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Foreign banks have been omitted from IPOs in China


Foreign banks’ involvement in IPOs in mainland China has fallen to its lowest level in more than a decade, a sign of the difficulties they face in maintaining a foothold in the country’s closed financial system.

So far this year, foreign banks have been involved in just $297 million in new listings, or 1.2 percent of the total. The share is lower than in any full year since Dealogic began collecting the data in 2009, when banks were involved in about half of total listings by value. Last year’s 3.1 percent represented the third worst year on record.

No U.S. bank was involved in the 109 IPOs in China’s massive stock market in 2023, which has raised a total of $26 billion so far in deals that often attract huge demand from domestic investors. Only Credit Suisse and Deutsche Bank acted as bookrunners this year.

While the activities of foreign banks dwarf mainland competitors, the data reflects their struggle to maintain a meaningful presence in a rapidly evolving but isolated market with different regulations and due diligence requirements. Strict Covid-19 restrictions over the past three years have limited access to the country, increasing the distance between mainland subsidiaries and their overseas headquarters.

In 2019, foreign banks were involved in about a fifth of all funds raised in Shanghai and Shenzhen, home to two of the country’s largest stock exchanges, but that share has fallen every year since.

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“I’m amazed that there are (billions of dollars) in issues for IPOs in Shanghai every week, and that the banks making it happen are almost exclusively domestic,” said a senior executive at a global bank in Asia, who declined to be named.

“The (global) banks have onshore ventures, but we seem to be involved in (few) of the domestic deals. Something has to be done – the big banks either have to get involved in these A-share (mainland China listing) deals, or we have to leave the company and stop allocating resources to it.”

The weakness also comes amid rising geopolitical tensions between the US and China, which have terrified mainland foreign companies and led to complaints of communication breakdowns.

“This is the environment that Xi Jinping has created,” said Fraser Howie, an independent analyst and expert on Chinese finance, pointing to a “post-Covid, Cold War two world.”

“It’s not that the rules say (no foreign banks) or that there’s any real risk. It’s that it might be easier for an issuer not to have a foreign bank and only do business with Chinese bookrunners.”

Foreign banks require multiple licenses to operate in different industries in China. Many of those with securities firms struggled to turn a profit last year, according to an analysis of their data by the Financial Times.

Another factor is concern about due diligence of foreign institutions. Several executives at global banks said they were often hesitant to work on Chinese listings because it was difficult to perform the level of due diligence their internal processes required.

“I’m acting on what we should be doing if it was an offer in the US, and that’s my norm,” said a senior executive at an international bank’s Asian investment banking division, who asked to remain anonymous. “I need a list of your top 50 clients and I want to conduct independent due diligence interviews with them. (In China) Not sure they will undergo the same independent due diligence as a western bank.”

In addition, Chinese listings rely less on institutional investors and more on retail investors than those in the US, meaning the traditional models of global banks are not suited to the mainland market, the banker said.

“A lot is sold to retail, so you really need a retail brokerage platform to sell these deals,” he said. “The business model that the Western banks have, where you sell (shares) to the same 100 or so investors every time, doesn’t work.”

Merry C. Vega is a highly respected and accomplished news author. She began her career as a journalist, covering local news for a small-town newspaper. She quickly gained a reputation for her thorough reporting and ability to uncover the truth.

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