Giant global share sales fail to deliver fee windfall

HONG KONG: A late-year rush of giant global share sales led by Alibaba Group Holding Ltd’s $13 billion Hong Kong listing and Saudi Aramco’s $26 billion initial public offering is failing to deliver an equivalent payday for equities bankers.

Filings yesterday revealed 17 banks will split up to $32.3 million for Alibaba Group’s Hong Kong deal, which will raise up to $12.9 billion for the Chinese e-commerce giant.

Earlier this week, sources told

Reuters that banks working on Saudi Aramco’s IPO would split fees worth 0.35% of the amount raised, meaning at the top of its pricing range, raising $25.6 billion, fees would reach $90 million.

The numbers pale in comparison to the $300 million banks made from Alibaba’s own record IPO of $25 billion in 2014. The record fee payout was the $550 million banks earned for the $19.6 billion IPO of Visa Inc in New York in 2008.

Equity capital markets activity typically accounts for about a quarter of global investment banking fees, but capital-raising in 2019 is running at its lowest level since 2012 as a series of high-profile pulled deals and soggy floats have weighed on sentiment even as many indices hit record highs.

Worldwide, companies have sold shares worth $574.7 billion so far this year, according to Refinitiv data, 19.7% below levels this time last year. Those figures include Alibaba but not Aramco, which is yet to price its deal.

Until Aramco prices its IPO, Alibaba ranks as the world’s largest ECM deal this year, ahead of Uber’s New York IPO which raised $8.1 billion and paid banks fees of $106 million.

Sources involved in Alibaba’s latest transaction said the Hong Kong listing was always going to pay far less than an equivalent IPO because of the company’s high profile and five years of investor familiarity with it via its New York listing.

Alibaba also held no roadshow of investor meetings — a typical feature of large deals and an organisational headache for leading banks.

The filing with the Securities and Exchange Commission (SEC) showed

Alibaba would pay investment banking fees of $28.1 million for the sale of 500 million shares.

This would rise to $32.3 million if a so-called overallotment of an additional 75 million shares are issued, which bankers think will occur.

The fee split between the banks was not listed in the SEC documents but it is accepted industry practice that cosponsors are paid the most and the remaining banks’ fees are dependent on the amount of shares sold.

Alibaba’s Hong Kong stock is due to start trading next Tuesday.