News that the Chinese securities regulator is set to lift a ten-month ban on initial public offerings has got western investment bankers sitting up straight and adjusting their ties. Some banks are in the local market already, through joint ventures; many – including JP Morgan, Citi and Bank of America – are not. But most covet a seat at the table.
Chinese secondary share sales account for over two-fifths of Asian (ex-Japan) equity capital markets volumes so far this year, according to Dealogic. In bonds, China's share is just over half. Over $50bn of debt has been raised so far this quarter – already the biggest haul ever. And now that the regulator is tidying up IPO pricing laws, bringing them closer to international norms, being part of the securities market seems all the more desirable.
Well, yes and no. The reforms – designed to eliminate giant first-day pops, thereby improving overall market efficiency – might serve to drive out some of the dozens of smaller brokerages that underwrite speculatively, hoping for quick flips. That may, in turn, improve pricing power. Investment banks have tended to take between 1 and 2 per cent of a big equity deal, and 50 basis points on debt – both well below western conventions.