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When one of China’s biggest property developers wanted to raise $300mn in Hong Kong late last month, JPMorgan Chase seemed to have everything ready.
The Wall Street bank had lined up investors for the Country Garden share sale, and published a term sheet with a fixed price.
It launched the deal on a Monday evening. Shortly afterwards, Country Garden walked away, cancelling the deal in a highly unusual move. The developer, which is based in Guangdong and listed in Hong Kong, had issued a profit warning earlier that day. It has since missed bond coupon payments and suspended trading in some of its bonds.
The deal’s collapse has drawn attention to a bigger problem for US investment banks. Selling shares in Chinese companies offshore used to be such a money-spinner that it made up a huge share of the banks’ Asian revenues and helped subsidise an expensive presence in smaller markets. But they no longer do much of that business at all.
Goldman Sachs, JPMorgan, Morgan Stanley, Bank of America and Citi combined made just $131mn in net revenue from advising Chinese companies on raising equity overseas last year, figures from Dealogic show. That is an 87 per cent drop from the previous year. This year is not looking much better: since January they have made just $98mn.
Beijing put the brakes on offshore listings in a sweeping crackdown from 2021, then announced new rules in February that gave mainland regulators far more influence than before.
Since then, few Chinese companies have listed outside the mainland, leaving US bankers more dependent on smaller, follow-on offerings such as the cancelled Country Garden deal.
A sign of how much has changed is that the planned $9bn listing of Swiss agricultural chemicals company Syngenta, a potentially lucrative deal for banks, is due to take place in Shanghai, where local participants dominate and fees are low.
Even if US banks win a role, geopolitical tensions could make it hard to accept. Syngenta’s parent company, ChemChina, has been placed on a US watchlist of companies with Chinese military ties.
Advising Chinese companies on raising equity overseas accounted for almost a third of the five lenders’ total Asia-Pacific investment banking revenues as recently as 2020. Last year, it was less than 6 per cent.
Bankers talk about growth in markets such as India and Japan, but few seem confident that this will compensate for the dramatic drop in China.
When JPMorgan said in June that Murli Maiya, the head of its Asia-Pacific equity capital markets business, was leaving, it did not replace him. Instead the bank will roll the business he ran into an “international” unit led by two London-based bankers, who will assume his responsibilities on top of their existing ones.
Bank of America and Morgan Stanley’s most senior Asia equity capital markets bankers have also departed this year. Magnus Andersson left his role as Morgan Stanley’s co-head of that business in February and has not been replaced. His one-time co-head Cathy Zhang now single-handedly leads the unit.
The banks are not abandoning this part of their business but, as one senior banker puts it, once-lucrative units will now have to be “right-sized”. The next step might involve more dramatic cost cuts and job losses in Asia. If top-tier US banks are already becoming less relevant there, this will only accelerate once they hollow out their ranks of specialists.
Overseas listings are not likely to bounce back soon. Revenue from advising on takeovers has also been hit, since Chinese dealmaking in the US is at its lowest in almost two decades. Western banks’ profits have fallen in China, too.
Raids on due diligence firms, stringent new data and anti-espionage laws, a US ban on investment in some Chinese technology groups and rising geopolitical tensions are also making it harder to operate in the region.
So while China-focused US bankers battle to win what work they can, the calculus at the top of their institutions is changing.
“There is a very different risk appetite for China at the head-office level compared to that of the China team on the ground,” said Han Shen Lin, China country head at US-based advisory The Asia Group.
“As China mobilises capital towards its strategic priorities, it’s not clear how foreign investment banks can participate without running afoul of Chinese or US security concerns.”