Citigroup May Lose IPO Role; Exclusion From Chinese Bank Deal Would Be Blow
in Region
Kate Linebaugh. Wall Street Journal. (Eastern edition). New York, N.Y.: Jun 3, 2005.
pg. C.16
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Abstract (Document Summary)
Citigroup's bankers may not be out of the game yet. Chief Executive Officer Charles
Prince met with Guo Shuqing, China Construction Bank's chairman, in Beijing a few
weeks ago, the people familiar with the matter said. Citigroup bankers are still in
correspondence with lawyers and accountants working on the deal, these people said,
and are trying to retain the underwriting role even if it doesn't involve investing in China
Construction Bank.
Citigroup "is a very important player in the Chinese financial sector, but so far they
haven't been on the forefront," said May Yan Meizhi, a China banking analyst at Moody's
Investors Service. China is "going to be a huge market, and they can't afford to miss it,"
she said.
Global banks had pulled out all the stops to score the China Construction IPO. J.P.
Morgan Chase & Co. tapped former Secretary of State Henry Kissinger to lobby in
Beijing; Citigroup sent former Treasury Secretary Robert Rubin, who now heads
Citigroup's executive committee.
Full Text (592 words)
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HONG KONG -- CITIGROUP INC. could lose its underwriting role in the multibilliondollar initial public offering of shares in China Construction Bank, a loss that would deal
a blow to the Wall Street firm's China business.
Over the past month, Citigroup bankers have been excluded from meetings on the $5
billion share sale of China's second-largest lender that have included the other
underwriters, Morgan Stanley and China International Capital Corp., people familiar with
the matter said.
The bankers' exclusion comes as talks for Citigroup to buy a stake in the Chinese bank
have stalled, the people said. When the three investment banks were named
underwriters in March 2003, there was an understanding that Citigroup would become a
strategic investor, they said. When that investment seemed to be flagging, its
underwriting role was jeopardized.
Losing the underwriting mandate would cost Citigroup investment- banking fees. But
more importantly, it would lower the bank's profile in China, one of the world's fastestgrowing markets for financial services. British rival HSBC Holdings PLC has invested
billions of dollars in Chinese banks and insurance companies, last year buying a 19.9%
stake in the country's fifth-largest lender, Bank of Communications. Citibank has five full
branches in the country, half as many as HSBC.
Citigroup's bankers may not be out of the game yet. Chief Executive Officer Charles
Prince met with Guo Shuqing, China Construction Bank's chairman, in Beijing a few
weeks ago, the people familiar with the matter said. Citigroup bankers are still in
correspondence with lawyers and accountants working on the deal, these people said,
and are trying to retain the underwriting role even if it doesn't involve investing in China
Construction Bank.
China Construction Bank, which declined to comment on the matter, is continuing talks
with a number of potential strategic investors, including Bank of America Corp. and
Temasek Holdings Pte., the Singapore government's investing arm, according to the
people.
Citigroup spokesman Richard Tesvich in Hong Kong declined to comment.
Foreign banks are positioning themselves in China ahead of 2007, when Beijing has
agreed, under its World Trade Organization commitments, to allow them to compete for
the $1.4 trillion in household deposits in domestic banks. Meanwhile, China's domestic
lenders are scrambling to improve their operations, which have been marred by high
levels of bad loans, frequent corruption scandals and poor internal controls across
branch networks that number in the tens of thousands.
Citigroup "is a very important player in the Chinese financial sector, but so far they
haven't been on the forefront," said May Yan Meizhi, a China banking analyst at Moody's
Investors Service. China is "going to be a huge market, and they can't afford to miss it,"
she said.
A strategic shareholding in China Construction Bank might serve that end, although it
probably would mean a hefty price for a small stake and little management control,
making it a tough sell to shareholders. Citigroup in March was told by the Federal
Reserve to delay any major acquisitions until it tightened internal controls and addressed
a slew of regulatory problems at home and abroad.
Global banks had pulled out all the stops to score the China Construction IPO. J.P.
Morgan Chase & Co. tapped former Secretary of State Henry Kissinger to lobby in
Beijing; Citigroup sent former Treasury Secretary Robert Rubin, who now heads
Citigroup's executive committee.
--Shut Out?
Citigroup risks losing a high-profile China deal. Some of its business
there:
-- Five full branches
-- 4.6% stake in Shanghai Pudong Development Bank
-- Joint bookrunner for two Chinese IPOs worth more than $500 million