Bankers reel as Ant IPO collapse threatens US$400m payday

Shanghai

FOR bankers, Ant Group Co's initial public offering (IPO) was the kind of bonus-boosting deal that can fund a big-ticket splurge on a car, a boat or even a vacation home.

Hopefully, they didn't get ahead of themselves.

Dealmakers at firms including Citigroup Inc and JPMorgan Chase & Co were set to feast on an estimated fee pool of nearly US$400 million for handling the Hong Kong portion of the sale, but were instead left reeling after the listing there and in Shanghai abruptly derailed days before the scheduled trading debut.

Top executives close to the transaction said they were shocked and trying to figure out what lies ahead. And behind the scenes, financial professionals around the world marvelled over the surprise drama between Ant and China's regulators and the chaos it was unleashing inside banks and investment firms.

Some quipped darkly about the payday it's threatening. The silver lining is the about-face is so unprecedented that it's unlikely to mean any broader issues for underwriting stocks.

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"It didn't get delayed because of lack of demand or market issues but rather was put on ice for internal and regulatory concerns," said Lise Buyer, managing partner of the Class V Group, which advises companies on IPOs. "The implications for the domestic IPO market are de minimis."

One senior banker whose firm was on the deal said he was floored to learn of the decision to suspend the IPO when the news broke publicly.

Speaking on condition he not be named, he said he didn't know how long it might take for the mess to be sorted out and that it could take days to gauge the impact on investors' interest.

Meanwhile, institutional investors who planned to buy into Ant described reaching out to their bankers only to receive legalistic responses that demurred on providing any useful information. Some bankers even dodged inquiries on other subjects.

Four banks leading the offering were likely poised to benefit most. Citigroup, JPMorgan, Morgan Stanley and China International Capital Corp (CICC) were sponsors of the Hong Kong IPO, putting them in charge of liaising with the exchange and vouching for the accuracy of offer documents.

Sponsors get top billing in the prospectus and additional fees for their trouble - which they usually collect regardless of a deal's success.

Adding to those fees is the windfall generated by bringing in investor orders.

Ant hasn't publicly disclosed the fees for the Shanghai portion of the proposed IPO. In its Hong Kong listing documents, the company said it would pay banks as much as one per cent of the fundraising amount, which could have been as much as US$19.8 billion if an over-allotment option was exercised.

While that was lower than the average fees tied to Hong Kong IPOs, the deal's magnitude guaranteed that taking Ant public would be a bonanza for banks. Underwriters would also collect a one per cent brokerage fee on the orders they handled.

Credit Suisse Group AG and China's CCB International Holdings Ltd also had major roles on the Hong Kong offering, working to oversee the deal marketing as joint global coordinators alongside Citigroup, JPMorgan, Morgan Stanley and CICC.

Eighteen other banks - including Barclays plc, BNP Paribas SA, Deutsche Bank AG, Goldman Sachs Group Inc and a slew of local firms - had more junior roles on the share sale.

While it's unclear exactly how much underwriters will be paid for now, it's unlikely to be much more than compensation for their expenses until the deal is revived.

"Generally speaking, companies have no obligation to pay the banks unless the transaction is completed and that's just the way it works," said Ms Buyer.

"Are they bummed? Absolutely. But are they going to have trouble keeping dinner on the table? Absolutely not."

For now, bankers will have to focus on salvaging the deal and maintaining investor interest. Demand was no problem the first time around: The dual listing attracted at least US$3 trillion of orders from individual investors. Requests for the retail portion in Shanghai exceeded initial supply by more than 870 times.

"But sentiment is certainly hurt," said Kevin Kwek, an analyst at AllianceBernstein, in a note to clients. "This is a wake-up call for investors who haven't yet priced in the regulatory risks." BLOOMBERG

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