The Globe and Mail, Sinclair Stewart, 8 September 2006
Bank of Montreal's slow but steady march into the Chinese financial sector has earned it another high-profile investment banking assignment, this time as a co-manager on China Merchants Bank's impending $2.7-billion (U.S.) initial public offering, according to people familiar with the matter.
With China's financial industry poised to face more foreign competition by the end of the year, its banks are rushing to the public markets with a flurry of huge IPOs, raising tens of billions of dollars from investors who want an easy way to profit from the country's economic growth.
So far, BMO is the only Canadian bank that has played a role in these offerings. It was one of several global advisers that helped lead Bank of China's $11.2-billion IPO in June, and is expected to be angling for an even bigger prize next month: a chance to be part of the highly anticipated IPO for Industrial and Commercial Bank of China, which some industry observers expect could fetch as much as $19-billion, making it the largest stock offering in history.
BMO received a small chunk of the Bank of China issue to sell to Canadian institutional investors, and is expected to do the same with China Merchants through a private placement. The bank's capital markets strategy in China is to court clients in the mining, energy, forest products and financial services industries, and market their shares to a Canadian audience.
"We want to bring Chinese companies to Canada," explained Peter Miller, a managing director in the equity capital markets business at BMO Nesbitt Burns Inc. "We see these deals being large global offerings, especially with the Bank of China as a branded name that Canadian investors will know."
Mr. Miller declined to comment on BMO's potential involvement with the China Merchants Bank offering. But he said the bank has been making a "serious effort" building relationships in China -- so serious, in fact, that he flew there last winter to have a lengthy meeting with Bank of China officials.
For the major U.S. firms like JPMorgan Chase & Co. and Merrill Lynch & Co., which tend to lead these underwriting mandates, the rush of Chinese bank IPOs can be very lucrative. For BMO, which occupies a more junior role, the chance to be part of a syndicate is less about immediate financial gain than it is about building up credibility in the Chinese market.
China Merchants Bank, the country's sixth-largest lender, kicked off a road show for its offering this week, and is expected to begin trading in Hong Kong on Sept. 22. It trades in mainland China on the Shanghai Stock Exchange.
China Construction Bank, which, like Bank of China and ICBC, is one of the dominant state-run banks, kicked off the IPO scramble last fall with a $9.2-billion offering.
Shares of all these companies have performed well since their public debut, and there is no sign demand is ebbing. The persistent doubts about the quality of management at these banks and the health of their loan books has been more than offset by hopes of cashing in on the economic promise of the world's largest country.
"There were billion-dollar-plus orders from Saudi princes, and huge demand coming out of Hong Kong retail," Mr. Miller said of the Bank of China offer.
Though smaller than the Big Four, China Merchants is widely viewed as one of the most efficient banks in the country. It was only formed in 1987, and so it has far fewer problems with non-performing loans -- the byproduct of a banking system that functioned as a lending vehicle for state-run enterprise.
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Bank of Montreal's slow but steady march into the Chinese financial sector has earned it another high-profile investment banking assignment, this time as a co-manager on China Merchants Bank's impending $2.7-billion (U.S.) initial public offering, according to people familiar with the matter.
With China's financial industry poised to face more foreign competition by the end of the year, its banks are rushing to the public markets with a flurry of huge IPOs, raising tens of billions of dollars from investors who want an easy way to profit from the country's economic growth.
So far, BMO is the only Canadian bank that has played a role in these offerings. It was one of several global advisers that helped lead Bank of China's $11.2-billion IPO in June, and is expected to be angling for an even bigger prize next month: a chance to be part of the highly anticipated IPO for Industrial and Commercial Bank of China, which some industry observers expect could fetch as much as $19-billion, making it the largest stock offering in history.
BMO received a small chunk of the Bank of China issue to sell to Canadian institutional investors, and is expected to do the same with China Merchants through a private placement. The bank's capital markets strategy in China is to court clients in the mining, energy, forest products and financial services industries, and market their shares to a Canadian audience.
"We want to bring Chinese companies to Canada," explained Peter Miller, a managing director in the equity capital markets business at BMO Nesbitt Burns Inc. "We see these deals being large global offerings, especially with the Bank of China as a branded name that Canadian investors will know."
Mr. Miller declined to comment on BMO's potential involvement with the China Merchants Bank offering. But he said the bank has been making a "serious effort" building relationships in China -- so serious, in fact, that he flew there last winter to have a lengthy meeting with Bank of China officials.
For the major U.S. firms like JPMorgan Chase & Co. and Merrill Lynch & Co., which tend to lead these underwriting mandates, the rush of Chinese bank IPOs can be very lucrative. For BMO, which occupies a more junior role, the chance to be part of a syndicate is less about immediate financial gain than it is about building up credibility in the Chinese market.
China Merchants Bank, the country's sixth-largest lender, kicked off a road show for its offering this week, and is expected to begin trading in Hong Kong on Sept. 22. It trades in mainland China on the Shanghai Stock Exchange.
China Construction Bank, which, like Bank of China and ICBC, is one of the dominant state-run banks, kicked off the IPO scramble last fall with a $9.2-billion offering.
Shares of all these companies have performed well since their public debut, and there is no sign demand is ebbing. The persistent doubts about the quality of management at these banks and the health of their loan books has been more than offset by hopes of cashing in on the economic promise of the world's largest country.
"There were billion-dollar-plus orders from Saudi princes, and huge demand coming out of Hong Kong retail," Mr. Miller said of the Bank of China offer.
Though smaller than the Big Four, China Merchants is widely viewed as one of the most efficient banks in the country. It was only formed in 1987, and so it has far fewer problems with non-performing loans -- the byproduct of a banking system that functioned as a lending vehicle for state-run enterprise.
