Banks Will Get Just a Sliver of Alibaba’s $11.2 Billion Share Sale

Julia Cristina Silvi Fioretti

21 Nov 2019, 08:01 PM IST

(Bloomberg) -- Alibaba Group Holding Ltd.’s $11.2 billion Hong Kong share sale may be set to swell the tech giant’s cash pile but the banks are getting just a tiny percentage of that.

Alibaba will pay the banks that underwrote the listing $28.1 million, representing just 0.25% of the deal value, according to the prospectus lodged with the U.S. Securities and Exchange Commission. That is the lowest fee in percentage terms paid to banks out of the 10 largest listings in Hong Kong, data compiled by Bloomberg show. Alibaba could pay them as much as $32.3 million if an over-allotment option of 75 million shares is exercised in full.

Credit Suisse Group AG and China International Capital Corp. were the joint sponsors of the share sale. Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley were joint global coordinators.

The average fee earned on the 10 largest listings in Hong Kong is 1.76%, with the highest being the 2.5% paid by the likes of Bank of China Ltd. and China Construction Bank Corp. Budweiser Brewing Company APAC Ltd. -- which completed Hong Kong’s second-biggest listing this year after Alibaba -- paid its banks 1.5% of the IPO proceeds.

Banks Will Get Just a Sliver of Alibaba’s $11.2 Billion Share Sale

Issuers typically pay banks about 2% to 3% of the proceeds for initial public offerings in Hong Kong, the bulk of which goes to the sponsors. Banks also split the 1% brokerage fee paid by investors. The average percentage fee for listings in Hong Kong this year is 4.5%, data compiled by Bloomberg show.

Alibaba’s listing is the largest equity offering in the financial hub since 2010, making it a particularly coveted deal for investment banks, who have seen fees compressed as competition increases.

Despite the small percentage the Alibaba fee represents, the $28.1 million is still good money for the banks in a year where until recently IPO volumes in Hong Kong were down some 40% from a year earlier. The banks will also take home the 1% brokerage fee, bringing their total compensation to 1.25% of the proceeds, or about $140 million.

However, it is a far cry from the $300 million banks earned for working on Alibaba’s $25 billion New York IPO in 2014, although that would have required a lot more work as investors were less familiar with the company.

CICC was allocated the largest number of Alibaba shares to underwrite -- 160 million -- followed by Credit Suisse, which underwrote 127.5 million, the prospectus shows. In it, Alibaba said it would pay HK$0.44 per share in underwriting fees.

UPCOMING LISTINGS:

Alibaba Group Holding
- Hong Kong exchange
- Size about $11b
- Pricing Nov. 20; listing Nov. 26
- Credit Suisse, CICC
Postal Savings Bank of China
- Shanghai exchange
- Size $4.1b
- Taking orders Nov. 28
- Citic Securities, CICC, China Post Securities, UBS Securities
China Zheshang Bank
- Shanghai exchange
- Size $1.9b
- Took orders Nov. 14; listing date TBA
- Citic Securities
Pharmaron Beijing
- Hong Kong exchange
- Size up to $588m
- Pricing Nov. 21; Listing Nov. 28
- CLSA, Goldman Sachs, Orient Capital
Venus Medtech
- Hong Kong exchange
- Size up to $400m
- PDIE Nov. 11-22
- Goldman Sachs, CICC, Credit Suisse, China Merchants Securities
China Merchants Commercial Reit
- Hong Kong exchange
- Size about $400m
- Started gauging demand Nov. 14; listing date TBA
- Citigroup
Alphamab Oncology
- Hong Kong exchange
- Size $200m-$300m
- Started gauging demand Nov. 18
- Morgan Stanley, Jefferies, CLSA
Bangkok Commercial Asset Management
- Thailand stock exchange
- Size up to $1.16b
- Taking orders from Nov. 25-29, listing date TBA
- Trinity Securities, Kasikorn Securities
Longyan Zhuoyue New Energy
- Shanghai Star board
- Size $191m
- Took orders Nov. 11; listing date TBA
- Yingda Securities

More ECM situations we are following:

The Essel Group plans to sell a stake in Zee Entertainment Enterprises Ltd., India’s largest publicly-traded television network, as the media conglomerate struggles to pare debt.
Bang Qi Jian Ltd. sells 20 million Ping An Good Doctor shares.
Canaan Inc., a maker of Bitcoin mining machines, raised $90 million after pricing its U.S. initial public offering at the bottom of its marketed range.
Pharmaron Beijing plans to price its Hong Kong initial public offering at the top of the price range to raise HK$4.6b, IFR reports, citing unidentified people close to the deal.