidential information leaking out.
Another concern for companies is that a financial adviser already supporting one IPO in the space can’t give its undivided attention to a rival’s deal. As the major investment banks operating in the region remained on standby over the past year for Alibaba’s IPO, they kept their distance from the giant’s peers in hopes of winning a role on the mega-deal, the people familiar with the matter said.
An estimated $300m in fees are up for grabs in a listing that Alibaba said on March 16 will take place in the United States. Yesterday marked the first meeting of the bankers, lawyers and accountants helping the company on the deal, getting together in Hong Kong, which houses part of Alibaba’s corporate finance team.
Citigroup, Credit Suisse, Deutsche Bank , Goldman Sachs, JP Morgan and Morgan Stanley are the banks working on the IPO.
All six banks are existing lenders to Alibaba, putting them in good position to win the coveted mandates, the people familiar with the matter said. The estimated fees from Alibaba’s IPO would make it the biggest Chinese fee payer to global investment banks in a decade.
“Because Alibaba is a very big transaction, people are very keen, the process is so competitive,” said Ronald Wan, chief China adviser at financial services firm Asian Capital Holdings. “So you have the view that if you’re not a friend, you’re an enemy. And there’s nothing in between,” Chan said.
A Hong Kong-based spokeswoman for Alibaba declined to comment. Banks either declined to comment or did not respond to emails seeking response.
A recent unsolicited bid by Alibaba to buy out a Chinese Internet company exposed the battle lines. Alibaba, which already owns 28 percent of digital mapping company AutoNavi Holdings Ltd, last month offered to buy the rest of the company in a deal valuing the target at $1.6bn.
When AutoNavi tapped advisers to organise its defence, some investment banks passed on the business to avoid potential conflicts with the mega-IPO. In the end, AutoNavi’s independent committee hired Lazard Ltd as its financial adviser. AutoNavi declined to comment.
Banks usually pounce on defence mandates like this. These are lucrative roles for mergers and acquisitions departments which can command a fee of nearly 2 percent of the total deal value.