CS Credit Suisse Group

By Jing Yang 

What could be the biggest initial public offering in history is bypassing the U.S. stock market -- but still relies heavily on American banks.

When China's Ant Group Co., the financial-technology behemoth controlled by billionaire Jack Ma, lists in Hong Kong and Shanghai later this year, it will be a major payday for Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley, despite escalating U.S.-China tensions.

Ant could raise as much as $30 billion, according to a person familiar with the matter, which means it could top the record recently set by Saudi Aramco. The Middle Eastern oil major raised a total $29.4 billion on its home stock exchange including a so-called overallotment option.

IPO filings by Ant on Tuesday show the trio of U.S. banks is sponsoring the deal's Hong Kong tranche, alongside state-owned China International Capital Corp.

"You're selling the Ant story to the globe, and the best people to do that are the U.S. banks," said Benjamin Quinlan, chief executive of strategy consulting firm Quinlan & Associates in Hong Kong. "Having a big name bookrunner or underwriter obviously adds a certain level of gravitas to the deal," he said.

In Hong Kong, a sponsor is responsible for the overall management of an IPO. Although sponsors collect comparatively small fees -- a total $2 million in this case -- the role gives banks a head start on a deal and usually leads to more lucrative major underwriting roles.

If Ant floats half of the targeted maximum $30 billion of shares in Hong Kong, it could translate into a $105 million haul for underwriters. That is based on average gross fees of 0.7% of total funds raised for large IPOs in Hong Kong in the past four years, according to Dealogic data. Leading banks typically collect about 70%-75% of total fees in Hong Kong IPOs.

Ant, which operates the popular payment and digital-finance app Alipay, never considered a U.S. listing, according to people familiar with the company. A Hong Kong and Shanghai dual-listing would solidify the company's position as a national champion, just as geopolitical tensions have helped encourage a string of U.S.-listed Chinese technology companies to seek Hong Kong secondary listings. CICC and state-owned China Securities Co. Ltd. are leading the Shanghai tranche of Ant's share sale.

All of the three U.S. banks underwriting the Hong Kong IPO also advised on a $14 billion fundraising in 2018 that elevated Ant to the world's most valuable startup at a $150 billion valuation. Ant is seeking a more-than $200 billion valuation in the IPO, The Wall Street Journal previously reported.

To date international banks have had very little involvement in China's onshore IPO market. However, U.S. banks and others are gearing up to make the most of better market access in mainland China, applying for securities, futures, and sales and trading licenses. JPMorgan, Morgan Stanley and Goldman Sachs Group Inc. have secured approval to control their local securities units. Before that, U.S. and other foreign banks faced regulatory restrictions in underwriting IPOs and doing other kinds of business.

Having worked on a signature deal like Ant will also provide a "nod of approval" as they try to ingratiate themselves with Chinese clients and expand their footprint in mainland China, according to Alexander Owen, senior research manager at consulting firm Coalition.

"Clearly almost all of the American bulge-bracket firms have ambitions to be leading Asian and Chinese investment banking businesses," Mr. Owen said, using an industry term for top investment banks.

The deal could give the biggest league-table boost to Citigroup, which ranks 10th for revenue for equity capital markets deals on Asian exchanges, excluding Japan and mainland China, according to Dealogic data.

Some European banks have become less active in Asian equity capital markets, such as Deutsche Bank. The German bank was a lead underwriter of Alibaba Group Holding Ltd.'s $25 billion New York IPO in 2014 and the lead financial adviser on Ant's 2018 fundraising. It exited its global equities sales-and-trading business last year.

A conspicuous absence from Tuesday's Ant filing is Credit Suisse Group AG. The Swiss bank led Alibaba's listings in New York and Hong Kong, and has styled itself as "the entrepreneur's bank." However, Credit Suisse will act as a joint global coordinator along with a few others, according to people familiar with the matter.

Julie Steinberg and Stella Yifan Xie contributed to this article.

Write to Jing Yang at Jing.Yang@wsj.com

(END) Dow Jones Newswires

August 27, 2020 10:53 ET (14:53 GMT)

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